Because of the drastic downturn in its semiconductor capital equipment business in the first half of the year, Eaton said it is no longer confident the company's 1998 earnings would exceed 1997's record results.
Based on orders and activity levels, Eaton ETN said 1998 sales of semiconductor equipment were expected to be about $330 million -- 27 percent below 1997 results. Eaton Semiconductor Equipment Operations is expected to have an operating loss of about $40 million to $45 million this year, compared with operating profits of $30 million in 1997, according to the Cleveland-based parent.
"When Eaton released its record 1997 financial results, we stated that, unless the renewed weakness in the semiconductor equipment industry proved far more severe than we or other industry participants expected, Eaton could look forward to another record year in 1998," said Stephen R. Hardis, Eaton's chairman and CEO.
"Unfortunately, the industry downturn has been much deeper and more prolonged than anticipated," he added. "Today, industry orders are fully one third lower than six months ago -- equal to the lowest levels in the past half decade, with no sign of an imminent upturn in sight," he added.
To address the situation, Eaton Semiconductor Equipment Operations, in Beverly, Mass., announced it was eliminating an additional 200 jobs from its workforce. Total headcount this year is now down by about 600, or 24 percent, from the end of last year, with expected annualized savings of about $60 million, according to Eaton.
"We have also reduced 1998 capital spending by nearly 50 percent from planned levels and are reviewing all product programs with respect to timing and criticality," Hardis said.
Despite the difficulties in semiconductor equipment, Eaton said it expected overall results for 1998 to be among the best in the company's history. Hardis emphasized the performance and outlook for the remainder of Eaton's businesses remains intact.
"We want to be clear that the robust performance of Eaton's other operations should not be obscured by the difficulties in one," Hardis said. "However, at this point, we are no longer comfortable that the consolidated performance of these businesses can overcome the combined impact on 1998 earnings of the severe downturn in semiconductor equipment and the $1.3 billion of strategic divestitures we've made over the past year."