The plan is expected to provide Philips Semiconductor with annual savings of about 250 million euros (about $270 million) and help return the division to profitability in the fourth quarter of 2003. The closure of the San Antonio fab, a facility inherited by Philips with the acquisition of VLSI Technology Inc., together with the previsously announced closure of an Albuquerque, New Mexico fab, is expected to strip out approximately 20% of Philips' CMOS manufacturing capacity.

The recovery plan includes five elements: technical focus, capacity cuts, business simplification, supply chain management, and winning sales, the company said.

Philips said it wants the semiconductor division to focus on cores for consumer applications and get out of non-profitable non-essential businesses. This is expected to deliver annual savings of 200 million euros (about $220 million) and lead to a quarterly R&D spending rate of 240 million euros (about $260 million) by the fourth quarter of 2003 excluding the Mobile Display Systems business.

More aggressive supply chain management is expected to deliver another 50 million euros (about $55 million) of savings.

In addition, under the business simplification heading, Philips Semiconductors plans to consolidate a number of smaller non-manufacturing related sites and associated businesses, mainly in Europe and the USA, the company said.

"With attention to swift and exact execution, we expect that these actions will see Philips Semiconductors again making a positive contribution to the Philips Group in the fourth quarter of this year," said Scott McGregor, chief executive officer of Philips Semiconductors, in a statement.

"With the ongoing softness in the industry, we still face a tough couple of quarters before our efforts will truly show through. As we said at the presentation of our 2002 results, we are prepared to take the tough decisions to not only put things back on track, but more importantly, create a healthy and sustainable profitable business for the future. We know that parts of the plan will be painful to the organization, and our San Antonio employees in particular, and we will do everything we can to work together with all involved, to minimize the impact," McGregor said.

Most of the San Antonio product lines are already dual-sourced, and others will be relocated to other Philips facilities, minimizing the impact on existing customers, the company said.