Tuesday, June 30, 1998

Rockwell cutting 3,800 jobs; spinning off Semiconductor Systems, taking $625 million charge

By MICHAEL WHITE AP Business Writer

LOS ANGELES (AP) - Rockwell International Corp. will spin off its semiconductor business to shareholders and cut 3,800 jobs in a major restructuring of the automation and avionics businesses that will remain after the split.

The reorganization announced Monday will include a $625 million charge, including about $200 million in cash to cover severance pay and other costs related to job elimination.

"We must slim down to stay competitive in a very competitive world," said chairman Don H. Davis.

In a letter to shareholders, he said the transaction was being taken to improve the consistency of its earnings and reposition itself for future global growth.

The changes result from several factors, including the Asian financial crisis and falling prices for personal computer modems, Davis said in an interview.

"The dynamics of that (semiconductor) business are very different than the other two businesses that are ongoing at Rockwell. It has greater volatility to it. It has greater requirements for investments. It has great upside potential as well," he said.

"We thought that it would serve our shareholders, our people, our customers, to spin it off as a separately traded, stand-alone business."

Semiconductor Systems, with $1.3 billion in sales expected this year, employs about 7,000 people. Its president, Dwight W. Decker, will become president of the new company, based in Newport Beach, Calif.

About 2,500 employees are in Newport Beach, with the rest spread out in San Diego; El Paso, Texas; Colorado Springs, Colo., and Mexicali, Mexico.

The transaction was expected to be completed at the end of the year. Shareholders will receive shares in the new company on a pro rata basis.

The company will seek to expand both businesses through acquisitions, Davis said. He declined to discuss any specific deals the company might be considering.

Increased competition and generally stagnant prices have put pressure on companies to reduce costs, said Anthony Ginsberg, an analyst with Fourteen Research in New York.

"No one's getting price increases these days on anything. I think that's the key thing," he said. "If you're going to compete, and your volume isn't growing, then you've got to cut cost."

Job cuts will focus primarily on the industrial automation division, where 3,000 positions will be eliminated. An additional 720 will be cut from the avionics business, Rockwell Collins, based in Cedar Rapids, Iowa. Another 80 jobs will be pared from the company's Costa Mesa, Calif., headquarters.

Rockwell also said in a third-quarter earnings advisory that it expects sales for continuing operations, excluding Semiconductor Systems, will be about $1.7 billion, up approximately 5 percent over last year's third quarter.

Earnings, however, were expected to be 45 cents per share, approximately 20 percent below 1997's third-quarter results of 56 cents.

A drop in business in Asia and stagnant sales in the United States have been offset by increased demand in Europe, Davis said.

Rockwell is an electronic controls and communications company. It has projected fiscal 1998 sales of approximately $7 billion and 38,000 employees.

Rockwell's industrial automation business, with headquarters in Milwaukee, employs about 27,000 people and generated $4.5 billion in fiscal 1997, or about 60 percent of Rockwell's total revenue. About 6,000 people work for Rockwell in the greater Milwaukee area.