Rockwell to spin off semiconductor unit Push for earnings also will result in 3,800 firings; Automation


COSTA MESA, Calif. -- Rockwell International Corp. said yesterday that it will spin off the money-losing semiconductor division on which it pinned its future months ago and fire 3,800 in its remaining businesses as the once high-flier struggles to find a strategy to boost earnings.

The cuts are mainly in the automation business, which makes equipment used in factories, and the avionics division, which turns out parts for airplane cockpits. The firings amount to about 7.9 percent of the 48,000 workers at the world's biggest producer of chips used in computer modems.

The former maker of the B-1 bomber and space shuttle bet on the semiconductor division and quit the aerospace and automotive businesses. The bet didn't pay off. Profits dropped in three of the past four quarters, hurt by slumping sales and falling prices for chips used in computer modems, and by a prolonged battle with 3Com Corp. over a modem standard.

"They saw it [chips] as a growth engine, but the competitive landscape has changed," said Jeffrey Sprague, an analyst at Salomon Smith Barney Inc.

Rockwell shares rose 56 cents, to $49, tapering off from a rise to as high as $52 when the restructuring was unveiled yesterday morning. The stock is down about 20 percent from February 1997.

The company warned that profit from the fiscal third quarter from its continuing businesses, which exclude the chip operations and the charge, will be about 45 cents a share, about 20 percent less than in the third quarter of 1997. The quarter ends today.

Details about the spinoff won't be available for several months, said Rockwell spokesman Terry Francisco.

Rockwell was a household name and the No. 2 military supplier in 1985, when it built the B-1. Its aerospace and defense businesses accounted for more than 60 percent of revenue during most of the 1980s.

Wary of a slowdown in defense spending, Rockwell has attempted a transformation during the past two years. It sold its aerospace business to Boeing Co. for $3.2 billion in August 1996 and spun off its auto-parts business late last year.

Today, the aerospace business is doing well for Boeing, helping the world's top airplane maker win a recent national missile defense contract.

Rockwell's chip operations haven't been as successful. The company forecast a loss in the division for the 1998 fiscal year, which will end in September.

"They're not doing as well without their [aerospace] cash cow," said Paul Nisbet, a defense analyst at JSA Research Inc.

The focus on chips was orchestrated by Donald Beall, who retired as chairman about a year ago after two decades leading the company.

Beall unveiled the plan with fanfare, showing off a "new %o Rockwell" that would compete with the likes of Motorola Inc. as a fast-growing electronics company. The move was designed to shed the image of a slow-growth defense contractor and narrow the company's focus to markets where it already was a leader and on areas where it forecast strong growth.

That meant making modem chip sets and other electronics, while retaining its factory-automation unit.

A drop in prices for computer components and the Asian financial crisis helped scuttle the plan, while a lingering battle with 3Com over a standard for computer modems cut into sales. 3Com and Rockwell blamed slowing modem sales for lower-than-expected earnings in recent quarters, even as a standards agreement was reached in February.

The chip business, known as Rockwell Semiconductor Systems, employs 7,000 and is expected to have sales of $1.3 billion in fiscal 1998. The company expects it to be profitable next year.

"The long-term prospects of this [the chip] business are good," said Don Davis, chairman and chief executive. He said the company will take an additional charge before the spinoff but declined to be more specific.

Rockwell's automation business is being hurt by a slowdown in the building of plants and factories. The company said the Asian economic crisis is hurting that business.

The restructuring, which will be completed by the end of next year, is expected to generate about $100 million of pretax savings, or 33 cents a share, in fiscal 1999.

Rockwell expects the moves to save $200 million a year by 2001, before taxes.

Pub Date: 6/30/98

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