Microchip to buy Fujitsu fab for $183.5 million

By Mark A. DeSorbo

GRESHAM, OR-Microchip Technology Inc.(Chandler, AZ) has signed an agreement to buy a chip fab here from Fujitsu Microelectronics Inc. for $183.5 million cash, a purchase, the buyers say, will substantially enhance Microchip's global manufacturing capacity and help accommodate projected demand for its microcontrollers and other products.

Deemed by Microchip as “Fab 4,” the facility is situated on a 196-acre campus just east of Portland. The 826,500-square-foot facility, which includes approximately 200,000 square feet of cleanroom space, is designed to produce process technologies down to 0.13 micron and support more than $1 billion in annual sales at full capacity.

Last November, Fujitsu announced that it would close the Gresham plant and liquidate its assets due to the continuing slump in the worldwide semiconductor market. At the same time, Fujitsu also expressed its intent to consolidate production of flash memory at Fujitsu-AMD Semiconductor Limited (FASL), its joint-venture manufacturing facility in Aizu-Wakamatsu, Japan.

Fujitsu Microelectronics Inc. closed its Gresham facility last year to liquidate the assets and consolidate operations in Japan due to the suffering chip industry. Microchip Technology Inc. (Chandler, AZ) recently agreed to buy the facility and all the tooling in it for $183.5 million.
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“Because of the economic conditions, we wanted to consolidate operations with our joint venture in Japan, so it just didn't make sense to keep the Gresham facility,” says Emi Igarashi, director of corporate communications.

The purchase, however, made sense for Microchip and included approximately 350 process tools and 170 support tools, which Microchip says reduce the time required to commence production. Microchip plans to initially produce 8-inch wafers on its 0.5-micron and 0.35-micron platforms at the Gresham facility, which will also house manufacturing operations, offices, meeting rooms and support functions. Microchip currently expects volume production to begin by July 2003.

“At first, we were looking at the facility just for the equipment,” says Gordon Parnell, Microchip's chief financial operator. “These cleanrooms have the capability to go down to .13 microns. Then the idea of purchasing the whole facility presented an exceptional value.”

Microchip, Parnell says, will maintain its Fab 3 in Puyallup, WA until future production is required. The microperipheral and interface device maker, however, will relocate the process equipment from Fab 3 to its wafer fabrication facilities in Tempe and Chandler, AZ, to further enhance its short-term manufacturing capacity and reduce its otherwise planned capital expenditures.

Following the closing of the Gresham facility acquisition, Microchip will relocate certain pieces of equipment from Fab 3 to Fab 4 to create a closer equipment match to its Tempe wafer fabrication facility, facilitating a quicker process start at Fab 4.

“As we expect demand for our semiconductor devices to continue to increase going forward, Microchip is responding quickly to secure additional manufacturing capacity. Without Fab 4, we believe we would have had sufficient manufacturing capacity through the end of September 2003, at our current rate of growth,” says Steve Sanghi, Microchip's CEO and president.

Beyond that, Sanghi says Microchip would need to add substantial new advance manufacturing equipment at 0.5- and 0.35-micron process technologies in its Tempe facility and at Fab 3 in Puyallup.

“This acquisition will provide us with cost-effective additional manufacturing capacity in a much shorter time frame and on more favorable terms than either the expansion of our Tempe fab or the start up of Fab 3 in Puyallup,” he says.

Parnell adds that Microchip remains poised in maintaining vigilance in the industry, saying the company is always looking to grow through acquisitions-despite a slow-to-recover semiconductor industry.

“I think there are different experiences for different players,” he says. “We feel good about our businesses. There are certainly industries that are stressed, but overall, we have a diversified business. And that has been very helpful during this time.”

Sanghi and Parnell say the acquisition will also accelerate Microchip's technology roadmap. Because of the availability of sufficient advance manufacturing equipment, they say Microchip will be adding a 0.25-micron advance technology development program in Fab 4 and will relocate certain personnel from its facility in Tempe.

Initial hiring is expected to reach approximately 60 people during pre-production phases. Over time, Microchip believes it could employ approximately 360 people as the facility reaches high volume manufacturing capacity over the next five to six years.

“These actions will preserve Microchip's captive and cost-effective manufacturing strategy to process technologies to 0.25 microns and below,” Sanghi says.

The acquisition is subject to several closing conditions, including the qualification of the facility under Oregon's Strategic Investment Program that caps the property taxes similar to the programs currently granted to Intel Corporation and LSI Logic. The transaction is subject to results of Microchip's due diligence and other closing conditions.


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