With the deal it cut Friday,
added some Hamburger Helper to its capital expenditure budget.
The chipmaker took a lower-budget foray into the newest insemiconductor equipment, making an alliance with top European chipmaker
to pump $1.4 billion into a European manufacturing facility over the next four years. PC chip underdog
Advanced Micro Devices
negotiated a similar deal in January to create a chip fab with Taiwanese foundry operator
At a time when chip revenues don't justify heavy spending on the latest equipment, chipmakers are getting creative to keep up with big-budget outfits like
. But the success of the ventureswill rely on their ability to coexist harmoniously with their partners,never a sure thing in high-tech, and to share and share alike once chip-fab capacity becomes scarce again and companies need to be pumping outas many chips as they can.
Motorola has openly discussed selling off its chip business becauseof recent dismal returns. The segment continues to have hard luck,losing $2.1 billion in 2001 on $4.9 billion in revenue. (The companywrote down $934 million on special items during the year on its chipsegment, in classic Motorola accounting style.)
To save its skin, thegroup is now operating under what it dubs an "asset light" businessstrategy, meaning the company can't afford to pour money down achip-equipment hole in the hopes Motorola will regain its edge. Instead, the company is selling off its manufacturing facilities, keeping onlythe prime locales and, as of Friday, trying to finagle its way into new,high-end capacity.
"The companies that are engaging in these partnerships are at themost risk. Motorola has clearly signaled that it wants to exit theindustry as a big supplier," says Kevin Vassily of Thomas WeiselPartners. Vassily says that most companies will avoid such an agreementand instead turn to an exclusive outsourcing deal with a foundry thatcan build its chips for less when it comes time to cut costs. "Idon't expect the Intels,
to headdown this path."
A company like Intel may have cut its capital-equipment spendingbudget from $7.3 billion to $5.5 billion, but that is still double thenearest competitor's -- Samsung -- 2002 budget. Intel says it will devotea large chunk of its investment in 2002 and beyond to new 300millimeter technology, affording it a technical advantage against itsless well-off rivals. AMD responded by undertaking a 300mm fab of itsown with technology partner, Taiwanese foundry UMC. AMD and UMC planto split the fab's output -- so while AMD lowered its financial risk,it will have to share capacity.
Motorola's move Friday is analogous,pairing the pauper with Philips and with STMicro, which has its own tightened belt with a budget squeezed from $3.3 billion in 2000 to $1.3 billion in 2002. Foundry giant
willcontribute technology to the Motorola project. Philips and STMicro have already been working on the Frenchfacility, which will use 300 millimeter technology as well as smallerand smaller nanometer circuit sizes, from 90 nm to 32 nm. Motorola'salliance will help it to afford the ever-shrinking component size of itshealthier rivals.
Vassily stresses that while sharing a financial burden seemsprudent, the partnerships will become contentious during the swings ofthe chip cycle. "There are issues as to who has access to capacity atwhat point. In an upcycle, leading edge capacity will be in highdemand, but in a downcycle maybe nobody wants it. That problemdoesn't get solved here," he says.
Of course, one facility also doesn't solve Motorola's overallchip problem. As investors begin to wonder if Motorola's mobile-phonedivision can push it to better first-quarter results than its depressedforecast, the chip segment looks to be the spoiler. Robertson Stephensanalyst Michael Grant advised clients to remember that chips turned in15% of Motorola's fourth-quarter profits, but hogged 69% ofcorporate losses. The company's mobile-phone business provides a goodinternal customer for chips, but other key Motorola chip customershaven't been so fortunate.
So while Motorola has solved a technology problem by getting itshands on new chip equipment, the move resolves little about its chipunit's future health.