STMicro to Close Three Chip Plants

It will take a charge of up to $300 million.
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STMicroelectronics

(STM) - Get Report

will shut down three of its chip manufacturing facilities in a bid to cut costs.

The closures, which STMicro said will occur over the next two to three years, will save the company $150 million a year in its cost of goods sold, helping to bring gross profit margin closer to some of its competitors.

"Growing revenue is important, but we're also committed to improving our cost structure by reducing the number of our manufacturing sites and, as a result, trimming excess capacity and lowering manufacturing overhead," said CEO Carlo Bozotti in a statement.

Shares of STMicro were up 11 cents at $19.61 in extended trading.

The company currently has 15 manufacturing facilities around the world. Tuesday's announcement will shutter STMicro's two U.S. facilities -- in Texas and Arizona -- which it says use older 150mm and 200mm equipment and would be too expensive to upgrade.

STMicro is also winding down a chip assembly and test plant in Ain Sebaa, Morocco, transferring most of its operations to a separate Moroccan facility in Bouskoura.

Some 4,000 employees will be affected by the move. STMicro said it would offer transfers or "transition-based incentives" to most of those involved. The company expects to incur between $270 million and $300 million in pretax impairment and restructuring charges.

STMicro's decision to wind down the three chip factories follows its

quasi-spinoff of its flash memory operations in May, by forming a joint venture with

Intel

(INTC) - Get Report

.

STMicro had sales of $9.8 billion in 2006, making it the world's fourth-largest chipmaker. But the company's 35.8% gross margin lagged many of its competitors, like

Texas Instruments

(TXN) - Get Report

, which posted a 50.9% gross margin.

Like many chipmakers, STMicro has sought to rely more on third-party contract chip manufacturers in recent years, lessening the heavy capital investments necessary to maintain state-of-the-art fabs.