The move took few by surprise, given that DRAM prices and profitability have been dropping since the last quarter of 1995. Motorola, moreover, was never a significant player in the market.
Rather than struggle through tough pricing, the company will shift its DRAM resources to producing fast static random access memory (FSRAM), electrically erasable programmable read-only memory (EEPROM), and logic chips.
The move comes against a backdrop of plummeting prices in the DRAM market. Both Japanese and Korean memory chip manufacturers have been struggling to maintain profitability in the face of downward spiraling prices. (See related story)
The company will take a $170 million charge against pretax earnings in the second quarter, which just ended, to cover the transition. Earnings for the quarter are expected to come in around $594 million, or 57 cents a share, according to First Call.
This represents a 5.6 percent increase. Motorola will announce earnings and revenue on July 8.
"Motorola was making DRAMs to round out their product portfolio. They had no proprietary technology and little investment," said Jim Handy, an analyst with Dataquest. "They don't need DRAM to succeed."
The transition will not take place overnight. Motorola's DRAM production comes out of two joint ventures with, respectively, Toshiba and Siemens. Motorola will phase out their own DRAM production at the plant co-owned with Toshiba in Sendai, Japan, by the end of the year and convert the resulting plant capacity to make logic products next year. Toshiba will continue to make DRAM chips at the plant.
By contrast, the Motorola-Siemens joint venture based in the White Oak Semiconductor facility in Richmond, Virginia, will actually only start to make DRAMs by mid-1998, said Ken Phillips, a spokesperson for Motorola. The plant is under construction, he said, and will manufacture DRAM chips to ramp up production. DRAM production will continue until early 2000, when manufacturing of fast memory chips will take over.
Brian Matas, a market research analyst at Integrated Circuit Engineering, added that further product streamlining is likely from the Schaumburg, Illinois-based Motorola, a process that could even affect the company's commitment to the PowerPC multiprocessor.
"They might get out of some older [chip lines]. "They will probably place more emphasis on microcontrollers, FSRAM, the digital signal processor business, and [other specialized chips]," he said.
The company suffered an 18 percent decline in earnings and a 5 percent drop in sales in the first quarter of this year as compared to the same quarter the year before. Sales for the semiconductor group were down 16 percent.