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Motorola signs key chipmaking deal

Motorola announces that it has formed a manufacturing alliance with Taiwan Semiconductor Manufacturing Company, signaling a major strategic shift.

Motorola has inked a deal with one of the largest chipmakers in the world, signaling a major strategic shift by the company to consign chip production to outside producers. This comes in the wake of plant closings last year in the U.S.

Motorola announced today that it has formed a manufacturing alliance with Taiwan Semiconductor Manufacturing Company (TSMC), a soup-to-nuts chip manufacturing giant.

The alliance is designed to "add capacity and provide for a more agile response to market fluctuations," according to a Motorola statement.

Motorola, in the fall of last year, suspended construction of a $3 billion chip plant in Virginia, and said at that time that it would continue to evaluate its semiconductor business for other ways to save costs.

Schaumburg, Illinois-based Motorola has semiconductor facilities in Austin, Texas, and Phoenix as well as in Asia and Europe. By the fall of last year, the company had already closed chip facilities in California, North Carolina, and Arizona, and consolidated operations in the Philippines.

Under the new agreement with TSMC, the Taiwanese company will act as a foundry. In essence, this means that Motorola does not have to construct its own facilities to build certain chips but can sub-contract them to TSMC.

"For Motorola, the partnership represents an important step toward fulfilling its strategic plan of outsourcing a significant portion of its manufacturing operations. Motorola plans to manufacture about 35 percent of its semiconductor products through foundries by the year 2002," the company said in a statement.

Including joint venture sources, the amount will increase to 50 percent, Motorola said. TSMC "will build products across a wide portfolio."

"This agreement adds technology to our portfolio, without additional R&D expense," said Bill Walker, senior vice president and director of order fulfillment for Motorola's Semiconductor in a statement.

The chip products to be manufactured at TSMC will be based on the Motorola 0.25-micron and 0.35-micron CMOS manufacturing process technologies which are widely used for production of microcontroller devices. Microcontrollers, a Motorola strength, are used in everything from cell phones to automobiles.

The agreement also gives Motorola access to TSMC-developed manufacturing technology, Motorola added.

Financial terms of the agreement were not announced by the two companies.