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National Semi to lay off 10%

Declining chip sales prompt National Semiconductor to announce 1,400 layoffs, representing 10 percent of its workforce.

Declining orders have prompted National Semiconductor to announce that it will lay off about 1,400 employees in the next 30 days and warn of an impending loss for its current fiscal quarter.

The layoffs, which will affect departments across the company, represent about 10 percent of National's workforce. Weaker-than-expected demand combined with declining PC prices have troubled a number of hardware companies of late. Intel, Compaq Computer, Advanced Micro Devices, and IBM all reported lower-than-expected revenues for the first quarter, and most warned of similar results for the second as well.

National said its problems stem from weakening demand for semiconductors in Asia and from earlier manufacturing difficulties experienced by its Cyrix subsidiary in producing faster versions of its MediaGX chips.

Cyrix's failure to produce adequate numbers of 233-MHz versions of the MediaGX processor caused it to lose a lucrative desktop PC deal with Compaq late last year. PCs that incorporated the MediaGX were some of Compaq's best-selling models in 1997. Cyrix solved the manufacturing problems, the company has said, but it has yet to announce a major design win to replace the Compaq contract.

"Now that the manufacturing problems are over, Cyrix needs to find more customers," National spokesman Alan Bernheimer said, adding that Compaq continues to use a Cyrix processor in one of its laptops. Sales of communication processors used in cellular phones and wireless devices also fell, Bernheimer pointed out.

Despite the those problems, the Richardson, Texas-based subsidiary will be less affected by the workforce reduction than National itself, according to Bernheimer. Most of the cuts will take place in the parent company's headquarters in Santa Clara, California.

In addition, 560 of the layoffs will come from the closure of National's 5- and 6-inch semiconductor wafer manufacturing facilities. Earlier, the company planned to lay off a number of these employees in August 1998. Redundant positions at Cyrix due to last year's merger will likely be eliminated too.

The selective cutting will not impede National's strategy of aggressively pursuing the sub-$1,000 PC segment, Bernheimer said. But because of slack demand, he added, "there is a strong possibility for a loss for the quarter." National's fourth fiscal quarter ends in May.

While the industry's weakness can not be denied, it does not appear to be a calamity, said Dean McCarron, principal analyst at Mercury Research.

"It's not like life is over," he said. "There is a general angst about the PC industry. Some vendors are doing great, but there is some weakness for some vendors."

National's financial picture was clearly affected by the loss of the Compaq desktop contract, but Cyrix has not lost other vendors since then.

The layoffs come amid ambitious product plans at National to occupy more of the cheap computing space. Last month, the company promised to develop compete "system on a chip" processors for the sub-$500 computer market and said that it would begin to appear in TV set-top boxes next year.