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Intel to shut plants temporarily

The chipmaker will close two of its plants for nine days as it starts a "voluntary separation" program to reduce its workforce.

Intel will temporarily close two of its chipmaking plants for nine days beginning this weekend as it starts a "voluntary separation" program to reduce its workforce, CNET NEWS.COM has learned.

The temporary plant closures--which affect 1,700 workers--and the job reduction plan are aimed at cutting costs in a slower-than-expected PC market. Closing the factories will help reduce chip supplies, while the employee severance program will reduce the overall head count.

"Basically, we are responding to market conditions," said Bill MacKenzie, a public information officer at Intel, in confirming the moves. The company makes processors for the vast majority of the world's personal computers.

Plant closures are unusual at Intel and rarely discussed outside the company. The chip giant said earlier this year that it would lower head count by 3,000, but the new developments seem to indicate a growing aggressiveness in cutting costs.

"It's an indication of oversupply or inventory. It can be a [red] flag of an industry downturn, but it has to be followed by other evidence," said Dean McCarron, principal analyst at Mercury Research. A warmdown is not always a sign of impending crisis, but then again, "it's not good news," he added.

Warmdowns are a standard technique among semiconductor manufacturers to reduce supply, according to McCarron.

Intel instituted a warmdown to equalize supply about three years ago, the analyst recalled. Plant closures for maintenance purposes, McCarron noted, occur on a regular basis.

The reduction in Intel's 65,000-person workforce originally was to be accomplished mostly through attrition, not through organized layoffs. But the company is now offering severance packages to meet its goals, CNET NEWS.COM has learned from sources close to the company.

Some analysts have said that Intel will have to shed even more staff to get its finances fully back on track. (Intel is an investor in CNET: The Computer Network.)

The chipmaker will temporarily shut plants 5 and 15 at the company's Aloha manufacturing facility in Oregon from July 4 through July 12, according to MacKenzie. About 1,700 manufacturing employees will be sent home without pay during this period.

While warm-down plant suspensions are not unheard of, they also aren't frequent. Intel stumbles Several memory chip manufacturers have enforced temporary shutdowns worldwide this year to reduce oversupply. Intel's MacKenzie said warmdowns at the company are "not unknown but not common."

In addition, he could not recall Intel imposing a warmdown in Oregon in the past year. The state is one of the chipmaker's largest centers of operation.

Mark Giudici, director of the semiconductor supply and pricing service at Dataquest, said the shutdown seemed unusual. "In the past, it's always been the memory folks that have done the cutbacks," he added.

The two affected Intel factories are used to make chipsets, microprocessors, and other products, MacKenzie added, but they are not cutting-edge facilities. Both produce silicon based around the older 0.35-micron process technology, though plant 15 is being refitted to handle the 0.25-micron process.

The voluntary employment severance will begin next week. Under the program, Intel will offer payments to manufacturing workers for leaving the company. Sources close to the situation have said that Intel is considering payments equivalent to four months of regular salary, with additional amounts depending on years of service and job title.

These terms would be similar to those offered to some 650 employees Intel will lay off from a Dupont, Washington, facility beginning next month.

The positions eliminated through the separation program are part of the effort to reduce head count by 3,000, but MacKenzie said the total number of positions affected could potentially exceed that figure.