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TI bails on memory chip plant

Texas Instruments is selling its stake in a Taiwanese memory chip facility to Acer to reduce its exposure in the gyrating memory market.

Texas Instruments (TXN) is selling off its stake in a Taiwanese memory chip facility to Acer as part of an effort to reduce the company's exposure to the wildly gyrating memory chip market.

Acer will continue to operate the facility, which now produces 16-megabit and 64-megabit memory chips, under the name of Acer Semiconductor Manufacturing. Texas Instruments (TI) said it would recover its original investment in the plant, but otherwise declined to disclose the terms of the deal.

TI will continue to buy memory chips from the facility during a transition period of unstated duration, it said. For its part, Acer plans to turn the modern facility into a foundry where a variety of products other than unprofitable memory chips can be made.

The divestiture follows the February collapse of a major joint memory chip venture between Hitachi and TI, which fell apart under the weight of tumbling memory chip prices. TI bought Hitachi's share of Twinstar Semiconductor, which began operations in 1996 to produce 16-megabit DRAM chips in Richardson, Texas. Analysts now expect TI to use that plant as a foundry for more profitable chip products.

A glut in chip supply and the devaluation of Asian currencies, among other factors, have forced prices of 16-megabit and 64-megabit memory chip prices to levels near and even below manufacturing costs. These chips are found in the memory modules used in PCs, portables, workstations, and server computers.

The result is that a number of the world's largest memory chipmakers are either scaling back investment in new plants or are divesting themselves of excess capacity, including TI.

"This gives TI the flexibility to focus on areas more closely related to our [digital signal processor] strategy," according to a TI representative.

TI expected 30 percent revenue growth from its DSP business in 1998, after a 35 percent growth rate in 1997. Overall, DSP sales now account for an estimated 45 percent of TIs revenues.

Memory chips, on the other hand, have represented a drag on the company's profits. The average prices memory chips dropped about 40 percent from the third quarter of 1997 to the fourth quarter, resulting in an increased loss in TI's memory operations, the company reported in January.