In a technology-sharing alliance expected to serve as a model for the U.S. semiconductor industry, giant AT&T has agreed to supply Western Digital Corp. of Irvine with at least $50 million a year in state-of-the-art computer chips.
As part of the agreement, announced by the two companies Thursday, Western Digital said it intends to build a new Orange County manufacturing facility to make prototypes of the advanced "digital wafers" to be jointly developed by the companies.
Western Digital, which employs about 1,700 people in Orange County, said the new facility would not result in a significant increase in its local work force because it will be staffed primarily with personnel transferred from other locations.
AT&T, however, intends to revitalize an underutilized production facility in Orlando, Fla., to make large quantities of finished chips for Western Digital.
The agreement is an extension of a three-year production pact announced in January. Western Digital officials said the arrangement is expected to last at least 10 years and could result in annual production valued at several times the initial estimate of $50 million.
Edward L. Marinaro, executive vice president of Western Digital, said the company expects to purchase $50 million in chips this year for use in the circuit boards and other products it sells to computer manufacturers.
Marinaro said about 75% of the chips used by the company are purchased from five suppliers other than AT&T, with the rest manufactured at the company's Costa Mesa wafer plant. Western Digital will continue to make chips in Costa Mesa, but AT&T will become its sole supplier as soon as existing contracts with the other chip makers can be phased out.
Semiconductor industry analysts said the combination of AT&T's "unsurpassed" technology and Western Digital's significant customer demand will have a major impact on each company's role in the computer industry.
The alliance is expected to result in the production of high-quality but inexpensive semiconductor products that will be competitive in international markets.
William J. Warwick, president of AT&T Components & Electronic Systems, said the agreement will allow both companies to expand their markets without making major new investments. AT&T will enhance its position as a computer parts merchant, while Western Digital will have access to AT&T's Florida production facility without paying anything for it.
The AT&T division will make the chips at the Florida plant and at other AT&T facilities located in Allentown, Pa., and Spain. The plants will be operated by AT&T managers and engineers trained in Orange County by Western Digital. The AT&T managers will report to a committee of executives from both companies.
Wall Street responded favorably to the announcement. Western Digital stock closed Thursday at $23.875 cents per share, up 87.5 cents, in trading on the American Stock Exchange. AT&T closed at $31.625, up 12.5 cents, on the New York Stock Exchange.