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Irvine Plant to Be Sold for $115 Million : Computers: Rockwell International will acquire silicon wafer factory that is too big for the needs of Western Digital, which lost $25 million last year.

August 10, 1993|MICHAEL FLAGG | TIMES STAFF WRITER

Western Digital Corp. agreed Monday to sell its silicon wafer factory in Irvine to Rockwell International Corp. for $115 million.

Seal Beach-based Rockwell agreed to supply wafers--which are used to make computer chips--to Western Digital for at least three years. Western Digital will continue to cut wafers into chips at a Malaysian plant and sell them to its own customers.

The business has not been profitable because the 224,000-square-foot Irvine plant is too big for Western Digital's needs. "And since we were under-utilizing it," a spokesman said, "it was an expensive piece of overhead."

The company's other business--making disk drives for computers--also lost money last year when it had to cut prices in a war with competitors.

Western Digital lost $25 million in 1992 on sales of $1.2 billion, a performance even worse than some stock analysts had expected.

The disk drive business, which accounts for 85% of sales, has been so bad that Western Digital has had to renegotiate its loans with bankers.

By selling the wafer plant and using the $115 million to pay down the bulk of its $137-million debt, Western Digital should emerge with a stronger balance sheet.

For the first time in its 23-year history, Western Digital is joining the ranks of chip makers that do not have their own wafer plants.

"To play in that game, you need a lot of resources, because the technology is always changing on you," said Ian Gilson, a stock analyst with the Irvine investment banking firm L.H. Friend, Weinress & Frankson.

In light of Western Digital's big debt, Gilson said, the sale of the plant makes sense. It's also a good move for Rockwell, he said, because the demand for chips--and hence for wafer factories--is strong these days.

Rockwell will double the plant's production over the next few years, said Lanny Ross, president of the firm's telecommunications business. It plans to use the extra wafers to make the chips that go into the electronic innards that Rockwell supplies to makers of fax machines and computer modems.

Rockwell said it will try to retain the 400 people who make wafers at the plant and may add another 200 or so over the next few years. Western Digital will try to keep another 140 workers at the plant who will remain its employees.

The state-of-the-art Irvine plant, which replaced a plant in Costa Mesa, is only 2 years old. Rockwell already has a bigger chip plant near its telecommunications unit's headquarters in Newport Beach.

The unit has been supplying parts to makers of fax machines for 20 years and calls itself the world's leading supplier. Rockwell is trying to expand the unit along with other non-military businesses as defense spending declines.

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