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October 14, 1998

LSI ANNOUNCES LOSSES; LAYS OFF 1,200 STAFF

By CBR Staff Writer

LSI Logic Corp, the ‘system-on-a-chip’ company, revealed a sharp drop in revenues for its third quarter, forcing it to announce a restructuring program that will see 1,200 employees, or 17% of the workforce, lose their jobs. LSI made a $75m charge in the quarter to cover the costs of what it called a comprehensive restructuring plan. Chief executive Wilfred Corrigan said, The worldwide (semiconductor) industry was expected to grow 15% in 1998, today’s reality is that it will decline by 15%. We are simply adjusting to that reality. LSI also said it would close a wafer fabrication plant in Tsukuba, Japan as well as closing a test facility in Colorado Springs and an assembly plant in Fort Collins. Basically what we’re doing here is reducing overall wafer fab capacity by 30%, Corrigan said. Excluding restructuring charges and adjustments for the recent acquisition of Symbios Inc (acquired from Hyundai for $760m) LSI reported third quarter profits down 52% at $21m while revenues fell by 8% to $301m. Consolidated figures, which include restructuring and acquisition costs together with all revenues from Symbios Inc, showed third quarter net losses of $282.9m down from profits last time of $44.3m on revenues up 19.4% at $390.4m. LSI warned investors in August that its revenues would fall by as much as 10%, but nothing was said about the severity of the impending job cuts announced on Wednesday, or the wide ranging plant closures. LSI said the job losses would extend out of the fabrication areas to encompass its management operations in Colorado, Milpitas and in Bracknell, UK. To reduce costs, production testing will be moved to off-shore subcontractors. Talking about general business conditions, Corrigan said, Three years is the longest slow down I’ve ever seen for the semiconductor industry, but he was confident that growth would come back in the second half of 1999. Asked why, Corrigan said that demand was still strong despite the lack of business from Asia. Our unit volume was up 35% in the first half of the year and I think unit volumes tell you what the real end demand is. Corrigan explained that the semiconductor recession was purely born of over-capacity, and because technology changed every 18 months, substantial capacity was now being taken out of the market simply because it wasn’t being updated. Capacity is being formally killed, but a lot of the capacity is just dying in place, he said. With demand still growing, the second half of 1999 would show results. In the shorter term, LSI said it expected to break even or make a small loss in the fourth quarter with revenues reaching $425m.

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