The chips are definitely down in the semiconductor industry, which includes South Portland’s National Semiconductor and Fairchild Semiconductor plants. If you own a cell phone, iPod or other handheld gadget, they likely have chips from these plants.
The city’s No. 2 and No. 3 taxpayers, respectively, are located on Western Avenue and share a parking lot, a gym — and a history.
“They are true examples of successful global operations in Maine and have what I call a healthy ‘co-opetition,’” said Joseph Kumiszcza, executive director of the Technology Association of Maine.
The companies’ competitive synergy is a bonus in the current economic climate because the recent sharp dip in chip demand worldwide is very different from the usual cyclical downturn in chip production.
“This was much more severe than the Y2K bubble bust in 2000. We went from being very busy last August to being a lot slower very fast,” said Doug Wilson, vice president of operations at Fairchild in South Portland, the company’s headquarters.
“This economic downturn is global and is happening to everyone. It has impacted us greatly,” said LuAnn Jenkins, a spokeswoman for National Semiconductor, which has its headquarters in Santa Clara, Calif.
Those statements are borne out by both companies’ most recent earnings statements. On April 16, Fairchild announced its first-quarter 2009 results. It reported sales of $223.3 million, down 30 percent from the previous quarter and 45 percent from the first quarter of 2008.
On March 11, National Semiconductor released its third-quarter fiscal year 2009 results. It reported sales of $292 million, down 31 percent from the second quarter of fiscal 2009 and 36 percent from the third quarter of fiscal 2008.
Both companies have tightened their belts and downsized. In December 2008, Fairchild, with a worldwide total of 8,300 employees, including 750 in Maine, announced plans to cut 1,100 jobs, or about 12 percent of its global work force. In addition to South Portland, it has plants in San Jose, Calif.; West Jordan, Utah; Mountaintop, Pa.; Bucheon, South Korea; Singapore; Malaysia; Suzhou, China; and Cebu, Philippines.
In January, Fairchild said that up to 70 of its employees in South Portland would be laid off or take early retirement. Then on March 27, it announced that it was closing the plants in Pennsylvania and South Korea as part of its cost-reduction strategy.
Mark Thompson, Fairchild’s president and CEO, said, “We believe our quick actions in this business cycle to reduce costs and inventories will drive higher cash flow and profits while positioning us well to capitalize on future improvements in end market demand.”
National, which until March employed about 6,500 people worldwide, announced plans to eliminate 26 percent of its work force by cutting 850 positions worldwide and eliminating an additional 875 jobs over several quarters. It will close its assembly and test plant in Suzhou, China, and its wafer fabrication plant in Arlington, Texas. Work from the Arlington plant will shift to South Portland, Jenkins said, noting that National will focus its R&D investments on “growing markets that can benefit from our new energy efficiency initiatives.”
National eliminated about 40 positions at its South Portland plant in March, Jenkins said. In addition, the plant, which now employs 475, shut down from April 10 to 26, with some workers undergoing paid training during the first week.
Both companies have been around since the late 1950s. National was founded in Danbury, Conn., and Fairchild was founded as Fairchild Camera and Instrument Corp. in Silicon Valley. In 1968, when Fairchild’s co-founders left to found Intel, Fairchild was sold to a succession of companies, including National Semiconductor in 1987. National later spun off Fairchild, and Fairchild became a separate company again in 1997.
Fairchild and National are both trying to position themselves to benefit when the economy rebounds.
In a late 2008 survey, senior semiconductor executives ranked consumer products, computing and wireless handsets as the top three application markets driving semiconductor revenue now and for the next three years. They also found very high customer interest in environmentally friendly semiconductor products.
National and Fairchild are already known for promoting products that enable systems to consume less power, extend battery life and generate less heat, and they have won many national and international awards in that area. For instance, their chips enable variable-speed drives for motors, making them much more efficient.
“The economy is not going to be like this forever, and when it bounces back, we’ll be ready with our energy-efficient integrated circuits and chips,” Jenkins said.
In addition, National launched its Solar Magic solar-power optimization technology last June and in March acquired Act Solar, which specializes in power optimization of solar-cell arrays.
Still, some hurdles remain.
Patti Olson, a senior Fairchild manager in corporate communications, said the high cost of energy in Maine is a problem.
“In Maine, Fairchild pays more than double the cost of electricity compared to a similar site in Utah,” she said.
“When you add in fuel costs, energy costs can be a serious issue,” she added, pointing out that last summer, when oil prices shot up, Fairchild’s total energy bill went from 10 percent of total costs to 20 percent. “High energy costs directly affect our bottom line and could potentially impact the longevity of manufacturing for Fairchild in Maine,” she said.
Officials in Maine recognize the big role that both companies play.
“The importance of National and Fairchild Semiconductor can’t be understated to the economy of southern Maine. They’re a huge economic engine and provide their skilled workers with well-paying jobs, so the spin-off is just enormous,” said Elizabeth Sawyer, South Portland’s assessor.
“Fairchild and National have great management, a work force with a proven strong work ethic, and [they] remain flexible to adapt to what the market demands,” Kumiszcza stated. “They both have the potential to hit a home run with green energy because they’re always looking ahead.”