Rockwell Chief Expects Chip Division to Prosper

Rockwell International Corp. Chief Executive Don H. Davis said Friday he expects the company’s struggling semiconductor division--which will be spun off into a separate firm in the coming weeks--to return to profitability by the end of next year.

The semiconductor market doesn’t fit with Rockwell’s plans because “it’s much more of a volatile industry than we’re in,” said Davis, 58, speaking in detail for the first time since the company announced its massive restructuring plan in June.

Earlier this week, Rockwell filed documents with federal regulators that outlined the Newport Beach-based chip maker’s financial troubles, taking the first official step toward spinning off the unit. Rockwell International has not specified how many shares of stock it plans to issue to existing shareholders, or the price of the stock.

The spinoff, expected to be completed by Dec. 31, will leave Rockwell to focus on its aviation, factory automation and electronic commerce divisions.

Davis acknowledged that the new semiconductor business will face “a bumpy road,” but insisted that Rockwell would not have spun off the division if it was destined to fail.

“I’m not planning to sell my stock [in the new company],” Davis said. “They’re going to succeed.”

A month before announcing further cutbacks at the semiconductor division, Davis bought an additional 2,700 shares of Rockwell International stock.

Davis’ remarks come as investor confidence has lagged in both Rockwell and its semiconductor division, which has plunged into the red and seen its sales drop 10% in the last nine months. From a peak of $60.75 a share on March 16, Rockwell’s stock has dropped to 42.3% to $35 at the close of trading Friday.

Since June, Rockwell has cut at least 4,700 jobs. Its once-cramped corporate offices recently were reconfigured, as Rockwell consolidated its staff into four of the five floors it leases in a Costa Mesa high-rise. The remaining floor, with the exception of a conference room, will stay empty, company officials said.

Though analysts applaud the company’s efforts to cut costs, some wonder if the recast company will be able to flourish again with a new identity. In just two years, Rockwell has gone from a wide-ranging aerospace and defense conglomerate that collected 64 cents of every dollar in revenue from the U.S. government, to a commercial firm focused on the fast-growing--and often unstable--electronics industry.

“I think internally we have a very good idea of who we are and where we’re going,” Davis said. “It’s primarily in the area of electronic automation and avionics,” said Davis. “But to the outside, that message is still unclear.”

The company is the automation leader in North America, making controls, software and systems for automating factory production. Rockwell’s avionics unit concentrates on building electronic systems for airplanes and in-flight entertainment systems.

Rockwell expects to expand its core businesses, particularly in Europe and South America, through acquisitions and targeting new opportunities, Davis said. The company had $154 million in cash as of June 30.

Davis, who has been with the company for more than a decade, has been involved with both corporate restructurings. Critics have attributed Rockwell’s decision to spin off the troubled semiconductor group to the company’s conservative history, as well as Davis’ long-standing experience in the slower-paced arena of factory automation.

Davis spent the early part of his career at Allen-Bradley Co. in Milwaukee, an automation company he joined in 1963 as an engineering sales trainee. Rockwell bought it in 1985, and named Davis president of its automation division soon after. He quickly worked his way up the corporate ranks. Davis took the helm after former Chief Executive Donald Beall retired as CEO last October.

But Davis insisted that Rockwell and its board of directors have been talking about “what to do with Newport Beach” for more than a year. The spinoff was the only “pragmatic” thing to do, he said.

“We are such different businesses,” Davis said. “Our customers, our industries, our approaches, even the way we compensate our executives is so different. . . . It made more sense to let [Rockwell Semiconductor Systems] be run like a semiconductor company, and not as only one part of a general technology company.”

Company watchers have wondered whether Rockwell International, once the spinoff is complete, would move its corporate headquarters to the Midwest. That would put Rockwell executives closer to the core businesses.

Davis insisted the company would not have based its headquarters in Orange County, if starting fresh. But he doesn’t expect to relocate, as executives are settled in the Costa Mesa offices.

“If we don’t have to move, we won’t,” Davis said.

Times staff writers Jonathan Gaw and John O’Dell contributed to this report.