Rockwell’s Chip Unit Spinoff Is a Red One

After enjoying five years of double-digit growth, Rockwell Semiconductor Systems Inc.’s sales have dropped 10% in the last nine months and the once-burgeoning company has fallen into the red, according to documents filed with the Securities and Exchange Commission.

The struggling unit of Rockwell International Corp., which is expected to be spun off by Dec. 31, has plummeted to a net loss of $28 million for the nine months, compared with a profit of $110 million for the same period in 1997.

The SEC filing is the first official step that Costa Mesa-based Rockwell International has taken to spin off its semiconductor division into a public company.

The company didn’t say how many shares of stock it planned to issue, the share price or when the stock would be distributed to Rockwell shareholders. The filing noted that the new company will have a new name, but nothing has been chosen.

Analysts have long pointed to the semiconductor industry as a good indicator of what’s to come for the rest of the technology world. The Asian financial crisis is seen as the main culprit in the slowdown, as many U.S. firms sell their products in the hard-hit Far East.

Indeed, Rockwell International has been plagued with problems this year--including a severe downturn in the modem chip set business, a strike at its Newport Beach semiconductor plant and a slump in its factory automation unit. By spinning off the semiconductor division, Rockwell is opting to shed some of its troubles, analysts said.

“It’s also an admission that someone screwed up,” said Tom Taulli, an analyst with IPO Monitor.

“Right now, to ensure the spinoff will be successful, [Rockwell] is trying to position its semiconductor unit as a great business,” he said. “But if it’s such a great part of their business, then why are they getting rid of it? Is it because the business isn’t any good? Or is it that Rockwell [Corp.] isn’t willing to put enough resources into it to make the unit work right?”

Company officials could not comment Tuesday because Rockwell is in a “quiet period” imposed by the SEC while the deal is pending. In the past, Rockwell officials have defended the semiconductor division, insisting that its poor performance parallels industrywide troubles in the notoriously cyclical market.

Until recently, Rockwell has been lauded for what was seen as a successful transition from a defense and aerospace giant into a company more focused on commercial markets. Then-Chief Executive Donald Beall, who engineered the first restructuring, said he envisioned Rockwell entering the fast-growth electronics arena.

But semiconductor sales, which had risen from $436 million in fiscal 1993 to $1.4 billion in fiscal 1996, began to slump. For the fiscal nine-month period ended June 30, the division’s sales were only $936 million--down from $1.04 billion for the same period a year earlier.

The majority of the decline came from Rockwell Semiconductor’s sales of personal communication chip sets, which were hurt by price wars, competing standards, industrywide oversupply and falling demand in the telephone modem market.

Hoping to bolster the division’s financial standing, Rockwell International recently announced it cut nearly 900 jobs, closed its Colorado Springs, Colo., manufacturing facility and will take a fourth-quarter 1998 charge of $265 million.

Beall, 59, who retired last October, is listed as a member of the new company’s board of directors. Beall could not be reached for comment.

Rockwell’s current president, Dwight W. Decker, 48, is named as the spinoff’s chairman of the board and chief executive.