Outlook: When the chips are down, chop here

Outlook: When the chips are down, chop here

A WEEK is a long-time in the fast-moving world of semi-conductors.

On 21 July Siemens held a dinner to extol the virtues of its UK operations, and in particular its state-of-the-art chip plant on North Tyneside. Don't worry, was the general message from Alan Wood, its chief executive in the UK. Plunging chip prices might be wreaking havoc on the group's semi- conductor business as a whole but the pounds 1bn Tyneside plant was alright. In fact it was as efficient as anything the company had in Germany, Taiwan or the US. Phase two might have been canned but Siemens was getting as much output from phase one as the entire project had been targeted to achieve.

Little did he realise how much built-in obsolescence there were in those words. Seven days later Siemens top brass met in Munich and decided that they had one chip plant too many. And, you've guessed, North Tyneside was the one that was surplus to requirements. Yesterday the news was broken to an understandably shocked workforce of 1,100 who will be looking for new jobs come September.

John Redwood claims they are the latest victims of the strong pound. But he is wrong. This is one piece of retrenchment that cannot be blamed on the Bank of England's Monetary Policy Committee.

The strength of sterling is not responsible for the 95 per cent decline in DRAM prices since Siemens decided to build the plant three years ago or the Asian crisis which has led to dumping on an unprecedented scale. Nor can it be blamed for the way that the growth in chip demand has undershot Siemens' forecasts by 50 per cent.

But why then has North Tyneside been singled out for special treatment when Siemens has similar operations in Germany, Taiwan, France and the US? Dr Ulrich Schumacher, the big chip in the Siemens semi-conductor group, says it is because the plant has the same cost structure as facilities producing two or three times as many wafers. If this is right, then Mr Wood was wrong.

The more likely explanation is that the Dresden plant was never going to close, the French one is jointly owned, the US benefits from a booming economy and the Taiwan plant does not pay UK wages.

None of this is much consolation to the workers on Tyneside who thought a new dawn had arrived when Siemens came charging over the hill. Peter Mandelson, the new Trade and Industry Secretary, has formed a joint taskforce to try to rescue the plant. But if Siemens has already trawled the market for a buyer without success, what chance has he of pulling the fat out of the fire?.