The decision was greeted with anger and dismay by local businesses, trade unions and politicians, while the Conservative trade and industry spokesman, John Redwood, blamed the closure on the strong pound.
But Siemens said the state-of-the-art plant, opened only a year ago by the Queen, was the victim of over-capacity, a 95-per-cent fall in microchip prices and dumping by Far East manufacturers.
The company pledged to repay the pounds 50m in government subsidies it received to help build the facility and announced that it had joined a task force set up by the Secretary of State for Trade and Industry, Peter Mandelson, to try to rescue the plant.
Mr Mandelson said: "Siemens may be leaving north Tyneside but the plant isn't and we must do everything we can to find an alternative owner for it."
Alan Wood, chief executive of Siemens in the UK, said the chances of finding a buyer were low and if it did not find one, production would be run down from the end of next month.
There was growing anger last night that Siemens had selected the Tyneside plant for closure out of the five semiconductor facilities it operates around the world. It has similar plants in Germany, the United States, Taiwan and France.
Mr Wood paid tribute to the workforce on north Tyneside, saying that the plant had beaten every milestone set since opening in May last year, but he said it had been "a victim of circumstances" and was more costly to run because it was only a third the size of its other facilities. The plant is losing pounds 150m a year and will cost pounds 350m to close down.
Ken Jackson, general secretary of the AEEU engineering union, warned that total job losses could exceed 2,000 once the impact on contractors and component suppliers was taken into account. The plant buys pounds 70m of supplies a year from 250 local firms.
Bill Midgley, president of the North East Chamber of Trade and Industry, described the closure as a "massive blow not only for the North-east but for the whole of the UK economy" and said there was little doubt that the strong pound had played a big part in Siemens' decision.
Mr Redwood urged the Government to take the pressure off the pound. "Siemens' announcement today is another example of the terrible damage the Government's economic policies are inflicting on exporters, on manufacturing confidence and on jobs," he said.
But Siemens said the impact of the pound was marginal. When the go-ahead was given for the plant in 1995, Siemens forecast that the world-wide market for semi-conductors would reach $200bn by this year. It has only reached $145bn. At the same time, overcapacity has brought the price of memory chips crashing from $55 to $3 in three years.
The Tyneside plant also recently lost a partnership agreement with a Taiwanese company that would have guaranteed half its output for the next 10 years.
The likely closure is a crushing blow for the area. When the decision to build the plant was announced in 1995, job centres in Wallsend and North Shields received 4,000 telephone calls in three hours.
At the official opening last year the Queen said it would put Britain at the "forefront of semiconductor manufacturing".
Mr Mandelson said: "I feel very strongly for the workforce and their families who are affected by this." He said "every effort" would be made to secure the plant's future.Reuse content