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Applied Materials to Reorganize

Applied Materials Monday said it must consolidate its U.S. and overseas facilities as well as drastically cut its workforce to stay alive.

The world's largest maker of semiconductor production equipment, said it would eliminate about 2,000 positions or 14 percent of the Santa Clara, Calif.-based company's global work force. "Approximately 1,400 positions in Applied Materials' North America operations will be affected and the majority of notifications will occur at the end of the second fiscal quarter. The remaining 600 positions will be eliminated at other locations worldwide by the end of the company's fourth fiscal quarter of FY03," the company said in a statement.

The rest of the consolidation impacts buildings in Santa Clara, California and Austin, Texas. The company said its facilities outside of the U.S. would also be reduced in various locations.

"The world is changing and the semiconductor industry is changing with it," Applied Materials chairman and CEO James C. Morgan said in a statement. "Our customers are investing in advanced, complex technologies at the same time that they are under enormous pressure to reduce costs. The combination of changes in the industry and the extended downturn have led Applied Materials to take decisive action that will enable the company to generate increased profits at current levels of revenue while maintaining strategic product development capability."

As part of the corporate restructuring, the company said it expects to spend up to $425 million over the next four quarters. That breaks down to about $235 million for consolidation of facilities and related fixed assets and as much as $120 million for employee severance and benefits.

"We believe that the implementation of this plan will position Applied Materials to decisively respond to the fundamental changes taking place in the semiconductor industry and enables us to improve profitability and extend our leadership," said Morgan. "This plan builds upon our global capabilities and reinforces Applied Materials' strong commitment to strategic investments, product and service excellence, productivity improvements and R&D programs that will drive our Company, customers and industry forward."

The company's problems have been mounting as of late. In January, Applied warned investors that orders for the quarter were far lower than expected. A week later said it did not expect customers to "significantly ramp spending" in the short term.

But Applied's troubles do not seem to impact its top executives. Despite suffering from the semiconductor industry's worst-ever downturn, the company rescinded two rounds of executive pay cuts last year and raised the pay of its top officer by more than 5 percent, according to annual shareholder letter.

Applied's machines play a major part in the chip making process, including deposition (layering film on wafers), etching (removing portions of chip material to allow precise construction of circuits), and ion implantation (altering electrical characteristics of certain areas in wafer coatings). Applied also makes metrology and inspection equipment. Intel , AMD and Motorola are their main customers.

Applied did not say whether current contracts would be affected.