Gov. Paul LePage said Tuesday that the sale of Fairchild Semiconductor International to a Phoenix rival will likely result in the loss of hundreds of jobs in Maine.
Speaking on a WVOM morning radio show, LePage said Fairchild was one of the companies he was referring to last spring when he predicted there would be 900 to 1,200 good jobs leaving southern Maine this summer. The Sunnyvale, California-based microchip maker employs roughly 650 workers at its offices and a manufacturing operation in South Portland.
Fairchild, now part of Phoenix-based ON Semiconductor, has not announced any immediate staff changes or layoffs in the wake of the sale. Company officials have spoken generally about cutting costs, but they said no consolidation of manufacturing operations as a result of the sale would occur until mid-2018 or later.
LePage’s comment came in response to a question about the news last week that Bath Iron Works failed to win a major contract and the sale Monday of Fairchild to ON Semiconductor.
“I’ve known about the semiconductor one since back last April. I sort of hinted all spring-summer that there was going to be some major employers leaving,” LePage said during the radio interview. “It’s all about energy. … The reason Maine is vulnerable is their energy costs are so much higher (in South Portland) than they are out West and so the likelihood of them leaving is unfortunately a high probability. And, unfortunately, it falls on deaf ears across the street (in the Legislature). … They just don’t care. There’s nothing I can do about it.”
LePage was less downbeat about the BIW news: “I think this is one contract, but there are more to come.”
MAKING CHIPS IS ENERGY-INTENSE
Lowering Maine’s energy costs has been a recurring theme of LePage’s administration, but he has been unable to build a consensus among lawmakers on how to lower electricity rates and other fuel costs for businesses and consumers. According to the Energy Information Administration, the average retail price of electricity for industrial users in the United States in 2015 was 6.89 cents per kilowatt-hour. Though the average price in Maine that year was 9.06 cents, that was well below the New England average of 12.17 cents.
The amount of energy needed to manufacture microchips is much higher than for most products. The input of fossil fuels required to manufacture a microchip totals 600 times its weight, compared with a factor of 1 or 2 for an automobile or refrigerator, according to an analysis by Eric Williams of the Rochester Institute of Technology.
Tony Buxton, an attorney who heads Preti Flaherty’s Energy Practice Group and represents many of the state’s largest energy consumers, said high energy costs are a serious issue for companies in Maine.
Buxton said the state’s relatively tight supply of natural gas in the winter can cause prices to spike on very cold days, creating budgetary uncertainty for businesses. He supports the construction of an additional gas pipeline through New England to add supply.
“I don’t have any knowledge of the actual circumstances of Fairchild, but I do know about the five paper mills that have closed,” he said.
ANALYST: LAYOFFS NOT INEVITABLE
Still, Betsy Van Hees, an analyst for Los Angeles-based Wedbush Securities who specializes in the semiconductor industry, told the Portland Press Herald in May that it’s unlikely an established semiconductor manufacturing plant such as the one in South Portland would be shut down completely because of energy costs.
Van Hees said there have been several recent mergers and acquisitions worldwide among semiconductor companies because the cost to build new plants is prohibitive. Companies that want to grow are doing so by buying up rivals, which is the case with ON Semiconductor’s purchase of Fairchild.
She said that in the current environment, it’s more cost-effective to acquire a competitor than to build a new facility. But Van Hees said that fact does not rule out the possibility of layoffs.
State Rep. Sara Gideon, D-Freeport, said she couldn’t speak for Fairchild regarding the company’s energy costs or consumption, but that in general, solving Maine’s energy problems requires a bipartisan approach. She invited LePage to join in that effort.
“We have our heads down and are working hard about thinking about real policies and building back relationships with legislative Republicans so that we can come in and actually do work that addresses these things,” said Gideon, the House assistant minority leader. “If the governor is interested in participating in that work, he absolutely knows where to find us and we will be ready and willing to work with him if he wants to do that. In the meantime, that’s what we are focusing on, not throwing jabs back and forth.”
LePage spokeswoman Adrienne Bennett did not respond to questions about how the governor obtained information that Fairchild, under its new owner, plans to pull out of South Portland because of energy costs. The governor has not spoken with the Press Herald since vowing on Aug. 31 to never speak with the media again.
ON Semiconductor did not respond Tuesday to a request for comment on LePage’s statements.
KNOWN SPECIFICS, OR ASSUMPTION?
LePage set off a wave of speculation and concern in April by saying a company in southern Maine soon would cut 900 jobs. His staff refused to provide specifics, and his own Department of Labor wasn’t aware of any employer planning a mass layoff.
“There’s a big company that hasn’t come out yet, I happen to know about it and I’m sworn to secrecy until they make a public announcement, but we’re talking 900 jobs,” LePage said at a town hall meeting in Orono, MPBN reported. “In the most prosperous part of the state – down south.”
He later clarified his comments to say he was talking about two companies and the job losses were expected to be closer to 1,200.
The U.S. Securities and Exchange Commission has strict rules that limit a publicly traded company’s ability to privately disclose “material” information, such as news about major management or organizational changes, that has not been released to the public. The rules are designed to prevent illegal insider trading by people with access to private information that could give them an unfair advantage as investors.
But securities lawyer Scot Draeger, chairman of Bernstein Shur’s Financial Services and Securities Industry Group in Portland, said it would not necessarily be against SEC rules for a Fairchild official to share private information about an upcoming plant closure with LePage.
“It could be the case that even though it’s a huge issue for Maine, it might not be a material issue for the company,” he said, noting that with the Fairchild acquisition only about 2 percent of ON Semiconductor’s workforce is in South Portland.
Still, Draeger said it’s unlikely that Fairchild’s CEO would have shared any such information with the governor in April, and that it’s more likely LePage made an assumption that there would be consolidation after the acquisition.
“For someone who has good business acumen – and I don’t know if the governor does or not – that was an assumption that you would have come to objectively,” he said.
Staff Writer Scott Thistle contributed to this report.
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