Turnaround plans are in place for a North East semiconductor chip factory that was last year rescued from potential closure by the Government.
The Ministry of Defence to buy the 310,000 sqft Newton Aycliffe plant formerly run by US corporation Coherent, in a deal worth a reported £20m that saved 100 jobs. Now major efforts are under way to re-establish the capacity of the Octric Semiconductors factory, which had undergone downsizing under its US owners, with an investment plan signed off by its board.
Details of the plan are limited but it has been reported that military chiefs could invest up to £200m into the plant which has had a succession of owners since it was launched by Fujitsu in the early 1990s. New accounts for Octric, covering the 15 months to the end of September show long term ambitions for the site, which employs around 100 people but had seen a workforce of nearly 260 in the last three years.
Director Kelly Jones said the business is should now be viewed as an early stage start-up with plans to widen its product offer and reach profitability, underpinned by an initial £15m working capital facility from the MoD and then planned equity-based investment. Octric will initially focus on production of chips used in aerospace defence, particularly Typhoon jets, and in time expand into the commercial market.
Confirmation of the plans comes as Octric reported a massive downturn in turnover as former owner Coherent's contracts came to an end. The business saw a near 70% reduction in turnover to £32.1m from £104.5m as it swung to an operating loss of £5.2m from an operating profit of £5.03m in the year to the end of June 2023. There was around £2.65m of redundancy and restructuring costs as the firm shed about 116 staff.
Octric said the numbers only cover two working days under the new MoD ownership, and therefore do not reflect performance under its new board - led by Graham Love, the former CEO of defence giant Qinetiq. A spokesperson for the firm said: "The new shareholders regard the investment as strategic to support key lines of semiconductor supply for use in specific current as well as future Ƶ military aerospace applications, while providing the capability of growth and diversity across wider commercial targets in time to come."
Writing in a report accompanying the accounts, Ms Jones said: "Since acquisition, Octric has commenced a path for rebuilding and regrowth over a long-term plan. The plan commences with major reinvestment in semiconductor equipment, core to Octric's defence and commercial applications, and investment in new semiconductor technology to form a parallel and synergistic platform for growth.
"The rebuild and growth plan into expanded areas of semiconductor technology is expected to involve significant non-recurring revenue expenditure as well as capital expenditure over the next several years. The whole new investment reflects both the reality of converting an internal manufacturing business unit of a multinational company into a rounded stand-alone company and the need to address pre-acquisition investment levels.
"This investment is viewed by the board as acquisition related non-recurring expenditure. Also, given significant changes to product output and the investment levels needed to re-capitalise facilities, technology and capabilities, the business today is best viewed as a new company in an early start-up phase, where it is anticipated that there may be start-up losses against normalised activities until the new business strategy is delivered and output reaches the projected volumes and customer base that the business is targeting over the mid-term and long-term.
"In such a skilled and niche area, the barriers to entry are great, and the establishment of quality and reliability in its field has been earned over decades of specialisation. Octric is now embarked on a new phase of development to build and grow on the hard-earned reputation built by the business thus far, offering sovereign supply security to Ƶ defence."
