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SANTA CLARA, CA- National Semiconductor said Thursday it will lay off 1,725 people and close two factories as it reduces expenses in response to a 36% drop in the company’s fiscal third quarter and expected further declines in 2009. The locally based public company manufactures chips used in mobile phones, cars and audio and energy management systems.

National Semiconductor’s principal administrative and research facilities are located in Santa Clara, as is its US regional headquarters for worldwide marketing and sales. The company owns its manufacturing facilities and its corporate headquarters but generally leases most of its design facilities and sales and administrative offices, according to SEC filings.

The company will immediately lay off about 330 workers at its Santa Clara headquarters and another 500 elsewhere in the organization. The remainder will be let go in the coming months as the company closes one factory in Arlington, TX, and another in Suzhou, China.

The chip industry, already burdened by an oversupply that lowered prices, is now suffering declining sales along with most other companies due to consumers who poured on the debt during the boom times and are now being frugal during the recession, either by choice or a lack of reasonable credit. Industry researcher iSuppli reports that total chip industry sales declined 21.5% in the fourth quarter, pulling year-over-year sales down 5.2% in 2008. The 2009 forecast is for sales to fall more than 20% from 2008.

Two other area chipmakers–Intel Corp., also of Santa Clara, and Advanced Micro Devices of Sunnyvale—recently made similar announcements, letting go 6,000 and 1,100, respectively. In each case the layoffs represent about 9% of the workforce while National Semiconductor’s move represents about 25% of its workforce.

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