Legacy Semiconductor Products: Depreciation, EOL, and Restructuring
Depreciation and the decision to continue production
A product with low profit after depreciation may still generate positive cash flow. Existing equipment investment is largely a past expenditure; depreciation allocates that expenditure over time. The decision to continue, restructure, or exit should compare future cash flows, avoidable costs, transition costs, and alternative uses of capacity.
Moving depreciation to another cost center does not reduce company-wide costs. Idling equipment does not automatically stop depreciation: IAS 16 generally requires depreciation to continue while idle, subject to its specific exceptions. An impairment or accelerated depreciation is distinct from recurring cash savings. Fully depreciated tools still incur maintenance, labor, utilities, and eventual replacement costs.
Actions that produce real improvement
Consolidate compatible production into fewer lines or factories and eliminate the redundant cost block. Transfer personnel into identified growth roles where they avoid otherwise necessary hiring or support profitable output. Combine legacy product groups, pool sustaining engineering, reduce duplicate management, and retire low-volume variants.
Manage a profitable run-off with appropriate pricing, minimum orders, last-time buys, and limited discretionary development. Outsourcing or divestiture helps only if internal costs exit alongside production. Avoid unnecessary expansion and reuse compatible equipment.
EOL requires a separate fixed-cost exit plan
Product EOL and cost elimination are different events. Assign an owner and deadline to equipment reuse or disposal, staffing changes, contract termination, facility closure, inventory disposition, and remaining customer support. Coordinate EOL dates across products sharing a process so an entire line can close. Reallocating stranded overhead to surviving products is not a saving.
Illustrative cash-flow test
Suppose annual revenue is $20 million, variable cash costs $11 million, cash fixed costs $6 million, and depreciation $4 million. The business reports a $1 million accounting loss but contributes $3 million before depreciation. If EOL eliminates only $2 million of fixed cash costs, the loss of $9 million contribution exceeds the saving: annual cash performance worsens by $7 million before exit costs or replacement business. These figures are hypothetical.
Documented restructuring examples
Microchip announced the Tempe Fab 2 closure in December 2024 and projected approximately $90 million in annual cash savings. Existing inventory was expected to delay the P&L benefit. Its subsequent filing reported completion in May 2025; the savings figure is the announced estimate, not an independently verified realized result.
Renesas combined product transfers and discontinuations when closing Shiga in 2021, followed by transfer of the land. Infineon’s 2024 Step Up program combined manufacturing productivity, portfolio and pricing measures, support-function efficiency, and announced reductions and relocations of approximately 1,400 jobs each. These company-wide examples do not establish that specific products were unprofitable.