MICROCHIP company Filtronic pledged to stand by its North-East workers last night despite massive losses.

The West Yorkshire company was hailed as a saviour when it clinched a deal to buy the mothballed Fujitsu microchip factory, near Newton Aycliffe, County Durham, 15 months ago.

At the time, company officials said they planned to make the plant a world-leader in chips for mobile phones - a move that would create 550 jobs in the next five years.

But the dream appeared to have gone sour last night. Bosses admitted that losses in its business making compound semi-conductors - microchips used in mobile phones - which includes Newton Aycliffe and a US factory, were dragging the company down.

Management said the Newton Aycliffe operation was costing more than £1m a month to run.

Now they have ordered drastic action to return the group to profit by splitting itself into two groups.

The compound semi-conductor business is made up of the County Durham manufacturing plant and a second operation in Santa Clara, in the US. The group has plans to move the US operation to the UK.

The combined operation will have its own chief executive, Professor Christopher Snowden, and Filtronic has already begun talks with a view to bringing in a commercial or financial partner. Those discussions are ongoing, but the company's white knight is believed to be US-based.

Despite the problems, Filtronic reiterated its commitment to its North-East workers last night. Executive chairman Professor David Rhodes said that the group would remain in control of its semi-conductor business.

But he said the group had to stem the "significant drain" on its resources. "Stemming the cash outflow from compound semi-conductors has assumed the highest priority.

"We believe there is still a substantial business opportunity for compound semi-conductors and, as a result we are pursuing various options, including discussions with potential financial and commercial partners.

"By these means we intend to reduce or eliminate the financial burden of compound semi-conductors as soon as possible."

The compound semi-conductor business made an operating loss of £7.4m in the first six months to November 30, compared with a loss of £2.3m in the corresponding period the year before. This fall meant the entire Filtronic business recorded a pre-tax loss for the interim period of £1.5m.

David Malkin, County Durham manager for the North-East Chamber of Commerce, said: "This is an extremely competitive market which has made only a slow recovery from the collapse which led to the demise of Fujitsu and Siemens in the late 1990s.

"The interim report would seem to suggest the plant has not enjoyed the success which was forecast and may be suffering due to the high price of raw materials."

Tony Moore, Durham county councillor for Newton Aycliffe, said he was very concerned for the future of the plant.

He said: "We've already had a lot of heartache through redundancies. People have mortgages to pay and families to bring up, and when the future's uncertain they can't buy houses or invest in anything new and they're always living on a knife edge."

Councillor Ben Ordj, Liberal Democrat group leader on Sedgefield Borough Council, said: "I hope that if they are in a difficult position that the Government would give them some financial help, just like it did with Nissan."

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