Intel Corp. plans to lay off 800 workers from a chip-making plant in Colorado by August, after Marvell Semiconductor Inc. began ordering those parts from another supplier, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).

Intel and Marvell have done business since June 2006, when Marvell bought Intel's XScale communications chip division and its 1,300 workers for US$600 million. The sale was one component of Intel's sweeping corporate reorganization that also included the layoff of 10,500 employees.

Marvell now sells those "Monahans" chips to vendors of mobile phones, smartphones and other consumer electronics handsets that use the processors to handle multimedia and mobile Web browsing, telephony and GPS (global positioning system) navigation.

Intel learned of Marvell's decision to find a new supplier around January, and warned its workers that month that it planned to sell the Colorado Springs plant, said Intel spokesman Chuck Mulloy. He declined to say how much revenue Intel will lose when the contract ends.

Intel plans to offer severance packages to its workers beginning in early August. The company also applied for a federal grant to help those workers learn new skills and find jobs, but the U.S. Department of Labor denied the request, he said.

Now Intel is appealing the government's action, and asking the department to reconsider its decision to withhold a grant from its Trade Adjustment Assistance (TAA) program. Under the TAA, the U.S. government gives aid to workers who lose their jobs through increased imports, providing them training, job search and relocation allowances.

Intel will continue to supply some components to Marvell from different plants, such as a facility in Santa Clara, California. Mulloy declined to say how many of its workers were employed making Marvell parts at that plant.

Marvell confirmed it was shifting the business to TSMC, saying its agreement with Intel had been created to last only through the transition of acquiring the cellular and handheld group.

"TSMC is definitely the primary fab for us. It was never a long-term plan for Intel to keep manufacturing those chips," said Marvell spokeswoman Diane Vanasse.

Marvell is struggling with its own problems, including a delisting threat by the Nasdaq stock exchange for failing to file quarterly reports for the last two terms of 2006, or its 2006 annual report. The company is also restating past results, after finding in May that CEO Sehat Sutardja and other top executives had illegally backdated stock options to increase their value.

The IDG News Service is a Network World affiliate.