VLSI Technology Invests in New Malaysia Semiconductor Fabrication Facility.

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 16, 1997--

New Deep Submicron Fab Capacity Strengthens VLSI Competitive

Position; Malaysia-based WTM Group to Take Owner-Management Role in

Current VLSI San Jose Fab

VLSI Technology, Inc. (NASDAQ:VLSI) has signed an agreement to invest in a new, state-of-the-art, deep submicron semiconductor manufacturing plant with Wafer Technology (Malaysia) Sendiran Berhad (WTM), a consortium of Malaysian and foreign investors organized under the sponsorship of Malaysian government agencies. In addition, as part of the agreement, WTM will take ownership, manage and upgrade VLSI's current San Jose fabrication facility, operating it as a semiconductor process development and prototyping line. This will provide WTM with an immediate base of operations in the Silicon Valley. The fab will employ about 65 staff. VLSI will act as WTM's technology advisor on both the San Jose and Malaysia manufacturing lines.

"Our agreement with WTM provides multiple benefits for VLSI and WTM, as well as our respective customers, employees, and the communities in which we operate," said Al Stein, VLSI chairman and CEO. "The new fab in Malaysia will give us vastly expanded capacity to meet the needs of customers who require high-volume production for their customized integrated circuits. WTM's new investment in the San Jose fab will help both companies perform leading-edge research and development in Silicon Valley, where many of the world's leading semiconductor experts are located."

"The cooperation between WTM and VLSI in the San Jose fab is significant for WTM because it will allow Malaysia to enter the sophisticated arena of semiconductor wafer fabrication," said Mr. Saleh Ghazali, Chairman of WTM. "This will be a natural expansion from the country's current position as a leading supplier of IC assembly and test services to the worldwide semiconductor industry."

Cy Hannon, WTM President and CEO added, "The WTM project has all the key ingredients for success: a government infrastructure support program, combined private and public funding, and a leading-edge technology partner in VLSI. This combination will ensure a fast ramp to world-class production level of 27,000 wafers per month and provide access to proven 0.25-micron and smaller feature-size processes. The San Jose plant adds a leading-edge pilot line for training, process development and customer qualification that will keep our company and our people ahead of the technology curve, and provide a Silicon Valley connection that will broaden our customer base."

Malaysia Fab Program

Under terms of the agreement, VLSI will invest USD $120 million for an equity interest in the new, deep submicron fab to be constructed in the new Kulim High-Tech Park, located approximately 25 kilometers east of the island of Penang, in the state of Kheda. Total capital expenditures for the new WTM facility are estimated at $1.2 billion, at current prices for land, construction, equipment and other expenses. VLSI will serve as the advanced technology advisor for the project. The new fab will incorporate the latest integrated circuit manufacturing technologies, including 0.25-micron and future generation process geometries on eight inch (200mm) silicon wafers and is expected to begin operations in the year 2000. When completed, the fab will have the capability to process approximately 27,000 wafers per month. VLSI will have rights to a significant percentage of the wafer production of the new fab.

Investment partners in the WTM fab project include Bank Industri Malaysia Berhad (the Industrial Bank of Malaysia) and Khazana Nasional Berhad (National Treasury Investment Arm of Malaysia). Both organizations are Malaysian government fully-owned agencies chartered with the development of the country's industrial sector, particularly high-tech industries, in accordance with Malaysia's year 2020 Vision.

The new fab in Malaysia will supplement VLSI's manufacturing operations at its main existing deep submicron fab in San Antonio. This wholly-owned VLSI fab is currently converting from six inch to eight inch wafers and qualifying 0.25-micron technology.

Transfer of VLSI San Jose Fab Assets

WTM will manage and upgrade the fabrication facility located at the VLSI headquarters campus in San Jose. The fab is scheduled to cease production later this month following completion of final orders for 1.5-micron, 1.0-micron and 0.8-micron products made at this facility. VLSI will retain ownership of the land and buildings housing the fab and will locate some VLSI-owned equipment in the facility. WTM will purchase some of the existing equipment, which is convertible to eight inch, and install new eight inch, deep submicron equipment in the facility. WTM will operate the fab as a development and prototyping line for advanced integrated circuit process technologies and as a contract fab serving the Silicon Valley customer base. VLSI's Technology Development organization also will use the facility as a development and prototyping line for future advanced semiconductor technologies developed by VLSI, such as .15-micron manufacturing processes.

VLSI Manufacturing Strategy

The agreement bolsters VLSI's manufacturing competitiveness and ability to address worldwide customer needs. VLSI's production from the Malaysia fab will focus on high-volume products for mass-market consumer and communications applications. This will complement VLSI's San Antonio fab which will manufacture similar high-volume products and will also concentrate on shorter run, advanced technology products and quick time-to-market integrated circuits. VLSI's activities in the co-shared San Jose fab will strengthen VLSI's R & D posture as semiconductor technologies advance. VLSI will also maintain its strategic relationships with semiconductor foundries around the world.

"This significant development in VLSI's manufacturing strategy strengthens our ability to stay at the forefront of semiconductor technology, while increasing our ability to respond to fast changing market demands and maintain a strong supply chain for high volume products," commented Ted Malanczuk VLSI's senior vice president of operations. "Our success moving into the 21st century calls for deepening our relationships with leading customers in fast growing, mass markets. With this added manufacturing resource, I believe we have established a compelling competitive edge as we move forward in the marketplace."

About VLSI Technology, Inc.

VLSI Technology, Inc. designs and manufactures System-Level Silicon(TM) integrated circuits based on its FSB(TM) functional system blocks(TM) library. Targeting its offerings toward the communications, consumer digital entertainment and computing markets, the company offers its customers advanced system-level integration capabilities. The company is based in San Jose, California, with 1996 revenues from continuing operations of $669 million, and approximately 2,600 employees worldwide. Visit VLSI's homepage at http://www.vlsi.com . -0-

Note to Editors: FSB, functional system blocks and System-Level Silicon are trademarks of VLSI Technology, Inc. All other brand or product names are trademarks and/or registered trademarks of their respective owners.

CONTACT: VLSI Technology, Inc.

David Harrah, 408/434-3070 (PR)

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Sharron Bittick, 408/434-3159 (IR)

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