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Analysis: Infineon can't quite shake off Qimonda

Posted: 29 Apr 2008 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? Infineon shares? Qimonda offload?

Qimonda AG might not be a hard sell in any other industry or under different conditions from those now plaguing the pricing-pressured memory market.

With $5.2 billion in annual sales, Qimonda is a Top 5 global DRAM supplier, and even its fiscal 2007 net loss of $355.4 million pales beside the huge deficits many other manufacturers have been racking up.

Further, at a time when wafer fabs cost $3 billion or more to build, Qimonda's five fabs, numerous assembly and test facilities, and highly trained engineering workforce would seem to make the company a tempting target for corporate investors and private-equity firms.

But such is not the case.

No takers
Despite Qimonda's tremendously valuable manufacturing and human assets, Infineon Technologies AG, which owns almost 80 percent of the company, is having a tough time unloading its stake in the memory IC supplier.

Last week, Infineon made the difficult decision of further distancing its own operations from Qimonda's by classifying assets of its majority-owned memory business as "held for sale."

"Going forward, we will now report the profit and loss with individual line items reflecting only our results from continuing operations, meaning for Infineon without Qimonda," Wolfgang Ziebart, president and CEO of Infineon, said during a conference call.

"Our profit and loss going forward will therefore give you a much clearer picture of the performance of our core businesses," he added. "All results relating to Qimonda, including potential gains and losses from changes in fair value, will be contained in an item called income or loss from discontinued operations."

Infineon's move may offer investors greater clarity into the company's operations, but it won't help with the disposal of Qimonda.

That's because conditions in the DRAM market haven't improved enough to raise vendors' valuations.

Even Infineon had to write down the value of its stake in Qimonda by more than 1 billion euros ($1.6 billion) in the recently ended quarter, "reducing our investment to its estimated fair value less cost to sale," Ziebart said.

That's not all. While speculation has been rampant that Infineon is in talks with several rival DRAM vendors over its Qimonda stake, at least one of thoseElpida Memory Inc.has denied any involvement.

Ziebart, meanwhile, has ruled out private-equity firms as potential suitors for Qimonda, noting that the DRAM company's cash flow wasn't attractive enough for that group of investors.

Thus, Infineon has been stuck in the same quagmire ever since it spun off Qimonda: How can it sell a business nobody seems to want?

Options
The company is likely to consider a variety of options, including trying to get other DRAM vendors to split Qimonda's considerable assets and liabilities, including about $324 million in long-term debt at the end of its last fiscal year.

With a persistent supply glut keeping a lid on depressed prices in the DRAM market, a few of Qimonda's rivals might agree to take over parts of the company's operationsprobably for a token amountjust so they can get some capacity off the market.

Until now, Infineon had been angling to get some positive return on its Qimonda investment, but the 1 billion-euro write-down the company took in Q1 points to a more realistic assessment of the difficulties it faces as it seeks to dispose of the assets.

If the potential buyers with which Infineon is negotiating aren't willing to pay cash for Qimonda, the German parent may have to opt instead for a shareholding stake in the acquirer.

That wouldn't be the optimal choice for a company that just wants to get out of the memory market. But it may be the best offer Infineon will get from Qimonda's reluctant suitors.

- Bolaji Ojo
EE Times





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