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Analysis: Infineon faces stormy weather

Posted: 05 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Infineon business? memory market? automotive industry?

Once again, struggling chipmaker Infineon Technologies AG had to postpone the break-even. Indeed, the company is heading for a stormy weather even worse than most other semiconductor vendors.

For Infineon, the situation looks as if it would be jinxed. Over the past years, the company never made it into profitability. Every time the company had break-even in sight, an unforeseen development spoiled the trend and dragged the chipmaker back into the red figures. First it was the problems with its memory business. Then there was the insolvency of BenQ Mobile as its biggest customer for mobile phone chips. Now it is Qimonda that hangs around the company's neck like a millstone.

Qimonda dilemma
Each time, the company went to great lengths to restructure and improve productivity. It even carved out its memory business which at that time accounted for about 40 percent of the company's total sales. It did not help much: The recent figures are terrible, and again it is its former memory business that affects Infineon's profitability the worst. Over the past months, the valuation of the memory chipmaker has fallen to about zero. For this reason, Infineon which still owns some 77 percent of Qimonda, had to write the value offhence the red figures.

There is only one remedy left for the problem: Infineon needs to find an investor for the memory maker, and it needs to find it soon. Qimonda's agony has hit Infineon already beyond the threshold of pain. While Qimonda recently said it has made progress towards that end, it seems clear that time works in favor of any investor: The longer he waits, the cheaper he can get the company. Qimonda's cash will be used up some time during Q1 09. A cynical suitor could even afford to wait until the memory chipmaker is insolvent and then pick up the useable pieces. So perhaps Infineon even might have to offer incentives to attract investorsa perverse situation.

More bad news
But there is more bad news for the chip company. The automotive device business which for many years acted as a stabilizing moment against the fast gyrations of the mobile phone market now has emerged as another potentially deadly danger for Infineon. After all, Infineon is the world's second largest automotive chip supplier and the company depends to a large extend on the automotive industry.

For this reason, the current general semiconductor downturn hits Infineon worse than most of its peers. While Infineon CEO Peter Bauer claims the company has made significant progress to improve its productivity and its product focus and for this reason has gained market share in all of its core markets, the automotive crisis affects Infineon disproportionately.

The visibility is as poor as it can be. At least in this aspect Infineon is in the same situation as its competitors. Cautiously, Bauer calculates with a 30 percent (!) revenue decline in Q1 and a 15 percent decline over the coming financial year.

This is a pessimistic view. Things do not necessarily need to come out that bad. But in any case, Infineon's break-even has slipped away into the distant future, again.

- Christoph Hammerschmidt
EE Times Europe





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