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Opinion: Infineon takeover unlikely

Posted: 13 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Infineon? Samsung? Intel? takeover rumors?

Rumors that the Samsung Group and Intel Corp. might be interested in taking over Infineon Technologies AG have driven up Infineon's share price. But while Infineon might be an attractive takeover candidate, the reality looks somewhat different.

A specter is haunting Europe's semiconductor industrythe specter of consolidation. Recent developments in this industry, such as NXP Semiconductors effectively selling off its mobile device activities to STMicroelectronics NV, and proposals to meld the three large European chip manufacturers into one companywith, by the way, questionable competivenesshave fed nervousness in the industry. The huge losses in particular in the memory market certainly did not have a tranquilizing effect.

The impression of a crisis apparently has driven the fantasy of market watchers.

Indeed, there are some good reasons why consolidation is real and is about to continue. Isn't it Infineon CEO Wolfgang Ziebart himself who has repeatedly stated that this consolidation is underway for good?

Recognizing a rumor
The latest buzz indicated that, as a step toward consolidation, Intel and/or Samsung could take over Infineon. It was even suggested that both semiconductor giants might take coordinated measures to swallow the German chipmaker, which, compared to the American-Korean superiority, indeed would be a little fish and. At its current market capitalization of about $7.5 billion, it would be just the size of an appetizer.

But since Intel and Samsung, do not have common strategic targets, this "news" can easily be identified for what it is: a rumor.

How about Intel alone? Well, Intel certainly sits on a large pile of money that it hopes to invest in future-prone markets. And Infineon, with its 3G mobile phone technology that some say is in a leading position, could be an interesting and affordable target. A closer look, however, shows that Intel's business model provides for an extremely focused product range and a production in very high volumes. So Infineon may perhaps be easy to swallow but difficult to digest for Intel.

Inviting market troubles
Samsung, with its general store approach, could be a better fit. Infineon has interesting automotive technologies and a strong market position, and Asia's fast-growing automotive industry is bracing for innovative automotive solutions. This could give Samsung a boost in the automotive and industrial segments. As for mobile devices, Samsung could benefit from Infineon; after all, the Bavarian chip manufacturer supplies 3G devices to Samsung's mobile phone unit. The only question is how Samsung's competitors in the mobile handset market such as Nokia would take such a move. It does not require much imagination to think that Infineon's mobile chips would, in the case of a takeover, be confronted with a steep decline in market acceptance.

Another factor to be considered in a possible takeover would be the practical feasibility: It is not very likely that Infineon's management, with its decidedly European corporate culture, would react enthusiastically on a marriage proposal from a company with the reputation of a somewhat paternalistic management style. Thus, the only way to get onto Infineon's command bridge would be a hostile takeover. With a free float of 100 percent, this could theoretically be donebut at what price, in terms of money and in terms of crop damage among Infineon's high performers?

Shortcut to Qimonda?
If, in what seems to be another remotely possible prospect, Samsung might be interested in gaining control over DRAM competitor Qimonda in order to get access to the company's technology and markets, there would be easier and more elegant ways to achieve that goal than buying Qimonda's parent company. After all, Infineon has repeatedly said it is interested in selling its loss-making subsidiary.

But all these speculations, triggered by a sudden rise in Infineon's shares, miss one point. The company's share has been on the rise for quite a while, independent of any rumors. To be exact, the rise started in mid-March after Infineon announced the partial write-off of Qimonda's shares in its balance. At the same time, Infineon also announced the booking of Qimonda's losses under "discontinued activities." This move was taken by investors with relief. Since then, Infineon's share price has climbed more than 60 percent. The apex triggered by news on May 6 of price hikes in the memory chip industry, which was interpreted by some as a signal of Samsung being interested to take over Infineon.

In the semiconductor industry, surprising moves are not rare and one has to expect the unexpected. But in the light of the abovementioned facts, a takeover from Samsung or Intel seems not a way to success.

- Christoph Hammerschmidt
EE Times Europe

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