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Commentary: Tough calls during tough times

Posted: 30 Jul 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IC? chip? semiconductor? automotive market?

No doubt that the European chip industry already has seen better times. All suffer under the same poor macroeconomic conditions and adverse currency exchange rate. But some companies outdo others and they don't need to cut thousand jobs.

The European IC industry is currently experiencing a difficult situation. The rise of the euro or the weakening of the dollar makes product prices from the euro markets higher and thus hampers the competitiveness of all manufacturing companies. It doesn't matter if a company reports in euros like Infineon Technologies or in dollars like NXP Semiconductors and STMicroelectronics (ST). The problem lies in the high valuation of labor in the area, which has to be reflected in the product price system.

Changing cost structure
If the situation worsens in the future, the companies will have to take steps to fundamentally change their cost structure. These are necessary to create productivity improvements, which will require investments in form of ideas and innovations. If the productivity jump fails to appear that happens most of the time, there remains only one solution. Since most European workers cannot be motivated to work for Asian wages, the only alternative means is to relocate the production process to the Far East or wherever it may be cheaper even it may hurt very badly. Otherwise, these companies will simply close down.

Ups, downs
The problem is equally plaguing all chip manufacturers in the euro market. This has caused many companies to groan and moan under the burden of unfavorable currency exchange rates. Nevertheless, there are differences. Over the past quarter, Infineon has lower productivity compared to its competitor ST, even if the Qimonda situation is not taken into consideration. While sales for Infineon stagnated, the competitor reported growth of up to 20 percent depending on the market segment. While both companies were confronted with the same difficulties in the U.S. automotive market, ST managed to show growth in the single-digit range.

Need for new directions
Infineon has not been receptive to the changing market conditions. The company was not too much focused in handling its internal power struggles, and the efforts to offload its ailing subsidiary Qimonda perhaps obstructed the view to the global situation. Now they are in a situation that requires but a major directional change. Around 3,000 jobs have to be cut as the result of streamlining the operations in a poorly managed company.

Qimonda's fate
Regarding Qimonda, it is difficult if not impossible to remain profitable in a market where average selling prices declined as much as they did in the DRAM business. Is someone to be blamed? I don't know. Not long ago, a semiconductor manager during a conference said the IC industry now has learned to manage its 'cyclicity.' Obviously, this is not the case, more or less all memory chip manufacturers were hit by the oversupply that affects the market now for more than a year.

However, Qimonda's engineers were innovative enough to develop new technologies that could help them to get an edge over the market and then get out of their current quagmire. The buried word line memory cell architecture seems to have the potential to greatly improve the company's productivity once it is in production. It would be too easy to say that the company simply was acting too slowly; after all, others have not invented anything comparable. However, this case remains a nail-biter for workers, investors and business partners.

- Christoph Hammerschmidt
EE Times Europe

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