Infineon sees signs of DRAM recovery
(UPDATE: adds CEO quotes, analyst, updates share price, figures)
By James Mackenzie
STUTTGART, Germany, April 6 (Reuters) - Infineon Technologies AG reiterated on Friday it saw signs of firmer demand in the battered memory chip market but said it was unclear whether a recent upturn in prices was sustainable.
Europe's second largest semiconductor maker also said it was responding to the weaker market environment by cutting costs by 700 million euros ($628.4 million) this fiscal year and reducing planned investments of 2.8 billion euros by 500 million.
Infineon, still majority owned by electronics and engineering group Siemens AG , generates the biggest share of its revenues from the DRAM (dynamic random access memory) chips used in personal computers and servers.
It said it was difficult to make precise forecasts for individual business segments but stuck to its prediction of a recovery in demand for memory products business in the second half of the year.
``The development of the memory market is showing preliminary indications of growing demand and an increase in DRAM prices as well,'' Chief Executive Ulrich Schumacher said in a speech at the group's annual shareholders meeting.
``However it is not clear yet how sustainable this price development will be. In general, we see the medium term and long term growth potential for the semiconductor market as very positive,'' he said.
The remarks, which echoed upbeat comments from Schumacher three weeks ago and came on top of relatively positive recent comments from U.S. rival Micron Technologies (NYSE:MU - news), helped lift Infineon's shares, which have risen about 24 percent since hitting a lifetime low of 34.70 euros at the start of March.
By 1248 GMT, the stock was 1.15 percent higher at 42.27 euros, paring earlier gains but still ahead of the rest of the DAX, which was down 0.97 percent.
Analysts said the reiteration of the positive outlook added weight to hopes of a recovery in the chips segment, which has suffered badly from slumping sales of personal computers.
``The news is that they didn't change the outlook,'' HypoVereinsbank analyst Matthias Schneck said. ``They are still expecting a recovery in the second half of the year. That's in a way the good news.''
Spot prices for standard DRAM chips, which are still selling at below production cost, slid to just above $2 earlier this year from over $9 last summer and while they have climbed to just under $3 in recent days, analysts remain cautious on the price environment.
``I wouldn't say that it's a turnaround, but it's the first sign that DRAM prices could go up a bit, and that would be good for Infineon,'' Schneck said.
CAUTION ON MOBILE OUTLOOK
Schumacher was cautious about the faltering mobile telephone business, the company's second largest segment, saying in a German television interview he did not expect a recovery before the end of the year. He declined to give a precise forecast.
``I would like to look at our actual orders over the next four to six weeks before I can really say what Infineon expects will happen in the mobile segment,'' he told shareholders.
However, he reiterated that the mobile business would see lower sales and earnings in the second quarter.
The comments follow a spate of recent cuts in forecasts for global mobile handset sales from the world's leading mobile telephone companies amid a build-up in inventories of both completed handsets and components.
In other areas, Schumacher was more upbeat, pointing to strong developments in fixed net broadband and optical networks, auto electronics and chips for smart cards.
``We are confident that compared to the last fiscal year we will be able to continue to increase significantly margins in these areas,'' Schumacher said. ``Thus we expect a positive development in the second quarter for these business segments,'' he said, adding that the company's strategic switch towards high margin areas and away from basic memory chips would continue.
But he said stronger developments in the most profitable parts of the business would not be enough to compensate for the shortfall in the memory segment.
``When a segment which accounted for the biggest share of (operating) earnings last year -- 1.3 billion (euros) out of 1.7 billion -- has a price fall from just short of $10 to under $3, the result in the rest of the business will not be enough to make up for the fall,'' he said.
``In other words, we won't be able to compensate for the fall in the memory segment from the logic segment,'' he said.
Schumacher was quoted in a recent newspaper interview as saying he was comfortable with market forecasts for the group's 2000/2001 earnings. Infineon is expected to report earnings per share of 1.03 euros in the year to September 30, 2001, compared to 1.83 euros the previous year, according to Reuters 3000 data.
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