Analysis: is Infineon pulling back from outsourcing?
By Peter Clarke
Silicon Strategies
04/23/2004, 8:52 AM ET
LONDON -- Only two days ago Max Dietrich Kley, acting chief executive officer of Infineon Technologies AG, was quoted in translation as saying that there would be no change to Infineon's outsourcing activities.
"We are not reducing these activities in anyway," the translator said in English on Kley's behalf as he responded to a question during the company's semi-annual press conference.
However, in the same press conference Kley confirmed a previously announced intention to spend 120 million euros (about US$140 million) at Infineon's manufacturing campus in Dresden. As Infineon's lead manufacturing site, such a relatively small amount of money might be seen as entirely justified to maintain an ability to manufacturing at the leading edge.
But now Infineon has said it will spend a much larger sum, $1 billion, to upgrade its Richmond, Virginia, facility. And that is $1 billion that Infineon is choosing to invest in plant and people in the U.S. rather than on outsourcing work to locations where money, services and labor are cheaper.
The signs are there that the outsourcing policy pursued by Ulrich Schumacher, the recently departed chief executive officer of Infineon, is no longer held in such favor as it was. Even if the policy has not been abandoned then it has clearly come under scrutiny and been decided that a new equilibrium point, with much a greater proportion of manufacturing under direct control, must be reached.
Indeed it would seem that the new insource-outsource balance must be reached quickly.
Infineon wants 300-mm manufacturing in Richmond to start early in 2005, although it may take up to mid-2006 to get up to the full 25,000 wafer start per month capacity implied by the billion-dollar spend.
In fact the haste with which Infineon is trying to spend its money suggests that it already feels it is overexposed to outsourcing. As demand for DRAMs heats up the likes of Nanya and SMIC, Infineon partners in southeast Asia, could well have more and more companies beating paths to their doors. They could be tempted to squeeze Infineon for more money or simply decide to pursue other markets, such as flash or logic, which could leave Infineon naked except for Dresden as a rather small fig leaf.
In the most recent financial results announcement, Infineon spoke about component price pressure, albeit on logic parts rather than on memory which is generally considered to be enjoying a boom. However. with an outsourcing policy the boom has to be shared with partners. The company also spoke about euro strength as a problem
Infineon increasing its manufacturing in the U.S. may address several of these issues but would still seem to be a massive investment to boost a component sector that is already 40 percent of company sales and on which the company is meant to be reducing dependence.
Unfortunately, and ironically, right now its DRAM products are some of the most attractive things it has, with its logic portfolio looking somewhat disjointed and with the special relationship with Siemens inevitably set to decline. Indeed one question being asked is whether Infineon can fill the Dresden 200-mm wafer fab with logic as it moves the DRAM manufacturing out to Richmond.
One thing is clear; notwithstanding Kley's words on Wednesday, now that Schumacher is gone Infineon is getting back to IDM basics even while outsourcing activies remain in place.
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