Infineon ponders spinning off its DRAM operations
By Crista Souza, Electronic Buyers' News
Nov 22, 2000 (12:01 PM)
URL: ebnews.com
Since debuting as a publicly traded company last spring, Infineon Technologies AG has been hard pressed to convince investors to look past its 10% worldwide DRAM market share and see the company instead as a leading communications player that happens to also manufacture memory chips. Its presence in communications, owed to its linkage to telecom giant Siemens AG, has only been strengthened by the spinoff, allowing the company to win over major OEMs that once perceived the chip maker as a competitor. As a result, Infineon has seen its fiscal 2000 sales into key wireless, wireline, and smart-card IC segments increase 41%, 31%, and 39%, respectively, from a year ago.
Company executives compare Infineon to high-flying chip suppliers like Broadcom and PMC-Sierra, but its common stock hasn't enjoyed similar valuation. Infineon's stock last week was selling at $39, down from its initial public offering price of $66, despite reporting $970 million in net income for its fiscal year ended Sept. 30-a 20X increase over the previous year.
In order to boost its stock price, the company is considering spinning off its DRAM business, said Infineon president Ulrich Schumacher in an interview at the Electronica 2000 show last week in Munich, Germany.
However, Schumacher said what course of action, if any, the company might take has not been decided.
“The capital markets are very different than they were a year ago,” just before Infineon launched its IPO, he said. “Investors now seem to want a pure-play semiconductor firm. We're looking at possible financial ways to interest investors.”
“The stock market would reward [Infineon] if they didn't have the DRAM part,” said Karl Richter, an analyst at Lehman Bros. Inc. in San Francisco.
However, Richter noted that in the long run, jettisoning the memory operation may do Infineon's communications side a disservice. DRAM manufacturing prowess has, in fact, fueled Infineon's growth in the communications market. The company's ability to bring up leading-edge DRAM factories and efficiently convert them to logic production has enabled it to attain the lead it now enjoys in markets like VDSL, ISDN, Gigabit Ethernet transceivers, T1/E1, cellular RF and baseband chips, and silicon discrete components, he said.
Infineon intends to use its DRAM capability to drive advanced memory products, such as 256-Mbit SDRAMs and embedded DRAM and flash, into fast-growing, high-end applications like servers and networking equipment, said Andreas von Zitzewitz, chief operating officer at Infineon, in a recent interview in San Francisco.
“Up until recently, we were still very active in the PC field,” von Zitzewitz said. “We can't get rid of this [image] until we've proven we can do well in others. We've started to make progress.”
Infineon missed its target of holding DRAMs to 30% of fiscal 2000 sales when the memory chips accounted for 48% of revenue while communications chips were 39%. Schumacher attributed this to two die shrinks that increased DRAM units by more than 70%. Infineon reduced DRAM wafer starts early this fiscal year by more than 40% to bring its memory-chip business more in line with its 30% target.
The company also moved this year to divest noncore business units, including its LCD and infrared-coupler units. The divestitures are expected to wrap up by the end of the year. No additional deals are under way, but the company continues to look for ways to focus more on key areas in LAN and WAN access, next-generation wireless, and smart-card ICs, according to von Zitzewitz.
Acquisitions this year of Ardent Technologies and Savan Communications strengthened Infineon's broadband and optical-networking technology base, von Zitzewitz said. “Our goal is to have all the key technologies in our hands in order to offer customers complete [system-on-a-chip] components, rather than single technologies that they then have to integrate,” he said.Von Zitzewitz said Infineon's vast manufacturing resources will give it a competitive edge over its pure-play rivals, which depend on third parties to produce their chips.
“As long as [our competitors] are medium-size, they can really focus on customers and products and not worry about manufacturing. But as they go into high volume-especially Broadcom-they will have to share the margin with others,” he said. “Imagine being very big and 50% of your cost is purchased, whereas competitors have full control of manufacturing. Let's wait and see where their position is relative to ours.”
Infineon does see relationships with outside foundries as valuable. In fact, it has an ongoing joint process development effort with United Microelectronics Corp. and IBM Corp. But certain high-speed communications chips call for technologies that aren't readily available on the merchant market, such as silicon germanium (SiGe). Infineon recently began sampling its first 40-Gbit/s optical transceiver based on its 75-GHz SiGe process. “Broadcom doesn't get access to these technologies,” von Zitzewitz said.
On the other hand, no competing DRAM supplier has the same breadth of product to offer communications OEMs, he added. Infineon said it will continue to invest in research and development, acquire smaller companies, or cooperate with large or small companies to fill gaps in its wireless and fiber-optics portfolio.
The challenge as the company moves ahead will be to maintain a clear focus while producing a broad range of technologies. Said Lehman's Richter: “It's tough for any company that has that type of strategy to compete against start-ups that may be focused on just one of those markets.”
Additional reporting by Jack Robertson |
