Report: Infineon nixes non-memory investment

Oct. 8, 2002 – Infineon Technologies said it would cut investment in new factories as the industry struggles with the worst downturn in history.

The number six chipmaker said it would no longer invest in factories that produce non-memory products, which generate most of its sales, reported Reuters. Analysts said the move made sense as the sector has failed to rebound.

“We won’t do any more logic-manufacturing investments. If demand (for logic) becomes higher than our current capacity, we’ll go to foundries,” Chief Executive Ulrich Schumacher told Reuters at the annual ETRE technology conference in the Spanish city of Seville.

“For memory it would be dangerous (to cut back investment) but not non-memory,” said Jerome Ramel, an analyst at KBC Securities in Paris. “Infineon has enough capacity for at least a year.” Ramel has a “sell” rating on the share. Companies sell memory chips into a commoditized market, in which they compete on cost control and output. For logic chips, however, design and support are more significant to buyers than manufacturing technologies.

Infineon’s Schumacher added that the chipmaker could still make a few minor logic-manufacturing investments, but for the most part, production of logic chips — used in mobile phones and car entertainment systems — would shift to foundries.
“From all the (non-memory) capacity which we can outsource, it’s pretty likely that we will go to at least 50% in foundries,” Schumacher told Reuters.

Infineon currently outsources 10-15% of all its production, but the company is under pressure to reduce its capital investment in order to return cash to shareholders.

Schumacher said the company will continue to manufacture its own memory chips, the standard chips used in personal computers which generate between 25 and 40 percent of its sales, depending on volatile selling prices.

Infineon has just installed expensive state-of-the-art production equipment for memory chips.

“We’re very careful… We want to keep the cash. Due to the fact that we now have invested (in new memory production equipment), over the next 1.5 to two years we can get by with extremely low levels of capital investments,” Schumacher told Reuters.

When asked to specify these levels, he said: “Very, very low. Far lower than the competition. Even lower than you’d have thought it could be.”

The company is currently spending around 100 million euros ($97.9 million) per quarter in capital investment. For 2002 to end-September, it was targeting an annual capital budget of 900 million euros.


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