Infineon (Part 1): Seeing Some Light

By Guest Author Nalini Kumar Muppala

Continuing with our detailed analysis of European players in wireless semiconductor space, let’s take a look at some recent developments at Infineon Technologies AG. Earlier detailed coverage of Infineon can be found in Vijay’s series.

Infineon ranked tenth among top semiconductor suppliers in 2008. But of late, the company has been in the news more for the financial storm it is wading through than for the quality of its performance. This post delves into related moves on the organizational front. Subsequent posts concentrate on product portfolio, strategy, and outlook.

Profitability has been eluding Infineon for a while. But the company has expended much effort in controlling expenses, and the results are encouraging. The cost-reduction program IFX 10+ reorganized14 core business units into five divisions. Communication solutions were split across Wireless Solutions (WLS) and Wireline Communications (WLC). The severity of the financial distress led to the offloading of the WLC division, which  was earlier cited as a growth engine.

Infineon drastically reduced its workforce in Q2, although insiders admit that even at this level, the company is still overstaffed. There are plans to slash another 4,000 jobs, including contract workers. From a cost perspective, this effort is commendable, even more so given the difficulty of working around European labor laws. Infineon exited the German employers’ union in November 2008 in order to hire and lay off with more flexibility.

Realizing the drag of manufacturing on revenue, Infineon announced that it is going fab-lite. In-house manufacturing will henceforth be limited to areas where the company’s advanced manufacturing technology gives a competitive advantage: power and automotive semiconductors. Manufacturing at 65-nm and lower geometries will be contracted out.

In this gloomy scenario, the wireless market has been a consolation for Infineon. It is encouraging to see that WLS is at the forefront of Infineon’s recovery efforts. WLS’s share of total revenue has been steadily increasing during the past year, culminating in 30% in the most recent quarter ending on June 30.

In sum, the worst seems to be over in terms of Infineon’s financial woes. It remains to be seen how effectively the company puts its cash on hand to use. If reports of Russian holding company AFK Sistema’s interest in buying a 20% stake in Infineon is to come true, then these troubles  should be a thing of past and the company can go full steam ahead in implementing its vision and strategy.

In the next post we will begin analyzing Infineon’s wireless portfolio.

This segment is part 1 in the series : Infineon
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