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Last updated: November 18, 2005 9:02 am

Infineon to float memory unit

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Infineon, the German chip maker, reported narrowing losses in the fourth quarter after confirming plans to turn its troubled memory chip business into a separate company and float it in the summer of 2006.

The company’s supervisory board on Thursday sanctioned the strategic shift led by Wolfgang Ziebart, chief executive, who argued that  “fundamental shifts” in markets made the “preferred option” of an initial public offering necessary.

Approval of the plan came shortly before Infineon reported its results for the year to September 30, with losses narrowing in the fourth quarter after two sequential quarters of loss.

Infineon reported a €43m loss before interest and tax (ebit) compared with a loss of €234m in the third quarter, and a €113m profit in the fourth quarter of 2004. Revenues of €1.73bn were 13 per cent lower for the final quarter than in the same period last year, but 8 per cent higher than in the third quarter.

Full-year revenues were €6.76bn, 6 per cent lower than in 2004.

Infineon said the worldwide semiconductor industry was forecast to grow at a mid-single-digit rate in the 2006 calendar year. Infineon revenues were expected to grow about 6 to 8 per cent, Mr Ziebart said. The group will increase its cost-cutting target for 2006 from €200m to €340m.

Fierce competition has driven prices for D-Ram chips down by an annual 30 per cent in recent years, with market-leader Samsung expecting them to steady by the middle of next year at the earliest.

Spinning off a unit contributing 40 per cent of revenue comes after a string of smaller sales initiated by Mr Ziebart to focus Infineon on less cyclical logic chips found in cars, washing machines and computers.

Mr Ziebart has been looking to get rid of the memory chip unit, which is set to lose millions on sales of €2.5bn ($2.9bn) this year, as demand swings in this market are big and the business remains extremely capital intensive.

The plan to turn the business into a legally separate entity as of July 1 of next year would improve sales growth and profitability, Mr Ziebart said, without mentioning a timetable or a location for an eventual IPO.

But analysts are sceptical. Samsung, the South Korean electronics giant, last year racked up memory chip sales of about €7bn, almost three times as much as its German competitor, and wants to triple these by 2012.

Julian Mittag, a fund manager at SEB Investment in Frankfurt, said Infineon’s memory chip business was too small to compete.

Infineon and Nanya Technology of Taiwan both own half of Inotera, a memory chip maker based on the island, and many observers could imagine this company being put together with Infineon’s German unit.

But the partners are pressing ahead with a separate IPO of Inotera in Taiwan and Europe in early 2006.  

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