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Phew! Well, sort of. Despite having to cut the size of Qimonda’s initial public offering in half, Infineon can feel somewhat relieved that its memory chip subsidiary has managed to make its New York debut at all.

As carve-outs go, Qimonda was a difficult sell. Average operating margins have been under 4 per cent for the past three years. Supply and demand for D-Ram chips look well balanced over the next few quarters. But this is essentially a commodity market and one that does not suffer the medium-term capacity constraints affecting copper and oil producers. In value terms, the D-Ram market has shrunk by half over the past decade. Neither is this the most propitious time for new floats, given current stock market conditions.

Qimonda, however, simply had to go. Infineon’s other chip businesses supply specialist markets such as automotive and phone manufacturers, typically on long-term contracts. Qimonda’s model, more reliant on volume and exposed to price swings, is more susceptible.

The carve-out ought to help unwind Infineon’s conglomerate discount. At $13 per American depositary share, Qimonda’s offer price implies an enterprise value for the rest of Infineon of just 0.7 times 2006 sales, cheap by sector standards. But Infineon trades at a discount because it is making losses, particularly in its communications business.

The other factor holding Infineon back is that Qimonda’s IPO does not change that much in the short term. Forced to scale back the offer, Infineon will still hold 86 per cent of Qimonda, even if the greenshoe is exercised. In other words, half of Infineon’s market value remains exposed to the swings of the D-Ram market. The overhang may also cap potential gains in Qimonda’s value. Pressing ahead was the right thing to do, but any reward for Infineon’s investors looks some way off.

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