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Infineon makes money out of memory chips shock

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ComputerWire: IT Industry Intelligence

Heavy investment in 300mm wafer production capacity and R&D has started to pay off for Infineon Technologies AG, which has started the year with strong revenue growth and a belief that it faces "further stable development of demand in most market segments." It claims to be the among the first companies to return to profit in the memory market.

While Dr Ulrich Schumacher, CEO of the Munich, Germany-based chipmaker, said he can see the first signs of a "positive market trend", he said it is too early to speak of a sustained overall market improvement. He warned of a difficult market environment with continued pricing pressure in the wireline communications and secure mobile segments in the first half of 2003. In the first quarter to December 31, the net loss was 40m euros ($42.7m), down from a loss of 331m euros ($352.9m) on revenue up 47.2% at 1.5bn euros ($1.6bn).

Infineon's bottom line rests on its memory products, and first-quarter revenue leapt 89% over the figure a year earlier to 542m euros ($577.9m) which enabled it to turn in earnings before interest and taxation of 29m euros ($30.9m), up from a loss of 375m euros ($399.8m).

Europe's second largest chipmaker after STMicroelectronics NV anticipates only a slight increase in demand in the second quarter and cautions that a sustained increase in prices during 2003 will require stronger demand from the corporate replacement cycle and increased infrastructure investments.

Infineon's success is not necessarily an indication of market growth but more a signal that companies that invest in the latest production technologies can always grab market share from less successful competitors. Schumacher said he is confident that its successful shrink roadmap, combined with the expansion of its strategic manufacturing co-operations will enable it to gain further market share and enable it to establish Infineon as a top-three player in the global DRAM market in the foreseeable future.

In the secure mobile market, Infineon is looking for increased demand for GSM/GPRS handsets to 440 million in 2003, but it warns that demand will slacken in the second quarter after the Christmas sales boom. This enabled the company to hoist first-quarter revenue by 44% to 412m euros ($439.2m) with an EBIT loss of 28m euros ($29.8m), compared with an EBIT loss of 60m euros ($63.9m) a year earlier.

In the SIM card sector, it warns of a seasonal weakness in demand and strong pricing pressure though it is looking for a market improvement in the second half.

In the telecoms sector, Infineon expects more gloom, predicting a 10% decline in infrastructure spending, following a 37% fall last year. The only glimmer of hope it sees is in broadband connectivity and it says that as the DSL roll-out gains momentum, it expects to benefit from stronger demand, especially in Asia and Japan.

Broadband saved its wireline communications business in the first quarter, where revenue rose 28% to 106m euros ($112.9m) and it cut the EBIT loss to 42m euros ($44.8m), compared with a loss of 85m euros ($90.6m) a year earlier.

© ComputerWire

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