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Infineon confirms memory biz spin-off

Just when the DRAM market is about to slump, says analyst

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Infineon's supervisory board yesterday voted to split the company in two and create a separate, independent company out of its troubled memory products division.

This will see the DRAM operation become a legally independent entity on 1 July 2006. It will not go public immediately, Infineon said, although an IPO remains the board's "preferred option".

According to market watcher Gartner, delaying the IPO is a sound move. Yesterday, it forecasts 2006 will see a big decline in the DRAM market as it enters one of its regular downturns - "a period of oversupply and falling prices", is how Gartner describes the market. It believes DRAM revenues will fall five per cent next year, from the $25.7bn worth of sales it's anticipating this year. In 2007, revenues will fall another 20 per cent to $19.5bn, as price erosion next year bites home. By 2010, the market will have risen a little, to $20.2bn - still well below today's level.

The coming years, then, will hardly be the best time to IPO a memory company, senior Gartner analyst Andrew Norwood said.

The Infineon board's rationale for the move are the "diverging... processes and business models" of the two sides of its business. Alongside memory, Infineon also focuses on chips for automotive, industrial and communications applications.

Improved fourth quarter

During its recently completed fourth quarter of fiscal 2005, Infineon lost €43m before tax, rather less than the €234m it lost in Q3, on revenues of €1.73bn, up eight per cent sequentially. All divisions reported increased sales and either reduced losses or improved earnings. Infineon took a €81m, hit on its quarterly earnings due to the closure of its Munich-Perlach plant and a €64m impairment charge within the communications products division.

The company's Q4 net loss of €100m, compared to a net loss of €240 million in the previous quarter.

Infineon pointed to higher bit shipments and slightly increased average sales prices in the memory market as one of the quarter's growth drivers, but if Gartner's forecast proves correct, it can't count on that for long.

For Q1 FY2006, the company expects revenues to rise "slightly" on a sequential basis, with no significant charges set to be recorded. For the memory division, the picture is less clear: "Pricing pressure and uncertainties regarding chipset availability in the PC segment, makes price development difficult to predict," the company says, although it is banking on seasonally strong demand for computers to drive increased shipments.

Like Gartner, Infineon points to "competitors" who have shifted their DRAM production to NAND Flash - Gartner named them as Samsung and Hynix, the world's two largest memory makers - which will take some of the pressure off the DRAM business, but "only partially". ®

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