Infineon to outsource more chips

Contracts between ProMos Technologies Inc (茂德科技), Winbond Electronics Corp (華邦電子) and multinational memory chipmaker Infineon Technologies AG will increase the amount of memory the German giant sources from Taiwan by up to 50 percent by the end of this year, an executive from Infineon said yesterday.

In order to remain competitive in the new dynamic random access memory (DRAM) chips market, Infineon will have to increase its market share from 12 percent today up to 20 percent by 2004, and Taiwan will play a major role in this ramp up, said Johann Harter, executive vice president of Infineon Technologies, at an institutional investors conference hosted by ProMos Technologies.

Infineon has long worked with Taiwanese firms in the memory chip business. This year, the company signed new deals with Mosel Vitelic Inc (台灣茂矽) and Winbond to provide technology assistance and cash in return for production capacity.

Winbond will produce memory chips on behalf of Infineon in a straight deal for help with manufacturing technology, while the German chipmaker upped its equity stake in ProMos, a joint venture with Mosel Vitelic, from 38 percent to 48 percent and gain more production.

Becoming a partner with a Taiwanese company saves Infineon the cost of building new plants, analysts say. State of the art chip plants can cost up to US$3 billion.

Size matters in the DRAM market, where high-tech chips are mass-produced and sold on spot markets in the same manner as commodities such as oil and gold.

Prices often rise and fall quickly, and overproduction kills profits in down years, such as last year, when the world DRAM market shrank by nearly two-thirds to US$10.5 billion.

In order to recoup research and development investment, DRAM companies must produce and sell massive amounts of chips.

Infineon -- which will be the third largest producer of DRAM chips if US-based Micron Technologies completes its merger with Korean producer Hynix Semiconductor -- needs the Taiwanese companies to help it keep up in the DRAM market, analysts say.

The Hynix-Micron deal would give Micron the largest market share of the global DRAM market at around 34.5 percent. Samsung ranks second with a 27 percent market share, according to research firm Dataquest.

The Financial Times yesterday quoted Infineon CEO Ulrich Schumacher as saying that Infineon may lag in R&D if the Micron-Hynix deals goes through.

The paper also quoted him as saying he expects a preliminary agreement to cooperate with Nanya Technology Corp (南亞科技), Taiwan's largest DRAM maker, within four weeks.