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Infineon pulls out of ProMos venture

"I'm not surprised by Infineon's announcement. Mosel, the largest sharehol-der in ProMos, has had financial problems. Infineon does not know if ProMos can keep running, so it can't be sure about continuing its invest-ment."

Jovian Huang, a chip analyst at KGI Securities

Germany's Infineon Technologies AG broke its ties with Taiwanese memory-chip manufacturer ProMos Technologies Inc (茂德科技) yesterday, due to financial difficulties of its partner in the venture, Mosel Vitelic Inc (茂矽).

Infineon originally set up ProMos as a joint venture with Mosel, Taiwan's fifth-largest memory-chip supplier, in December 1996 to make DRAM chips.

The news came as no surprise to market watchers.

"I'm not surprised by Infineon's announcement. Mosel, the largest shareholder in ProMos, has had financial problems. Infineon does not know if ProMos can keep running, so it can't be sure about continuing its investment," said Jovian Huang, a chip analyst at KGI Securities Co (中信證券). Mosel currently owns 37 percent of ProMos's shares while Infineon owns 30 percent.

Huang added that Infineon's decision to set up a new 12-inch fab with Taiwan's largest memory-module manufacturer, Nanya Technology Corp (南亞科技), indicated that Infineon's alliance with Mosel "was already dead."

A Nanya spokeswoman, who spoke on condition of anonymity, confirmed the news, saying that Infineon signed a memorandum of understanding on a joint venture to build a new 12-inch fab. The new facility will be located near Nanya's second manufacturing plant in Linkou's Hwa Ya Technology Park (華亞科技園區). She declined to comment on Infineon's withdrawal from the ProMos plant, but did stress that "Infineon and Nanya's partnership is very good."

Pundits were mixed on the financial implications of the news.

"The impact [of this announcement] will be pretty big," said George Wu (吳裕良), an analyst at Primasia Securities Ltd. "The end of the present contract, with a guaranteed buy-back from ProMos, will be bad for both ProMos and Mosel."

Wu did point out that along with pulling out of the deal, "Infineon will help Mosel to sell shares."

Wu, however, had little positive to say about the future of ProMos. "The negative impact for ProMos will be huge because it will hurt the current buy-back agreement," he added.

Under this agreement, Infineon is obliged to sell back half of its shares to Mosel, placing more than 50 percent of ProMos' shares in Mosel's hands.

Meanwhile, Mosel's cash problems may be approaching the critical point, according to media reports and industry pundits. In late September, local press reported that Mosel planned to sell stakes in ProMos and ChipMos Technologies Inc (南茂科技) to help repay debts that mature next year.

"Mosel only has [enough] cash to support itself until 2003 ... and will have to sell its shares in ProMos to pay its debts," said Hsu Pei-shan (徐珮珊) at HSBC Asset Management Ltd.

She said that Mosel "would not die" but would rather merge some of its operations.

Meanwhile, the future for ProMos looks uncertain. HSBC's Hsu predicted that Infineon would hang on to its ProMos shares for now, "but in the long-run they don't have the cash and technology to support the next generation of memory technology, so they will have to sell." She did suggest that Intel was seeking out a memory manufacturer to re-enter the memory market.

"To build up its standard, Intel needs a joint venture with a memory module manufacturer," she said.

However, on Wednesday Intel Corp's chief operating officer, Paul Otellini, dismissed as "speculation" news that Intel would re-enter a market it left a decade ago. He told reporters in Seoul: "We have no intention of getting back into that business."

ProMos currently employs around 2,100 people and has two manufacturing facilities in Taiwan, one dedicated 12-inch wafer fab and one 8-inch fab. The two plants produce memory modules for personal computers and other high-tech products.
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