Infineon Technologies AG’s chief executive officer Peter Bauer says a focus on tailor-made chips for cars and machinery is helping Europe’s second-largest semiconductor maker overcome the industry’s sharp price and demand swings.
“Our risk profile is much lower” after getting rid of high-volume, commoditized chips used in personal computers and mobile phones, Bauer said in an interview last week at the company’s headquarters in Neubiberg, south of Munich, Germany. “The company has some difficult times behind it. Now we are cyclical, but not volatile.”
In 2004, Bauer assumed board responsibility for Infineon’s automotive, industrial and multimarket units — six years later, those are the only businesses left and Bauer is CEO. And Infineon, the worst-performing company in Germany’s benchmark DAX Index before he took over, can show off rising profits, the first dividend in more than a decade and an 85 percent share price gain this year. STMicroelectronics NV, Europe’s largest chipmaker, has risen 20 percent this year.
Infineon accumulated losses of 4.7 billion euros (US$6.3 billion) after it was sold by Siemens AG, Europe’s largest engineering company, in an initial public offering in March 2000. Its shares were sold for 35 euros each, rose as high as 83.74 euros in June 2000 and fell to an all-time low of 0.35 euros in March last year. The stock dropped 0.3 percent to 7.186 euros in Frankfurt on Monday.
Bauer, 50, became CEO in June 2008 and completed a revamp that started in 2006 with the carve-out of the unprofitable memory-chip unit Qimonda and ended with the agreement in August to sell the mobile-chip division to Intel Corp. Qimonda filed for insolvency last year.
Other chipmakers also retreated from the memory market to avoid dealing with uneven sales of personal computer semiconductors that hurt earnings when supply outweighed demand. Intel exited the memory-chip industry more than 20 years ago and Texas Instruments Inc sold its business in 1998.
After posting a net income of 390 million euros in the fourth quarter of this year, Bauer has five consecutive quarters of profits -behind him — the longest streak since the IPO. His predecessor Wolfgang Ziebart presided over 13 quarters of losses and three of profit, according to Bloomberg data.
Bauer forecast a 10 percent improvement in sales as well as stronger margins next year and said last month that Infineon plans a dividend of 0.10 euros for the past fiscal year, the first payout in a decade. The sales target for the current fiscal year may be “conservative” as the company is awash with orders, the CEO said.
Infineon’s remaining businesses have “been hidden behind the turnaround story of wireless, and before that it was about memory, memory, memory,” Bauer said, adding that as investors learn more about the complex industrial business, “they become increasingly happy with what they see there.”
The industrial and multimarket unit makes chips for smart power use in electronics and for windmills and the automotive unit supplies companies like Audi AG and China’s Chery Inc with chips that replace expensive mechanical parts. The chip card and security unit recently won a deal to supply security controllers for some 6.5 million new electronic identification cards that the German government issues each year.
Infineon’s success is partly due to Bauer and also a result of demand for semiconductors recovering after the economic slowdown last year, said Eerik Budarz, an analyst at Silvia Quandt & Cie AG in Frankfurt.
“Now they are doing extremely well and I’d love to credit Bauer for a lot of that, but at the same time they’ve benefited from the cycle,” he said. “Hopefully, it should be a more stable business going forward, with higher margins and possibly even higher peer multiples.”
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