MUNICH, Germany If one believes Infineon's top executive Peter Bauer, the market is about to recover from its ugly low in the first quarter. The recovery, if any, however takes place more in the sentiment than in real figures.
With the exception of the wireless business, Infineon was confronted with order cancellation and significant lack of demand across all of its business segments. In the automotive business, the crash of the US and European market dragged the company's sales down vehemently. Unexpectedly the Japanese market also weakened. "In the USA and Europe, the downturn was stronger than we expected", Bauer said in a press conference at the opportunity of publishing the company's quarterly figures. "And then we also saw the Japanese market decline."
In other market segments, the trend was similar. Power semiconductors, smart cards, wireline communications, in all segments customers cancelled orders. Confronted with the market uncertainty, the company saw no alternative to reducing its stock which however aggravated the underutilization of its production lines. In some lines, utilization fell below 50 percent, Bauer acknowledged.
The decline was deeper than expected. For this reason Infineon won't be able to meet earlier sales targets which already were about 15 percent below last year's figures, Bauer said. The reduction in guidance is less owed to the market perspective but to the pronounced decline in the first quarter.
In most market segments the company now sees the downturn trend stopped and even an, albeit fragile, tendency to recover. "Since beginning of March, the situation has improved to some extent," the Infineon CEO said.
One positive exception was wireless communications where the company achieved several design wins, in particular in the 3G and in the Ultra Low Cost (ULC) market segment. Customer LG for instance increased its order to several million units before the product, according to Bauer LG's flagship touchscreen handset model, was on the market. Other major orders came from Nokia which significantly expanded its supply relationship with Infineon.
The strong demand for wireless chips caused the company to return to normal work from the short time working scheme in its Dresden fab. "We currently do not plan to return to short time working scheme at this production line," he announced.
Nevertheless, the company had some trouble in Dresden since the production equipment was in part shared with its subsidiary Qimonda. Since the DRAM maker is insolvent and currently managed by an insolvency administrator, Infineon suddenly had limited or no access to the machines it used to use. For this reason, Bauer was forced to buy back parts of the equipment. "But this was in the low single-digit million euro range," he placated.
In other segments, utilization in the meantime has recovered as well. The company's power semiconductor production lines in Regensburg (Germany), Villach (Austria) and Kulim (Malaysia) have returned to utilization rates above 50 percent, and for the chip card segment the situation is similar, Bauer said.
The company used the situation to speed its job reduction program. Initially, the management had planned to decrease the headcount gradually over the entire year. Now the staff reduction is almost completed; Bauer said. Currently the company has about 26.400 employees, down from 29.100 in September 2008. Only "a few hundred" more are scheduled to be cancelled, Bauer explained.
Bauer countered rumors of potential mergers. "We definitively have no interest in mergers, there are no such activities going on," he made clear.
Since Infineon's share price has climbed significantly over the past weeks and currently is slightly below the mark of 2, the company's prospects for a capital increase have been improved. Such a move is important for the semiconductor vendor since he has to refinance a triple-million euro amount within the next 18 months.
With regard to the company's perspectives to refinance its debts Bauer declined any comment. "We have a strict no-comment policy on this topic," he said. "After all, we do not want to jeopardize this goal". The same held true for reports the company would prepare an application to receive government aid. Bauer only said that the refinancing topic has "the highest priority".
Despite these facts hinting the situation has improved, the recovery still is weak and at a very low level. It might be too early to believe the crisis is over. "We have seen order entry to stabilize since March," Bauer said. "But this is not a breakthrough."
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