Expert View

February 26, 2003
Infineon driving forward Agenda 5-to-1

Pradeep Chakraborty

LONDON -- The semiconductor industry is undergoing a radical change. The cycles so typical of the industry, for example, are shorter today, with sharper upturns and downturns. The traditional value chains are also turning into vertical supply chain networks and there is a consolidation going on within the value chain layers. In this capital-intensive industry, exchange of know-how and partnerships are becoming increasingly important as a way of sharing investments and risks. In this environment, Infineon Technologies AG is driving forward its "Agenda 5-to-1" growth strategy to emerge as one of the winners.

Dr. Ulrich Schumacher, president and CEO, Infineon Technologies, recently outlined the firm's growth and production strategy for the next five years at a strategy conference in London. It is systematically implementing its "Agenda 5-to-1" strategy and aims to rank among the four leading semiconductor manufacturers worldwide over the next five years. Infineon aims to be among the top three in all the business segments. It further aims to be one of the best two in terms of profitability, and number one in the semiconductor solutions business.

Convergence Plus caught up with Dr. Schumacher and Loh Kin Wah, president and managing director, Infineon Technologies Asia Pacific, in London to find out how Infineon, and specifically, the Asian unit of the company have performed in the various segments over the last year and know more about its future plans. Excerpts from the interview:

CP: What have been the successes achieved by the 300mm fab in Dresden over the past year? Are you satisfied with the progress made?

Dr Ulrich Schumacher: Just one year after the start of the volume chip production, we now produce at a lower cost per chip on 300mm wafers than on 200mm wafers. This 'cost crossover' milestone reached at the Dresden fabrication plant again demonstrates Infineon’s leading manufacturing position in the industry. We have since enjoyed the full benefits of increased productivity and cost savings of up to 30 percent, as the plant will ramp to full capacity by the summer of 2003.

Operating at full capacity, the 300mm plant in Dresden will achieve 28,000 wafer starts per month. Infineon currently produces around 19,000 wafers per month in 300mm technology at Dresden. As pioneers of 300mm technology, we have set a new worldwide standard for high volume semiconductor manufacturing. By converting DRAM production to 300mm, we believe that we have a four- to five-year lead over competition that solidifies our position in the semiconductor industry.

CP: What are you implying by "tailored technology lifestyle solutions"? How is this a significant shift from your earlier policy?

US: In the 20th century, the industry focused on products, applications and technological progresses. For the 21st century, the individual is the focal point of all business thinking and activities. The individual’s needs are driving the flexible networking of applications for 'technology lifestyle' solutions.

The key to lifestyle solutions is the integration capabilities and the mastery of interfaces across traditional boundaries. Be it electronics, sub-scale technologies, life sciences and services, the integration has to be seamless and customised to cater to the mobile and connected lifestyle of the modern individual. To this end, we aim to create semiconductor solutions that enable the technology lifestyle of the individual in the 21st century. We have a broad-based technology portfolio that is essential for developing tailored solutions.

The shift has resulted in a new focus in expanding our solutions business and extending the value chain management. We are expanding our software competence, service/consulting business, as well as strengthening and marketing IP for applications and solutions based on our core competencies on broadband/access, secure mobile solutions, automotive and memory products.

CP: How has Infineon Asia Pacific performed during the last 12 months in comparison to the Infineon AG Group?

Loh Kin Wah: The Asia Pacific region is a key growth market for Infineon. Infineon Asia Pacific achieved about 30 percent more in revenue terms compared to Infineon Technologies AG Group for Q1, comparing FY2001 versus FY2002.

CP: Which particular segment has performed the best during the same period -- for the Asia Pacific region and globally?

LKW: Our memory business has been the best performer globally, while the wireline communications segment has shown the greatest promise achieving over 130 percent growth in the Asia Pacific region.

CP: How has been the performance in wireless, optical networking, broadband and cards segments for the AP region?

LKW: The wireless segment has performed very well in the Asia Pacific region. We have successfully managed design wins from major customers with our wireless solutions. We are well positioned in optical networking solutions despite keen price competition from Chinese manufacturers. We also offer solutions for storage though unique combination of fiber optics and high-speed IC competencies, complemented by memories, ranging from 1-10G FO modules. On the telecom end (metro SONET/SDH), our market share for 155M, 622M, 2.5G, 10G modules are growing healthily and we have attained 70 percent market share with PAROLI modules. Our MoUs with top accounts and close development links with customers are likely to grow further. In addition, recent major design wins at top telecom accounts for multi-rate 16x2.5/4x10G/40G framer/mapper, along with the first working silicon in the market, fuelled our drive in achieving leadership in the optical networking arena. We also have a strategic partnership with Cisco for next-generation data-enhanced RPR (resilient packet ring) technology for metro applications.

Our broadband business is developing rapidly due to the deployment of VDSL lines for Korea Telecom. To date, Infineon has already shipped around 1 million VDSL/10BaseS chipsets to Korea. With over 70 design wins for Ethernet-over-VDSL for major Asian vendors, such as Huawei, ZyXEL, Sumitomo Electric, etc., Infineon has gained market dominance in Asia.

Our secure mobile solutions are set to become our key growth engine in the years ahead and have a complete product portfolio to serve the rising security needs. We have an established customer base. Many new projects are in the offing that will contribute to the growth of our growth in the coming years.

We feel that customised solutions will become one of our strongest growth segments. We expect the revenue contribution from the Asia Pacific region to outshine Europe over the next five years, rising from 33 percent in 2002-03 to an estimated 41 percent in 2006-07.

CP: How has been the uptake of QAM-VDSL/Ethernet-over-VDSL in the region?

LKW: The uptake of VDSL has been gaining momentum in Asia Pacific, especially in Korea and China. Currently, the VDSL deployment has been as follows. Korea Telecom has deployed approximately 800K

lines in Korea, and Hanaro is starting to deploy VDSL as well. China Telecom has deployed approximately 200K lines in the provincial areas in China. Hutchison has so far deployed approximately 20K lines in Hong Kong, and Chunghwa Telecom has deployed approximately 5K lines in Taiwan.

The Ministry for Information Industry (MII), China released the VDSL standardization on 13 November 2002 (Document number YD/T1239-2002). We can expect the pace of deployment to pick up in China. Infineon has been active in successfully deploying VDSL in the Asia Pacific region. We have supplied over 95 percent of semiconductors for QAM-VDSL/Ethernet-over-VDSL projects.

CP: What sort of advances have you made in the optical networking space in China?

LKW: Infineon has made significant progress in the optical networking arena. We are collaborating with Huawei on the 40G program in China. It is one of the first such programs in the world.

On the 10G opportunity, we are ahead of our competitors in securing a key line card IC design opportunity at Huawei. We have already received a second order for this design. Active design-ins of key line card components at other major telecom system manufactures like ZTE, FiberHome, etc., is ongoing.

Infineon will become the first major semiconductor company to supply standard compliant (IEEE 802.17) RPR chips. We are happy to share that we have received a huge amount of customer requests regarding Infineon's RPR devices.

CP: How much revenue is being generated by wireless-- in the Asia Pacific and globally? Which particular segment within wireless has performed the best?

LKW: The wireless segment contributes 25 percent of the turnover of Infineon Asia Pacific. We have performed strongly in the cellular segments with significant design wins in the financial year with Taiwanese ODMs, some key local OEMs in China, as well as global OEMs.

CP: What are the demand drivers for wireless today?

LKW: Cellular phones and WLAN sectors are likely to drive growth. Prices as well as features drive the demand in cell phones. In the low-end voice segment, price is the main driver. For example, with a penetration rate of about 14 percent, China represents a huge untapped market. As the growth rates in the major cities reach saturation, the next phase of growth will come from the tier two and three cities, where the purchasing power is weaker and prices of handsets will be the major catalyst for purchase decisions.

Features will be the main driver in the mid- to high-end segments and the replacement market. With 2.5G poised to take off in 2003, features that enrich the users' multimedia experience, such as colour screens, polyphonic sounds, MMS, camera and games, such as Java, will be the determinants.

WLANs have seen tremendous growth in 2002, with more and more enterprises deploying wireless networking. These companies are mainly using WLANs as extensions to their existing wired infrastructure, freeing network elements and employees to roam within the office premises.

There are several reasons for this proliferation of wireless networking. Standards are finally in place.

Widely supported and deployed, the 802.11b protocol - or WiFi - is an industry-accepted standard. In addition, the emerging 802.11a protocol, supporting speeds up to 54Mbps, and the 802.11g protocol, also supporting speeds up to 54Mbps, but on the 2.4GHz band (due in 2003) are both expected to gain greater adoption, and further drive the penetration of WLANs. Finally, with falling chipset prices and an overall dip in prices of wireless networking products, we can expect WLANs to see even greater growth.

CP: How much has Bluetooth contributed to your success? What are the emerging trends in Bluetooth?

LKW: Infineon is the number one supplier for Bluetooth products worldwide. Although the Bluetooth market is considerably small as compared to cellular, we will benefit greatly from our strong technical and market leadership when the market takes off. Bluetooth applications are being mainly driven by cellular applications today [headsets as well as well embedded into handsets]. However, we are seeing a greater adoption of Bluetooth in embedded systems as well, i.e., PDAs and notebooks, digital cameras, camcorders, etc. Hence, we are optimistic about the growth of Bluetooth.

CP: Are you seeing a recovery in the semiconductor market? Which particular segments are the demand drivers and why?

LKW: We expect to see a slight recovery in the semiconductor market. The forecast for Q1 and Q2 are understandably flat, largely due to the Chinese New Year holidays. From Q3 onward, the growth rate should be in the range of 20 percent. The major demand drivers are PC motherboards, mobile phone manufacturing in China, and broadband deployment in Korea, Taiwan and China.

CP: According to you, people increasingly need tailored solutions today. How are you meeting those needs in AP and globally?

LKW: Infineon recognises the need to tailor our solutions to incorporate the needs of the local markets. We show our commitment by building a strong local presence through investments in local R&D centers that are part of our worldwide network of R&D centres in 29 locations.

We have set up competence centers in Hong Kong and Shanghai in the Asia Pacific to assist our customers in adapting our reference solutions into customised end products. By providing technical assistance -- both in hardware and software -- from product conception to mass production, we help our customers launch their mobile phone products as quickly as possible. We will also continue to expand our software competence at our design center in Bangalore, India.