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Infineon: Memory chip prices to rise

The German chipmaker's chief executive, Ulrich Schumacher, says he's astonished by the strong recovery of the memory-chip market.

German chipmaker Infineon Technology's chief executive told investors Thursday that he expected prices of memory chips to rise and the company's global market share to grow.

Ulrich Schumacher, the CEO of Europe's second-largest semiconductor company, behind Franco-Italian STMicroelectronics, said he was astonished by the strong recovery of the memory-chip market, and that all units were increasing revenues again.

"For the running quarter, all revenues in all divisions have started climbing again," Schumacher told investors at a conference organized by investment bank Lehman Brothers.

The recovery is most visible in the market for dynamic random access memory (DRAM) chips. Prices for standard 128-megabit modules have risen to between $4 and $4.50 on the spot market from just $1 in November, compared with production costs of $5.50.

Infineon, the world's fourth-largest DRAM producer, expects contract prices, which are more relevant for the company and are currently slightly above spot prices, to climb further in the near future, Schumacher said. "Our marketing team is pretty confident they can push prices up further," he said.

Prices for DRAM chips, which generate around 30 percent of Infineon's revenues, are being driven higher by rising demand by end users, Schumacher said, explaining that inventories were stable at between two and two-and-a-half weeks.

Schumacher also said his company would gain market share as it continued to invest in new 300mm wafer manufacturing technology, which will cut production costs by 30 percent by the end of this year.

"We're confident that in the next two to three years, we're going to gain (DRAM) market share. Whether it is going to be 18, 20 or 22 percent I cannot say, but 20 percent is a reasonable assumption," Schumacher said.

Increases depend on "logic"
The gains will depend on the strength of the non-memory chip business, such as chips for mobile phones, telecommunications infrastructure or cars, Schumacher said. Revenues from these so-called logic chips are often more stable than the commodity DRAM business, as they are tied to specific products and customers.

Right now, demand for long-haul telecommunications infrastructure chips is slow, with no pickup seen in the next two to three quarters. Access chips, used in DSL (digital subscriber line) modems for fast Internet connections, would drive the infrastructure unit in coming months, Schumacher said.

Demand for mobile-phone semiconductors is in a moderate recovery, Schumacher said, but mainly driven by chips for low-end cell phones made by Asian producers. Prices for all the chips needed to make such phones had come down to $40 per cell phone, and would move to $30 for the next generation of these low-end devices.

As a result, chipmakers, including Infineon, have to move to higher volumes for low-end modules and into software and applications for higher-end phones to counter profit-margin pressure, Schumacher said.

Schumacher said he was confident overproduction--the main reason for last year's drop in DRAM prices--would not be an issue in the future.

"On the supply side, I'm pretty confident it is not going to explode," Schumacher said.

The main reason for his optimism was that South Korean rival Hynix Semiconductor is in takeover talks with U.S.-based peer Micron Technology. It is in Micron's interest to keep DRAM prices high if the Hynix deal goes through--the buyout is expected to cost Micron between $5 billion and $7 billion.

And even if cash-strapped Hynix continued on its own, it would not be able to afford investments in the latest 300mm production equipment. This means it would eventually be unable to compete on cost.

"Hynix is one-and-a-half to two years behind. I don't think Hynix has any chance to catch up," Schumacher said.

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