The split, announced a day before the company's fourth quarter earnings report, confirmed rumors the company was considering selling its dynamic random-access memory business.
The memory products business will become an independent entity by July 1, 2006, Infineon said. As a next step, the company said it is giving serious thought to an initial public offering for the separate memory business.
"There are two essential reasons for taking this step: First, the processes and business models for memory and logic are developing in diverging directions," Infineon Chairman Wolfgang Ziebart said.
"Second, we improve the growth dynamic and profitability potential for both companies."
Analysts have estimated that Infineon's memory business is worth about $2.9 billion to $4.1 billion.
The move follows, the .
Infineon's memory business contributes about 40 percent of the company's sales but must compete in a volatile flash-memory marketplace behind companies such as Samsung Electronics and Hynix Semiconductor.
The new company will retain its operational headquarters in Munich, Germany, and its technology development center in Dresden. Kin Wah Loh, member of the management board for Infineon and responsible for memory products, has been designated to lead the new company.
The remaining logic group will focus on its automotive, industrial electronics and communications accounts, although Infineon said it will be more selective and strategic about its manufacturing partnerships than it has been in the past.
Infineon has manufacturing sites in Dresden and Essonnes, France, but the company said it will rely on other fabrication plants to build its 65-nanometer (nm) supply.
For its fiscal fourth quarter, the company reported a $118 million loss as sales fell 13 percent compared to the same quarter last year.