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Infineon, Europe's third-largest chipmaker, announced that it would cut 5,000 jobs worldwide over the next year as part of an EUR1 billion cost cutting plan.
The ongoing cost reduction programme, called Impact, will see the company slash investment in the coming fiscal year by almost half. Infineon Technologies said it would eliminate EUR600 million of EUR1.5 billion in investments for the year starting 01 October. The company's cost cutting move comes just days after Deutsche Bank questioned whether Infineon, a former subsidiary of Siemens, had enough cash to make it through 2002.
The suffering German chipmaker made the announcement the day after AMD, the world's second largest semiconductor manufacturer, announced that it would cut 2,300 jobs and shut two of its Texas facilities.
D-RAM (Dynamic Random Access Memory) chips are the weak link in Infineon's business, according to Paul Phelan, technology analyst at Davy Stockbrokers. "The prices have been so low for the last six months, it costs more to make it. All companies in the D-RAM business are in trouble; they are burning cash," said Phelan. "Infineon is trying to push one of the bigger competitors out of the market. After that the supply will go down and the prices should go up again."
According to Phelan, with the 90 percent drop in the prices of D-RAM over the last year, Korean companies Hynix and Samsung are candidates to be pushed out of the market. The fallout from the situation in the market has impacted the companies' competitors in Asia, most notably Toshiba and Hitachi in Japan who recently decided to cut 20,000 jobs each.
In fact Phelan described the D-RAM market as "bloody" and said companies were facing a "survival of the fittest" scenario. "Something drastic had to be done," he said. "EUR1 billion of savings sounds significant and it just may be enough. They need to act quickly, because there is a danger that their other lines of business will be affected."
Infineon said that it is not trying to push anyone out of the market, but noted that competitors might not be able to withstand the downturn. "It is very possible that one of the competitors won't survive the current market conditions," said Gunther Gaugler, Infineon's Media Relations Manager. "I think Infineon will survive, because these measures are drastic enough." Gaugler could not split the job losses regionally.
The reduction in Infineon's workforce is already well under way. By the end of 2001, the company will have shed 2,400 jobs. Five hundred of those cuts are expected to come in Germany and 1,900 in Infineon's other operations around the world. Infineon has 10 employees in Ireland.
"These measures have helped us to counteract the existing difficult market conditions and we will emerge strengthened from the worldwide downturn in the semiconductor market," said Ulrich Schumacher, president and chief executive officer at Infineon.
"Infineon has a healthy balance sheet, a significantly positive net cash position and available credit lines of approximately EUR2 billion," said Schumacher. "We have no current need or plans for further financing activities."
Infineon makes semiconductor and system solutions for applications in the wired and wireless communication markets, for security systems and smart cards, the automotive and industrial sectors and memory products. It has headquarters in Munich, Germany, and employs 29,000 people worldwide.
Following the announcement Infineon was up 1.89 percent in Frankfurt in early trading at EUR13.50.
For more information visit http://www.infineon.com.
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