Troubled Infineon to Spin Off Chip Segment

German semi-conductors giant Infineon reported losses Friday, a day after their board approved plans to spin off the company's loss-making chip business into its own company.

Infineon said in a statement that it booked net loss of 312 million euros ($365 million) in the 12 months to September, compared with profit of 61 million euros a year earlier. In the fourth quarter alone, the chip-maker was also back in the red, booking bottom-line loss of 100 million euros, compared with a profit of 44 million euros a year earlier.

Nevertheless, the fourth-quarter loss was narrower than the loss of 240 million euros recorded in the third quarter. On an annual basis, underlying earnings also deteriorated, with Infineon running up full-year operating loss of 182 million euros compared with a year-earlier profit of 256 million euros.

Full-year sales were down 6 percent at 6.759 billion euros. In the fourth quarter alone, the operating loss stood at 43 million euros, an improvement on the third-quarter loss of 234 million euros.

Falling demand, restructuring to blame

"The narrower loss is primarily attributable to slightly higher sales prices and a strong reduction in costs in the memory products segment," said chairman Wolfgang Zeibart.

It was the strong competition in the chip market that pushed Infineon to decide to spin-off its memory chip segment. The company reported only 61 million euros in profit on 7.2 billion euros in sales in 2004. Initially, the memory products business would be made into a legally independent entity by July 1, 2006 and after that Infineon would consider floating it on the stock exchange. The spin-off will help the company concentrate instead on its logic activities in sectors such as the automotive and communications, industrial electronics industries.

In addition, third-quarter earnings had been hit by one-off charges "connected with the planned phase-out of production at the group's plant in Munich-Perlach," the company explained. The planned closure was met with protests by the striking wokers at the end of October. More than 800 are expected to lose their jobs.

Infineon attributed the decline in full-year sales to "falling demand from some customers for mobile phone components and continued pricing pressure in all operating segments."

Memory products business strong

By division, the memory products business turned in operating profit of 34 million euros in the fourth quarter, compared with a loss of 149 million euros in the preceding three months. On a full-year basis, however, the division saw operating profit fall by 28 percent to 122 million euros on a three-percent drop in sales to 2.826 billion euros.

Infineon had announced Thursday that it intended to spin off the activities into a legally independent unit next year with a view to a possible stock market flotation.

In the logic products division, operating profit from the automotive, industrial and multimarket business fell by 47 percent to 134 million euros on a full-basis and sales slipped by one percent to 2.516 billion euros.

Investors looking forward

The communications business saw its operating loss widen to 295 million euros from 44 million euros a year earlier and sales decline by 18 percent to 1.391 billion euros.

Looking ahead, Infineon said it was targeting sales growth at least equal to the market as a whole. Zeibart declined to make any earnings forecast.

Investors appeared to believe that the numbers were not as bad as feared and Infineon shares were showing a gain of 1.13 percent at 8.04 euros in mid-morning trade on the Frankfurt stock exchange.