Infineon Technologies AG (ADR) (IFX)

Infineon Technologies designs, develops, manufactures and markets a broad range of semiconductors and complete system solutions targeted at selected industries. The company’s products are used for the applications in the wireless and wireline communications, automotive, industrial, computer, security and chip card markets. Infineon operates in three segments: Automotive, Industrial and Multimarket, Communication Solutions and Qimonda.

In the first quarter of the fiscal 2007 the company reported a decline in the revenues by 7% as compared to previous quarter. The memory chips have been the most important products in the company’s portfolio contributing towards majority of its operating profit. But due the volatility of this market the company has faced three successive years of net losses and hence it is adopting a strategy of moving away from memory chip business and nurturing more profitable business like mobile-phone chip market. There is a lot of uncertainty onto whether the company can capture a share of this market as the market is highly competitive, hence creating further risks for the company. Adding to the agony of Infineon, its competitors partnered with handset giants like Motorola and Nokia, whereas it partnered with its parent Siemens, whose handset business went bankrupt in 2006 after steadily losing share.

The company is relying on its Comms division for future growth; this can be a risky proposition as the company has not been able to make good money from this division despite of its large share in the RF chip market. Moreover, the company is divesting its Qimonda memory chip group which can cause problems for the company in the near future looking at its profitable contributions in the past. Although the company is promising to build profits in the coming months, the share price is not expected to follow the suite.