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Infineon-LSI merger was customer driven

Posted: 27 Aug 2007     Print Version  Bookmark and Share

Keywords:Commentary  Infineon technology  LSI customers 

With its purchase of LSI's mobile chipset business, Infineon has bought itself market share. The move, however, doesn't guarantee to bring the company closer to breakeven point.

While the reason for the acquisition was Infineon's interest in LSI's baseband processors and related chipsets, the decision was not technology driven. The motivation behind the German company's cash out of more than Rs.1,808.04 crore ($447 million) was really LSI's interesting customers for its baseband chips. On top of LSI's customer list is Samsung. As one of the world's largest mobile phone makers, the Korean company demands a corresponding quantity of chipsets.

BenQ Mobile catastrophe
Infineon badly needs to broaden its customer base after the major setback it suffered from having the insolvent BenQ Mobile as its largest customer. The inroads it made at Nokia as well as the reported chip supply deal for Apple's iPhone are not enough to offset the losses Infineon incurred from the catastrophe.

"The move gives us a good chance to improve our market share," said an Infineon spokesperson, commenting on the purchase of the LSI unit. He added that the company hopes to achieve economies of scale, but there is no certainty this would materialise. Manufacturing of the LSI chipsets will remain where it is, as Infineon has no plans of moving it to its own production lines. R&D, also a major matter of expense in the baseband business, cannot necessarily benefit from the move. After all, Infineon's R&D team will have to maintain additional product lines. Having no architectural or technological roots in common, the product lines have no synergies to offer.

It also remains unclear how the product lines to be acquired are positioned in the market. Infineon sees its strength in the low-end, high-integration market place, while Agere, before the merger with LSI, positioned its chipsets somewhat higher in the market. No information on this issue is currently available, and Infineon for now declines to discuss it.

Open question
Another open question is why the business unit sold to Infineon apparently did not succeed at its former owner. When Agere was acquired by LSI, analysts did not see much synergy resulting from the merger. Perhaps this was why LSI, in an effort to rid itself of anything outside its primary focus, also sold the mobile chipset business. However, there is a dearth of information regarding the performance of this business, making it difficult to obtain a clear picture.

Infineon claims it will break even in Q4 with or without the business it recently acquired. But it remains to be seen if the move contributes anything to the company's profitability.

- Christoph Hammerschmidt
EE Times Europe

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