The guesswork of the chip company’s next factory

Infineon chip production

The chip company has just opened its new plant in Villach. With a construction time for a factory of three years, the group has to start thinking about the next location.

(Photo: Bloomberg)

Munich Infineon has only just opened its most modern factory, so the question arises: When will the excavators at Europe’s largest chip company next start? According to the company, the new plant in Villach will be fully utilized in three, or four years at the latest. With a construction period of three years, the management will soon have to think about how to proceed.

However, CEO Reinhard Ploss persistently remains silent when asked about the semiconductor manufacturer’s plans. “Let’s fill this factory up and we’ll see what’s coming,” the manager said last week. The 65-year-old only revealed this much: In order to achieve economies of scale, the next plant will probably also be built at one of the Group’s three major locations, i.e. in Dresden, Villach or Kulim in Malaysia.

There are good reasons why Ploss remains so vague: The manager has promised investors that he will only invest 13 percent of sales. This should make the Dax group significantly more profitable than before. In the past few years, Infineon has spent up to 18 percent of its sales on new machines and factories.

Apparently Ploss fears that he will not be able to keep his word. The billion-dollar takeover of US competitor Cypress in the spring of 2020 made Ploss palatable to its shareholders with the announcement that the investment ratio was falling. Because many of the chips from the Silicon Valley company come from contract manufacturers.

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The contract manufacturers do not comply with Infineon’s orders

Precisely those suppliers, the so-called foundries, have not been able to produce as much for months as Infineon and other semiconductor companies order. The previously so attractive, capital-saving mix of own and third-party factories is reaching its limits. “In-house production has its value, as the current situation shows,” said Production Director Jochen Hanebeck at the opening of the new plant in Villach in the middle of the month.

Chip factories are horrendously expensive, so the analysts listen carefully when it comes to Infineon’s future factory plans. The group will invest 1.6 billion euros in the plant in Carinthia by the middle of the decade, which corresponds to around 15 percent of the sales planned for this financial year (September 30). It is Ploss’ goal to achieve an annual turnover of two billion euros with the factory in the final stage.

Reinhard Ploss

The Infineon boss also wants to build the next factory at one of the three large locations, i.e. in Dresden, Villach or Kulim in Malaysia. The manager leaves open when the construction work will start.

(Photo: Bloomberg)

In Villach, Infineon produces so-called power semiconductors, such as those used to power electric cars. Business with this type of chip is booming, and the ZVEI industry association warned of long-term supply bottlenecks last autumn. According to a study by the Fraunhofer Institute for Industrial Engineering and Organization on behalf of the ZVEI, demand will quadruple by 2030. According to experts, Infineon and its competitors would have to decide to build several new plants as early as next year – all of the same size as Villach – in order to meet the demand.

Infineon has been developing extremely dynamically for months. In the most recent quarter, sales climbed by a quarter to a good 2.7 billion euros. The operating margin was 18.2 percent. In May, Ploss raised its forecast for the second time this financial year. The manager is now promising sales of eleven billion euros, 200 million euros more than before. In addition, the manager announced an operating margin of 18 percent, an increase of 0.5 percentage points. Ploss confirmed this prognosis in August. The long-term goal of the group across an industry cycle is a margin of 19 percent and an annual increase in sales of more than nine percent.

Infineon has a head start when it comes to power semiconductors

It is no coincidence that Infineon produces the power semiconductors itself. Because in this field the group has maintained a technological lead over competitors such as ST Microelectronics for years. The Munich-based company developed the pioneering 300-millimeter thin wafer technology at an early stage. On 300 millimeters, up to 2.25 times more chips can be processed per wafer, i.e. per silicon wafer, than on the previously usual 200 millimeters. Despite the higher costs for machines and materials, the unit costs are reduced by up to 30 percent. This enables Infineon to manufacture close to customers in Europe.

On October 5th, Ploss has invited investors and analysts to a capital market day in London – the first event of its kind since 2018. The question of the next work should be at the top of the agenda of the participants. However, Ploss himself will no longer be responsible for a new building. The engineer’s contract will expire at the end of next year.

More: Infineon opens a new plant – but the delivery bottlenecks remain

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