Q: Now that Infineon has spun off everything except its logic business, what has changed in terms of how the company goes to market and who its customers are?
Ziebart: The separation from the memory business gives us a very good opportunity to sharpen the profile of Infineon. In former times, Infineon was an IDM (integrated device manufacturer) covering many different segments of the market from commodities to ASICs and was very focused on the fab and the execution of Moore’s Law.
Q: So how has the company changed?
Ziebart: The company going forward will focus on three major demands of society. The first and most important one is the need for energy conservation. That is actually three different areas. The first is energy conservation. The second is efficient energy transmission. The third is saving in energy consumption. Energy conservation is all about semiconductors and solar panels. The average person only sees the solar panel, but what’s behind that includes very sophisticated electronics that convert a varying input into an output of a given voltage and phase.
Q: What are the other two areas?
Ziebart: The second is power transmission. The distance between power generation and power consumption is increasing. Efficient transmission becomes an issue. Here, in former times, power was transmitted by alternating current. In modern set-tops, it’s transmitted by direct current. So we are rectifying the current out of the generator at the power source and then making alternating current, which consumes a fair amount of silicon. That’s what we are providing.
Q: But that’s not always true, is it? If you go to solar power, the generation is closer to the consumer.
Ziebart: That’s true. And if you go to DC transmission, it would be even more efficient.
Q: That would be like the revenge of Thomas Edison, who favored DC transmission while Westinghouse favored AC.
Ziebart: Yes.
Q: What’s the third area?
Ziebart: Power consumption. What we do here is reduce energy losses in power supplies in laptops, computers and TVs. We also address electric energy consumption in cooking. Inductive cooking saves about 30 percent. And every electric motor can strongly benefit from having electric control.
Q: Is this variable-speed motors?
Ziebart: Mainly, but it also involves motors that are operated in an on-off mode. Your refrigerator or air conditioner may be switched on for one minute and then switched off for five minutes, depending upon the demand of cooling power, as opposed to a consistent low-power operation. In such an operation mode, you can save 20 to 30 percent. You can make an analogy to driving. If you drive at 100 miles per hour for 15 minutes, then brake for 15 minutes, then drive at 100 miles per hour for 15 minutes, you will use more energy than doing the same drive at 50 miles per hour. That’s why every electric motor that is not running continuously at the optimum point can strongly benefit from electronic control. In all these applications, this is about power semiconductors. They play a key role.
Q: Speaking of cars, how about hybrid models?
Ziebart: A regular midsize car has the silicon content of about a tenth of an eight-inch wafer. A high-end car has about a third of an eight-inch wafer. A normal hybrid car has the equivalent of a full eight-inch wafer of silicon. The important piece is the power semiconductor. It’s Power MOS sometimes, it’s IGBTs sometimes, and here we hold the number one position in the world. We are number one in power semiconductors. This is the most important area for us going forward—energy conservation.
Q: Are German car makers preparing hybrids?
Ziebart: The German companies are more reluctant to use that technology. We see the market in the United States emerging much faster than in Europe.
Q: That’s interesting, considering Germany is far ahead of the United States in the ‘Green’ movement.
Ziebart: It is much more green, and the traffic conditions vary more than in the United States, where you are driving at constant speeds for quite a while. In Germany, there is more stop-and-go traffic, so the benefit from hybrids is even bigger.
Q: It looks like Toyota is gaining market share because of that.
Ziebart: There are several solutions on the market, and for us that is a good business. But there also is cooperation between BMW, Mercedes and General Motors to jointly develop a hybrid car. Europe is on its way, but Japan is leading now.
Q: Car companies design at least a couple years in advance of when a new model ships. What does that do for your planning cycle?
Ziebart: In automotive, planning is longer term than in other segments of the semiconductor market. Usually it takes three years for a car to be designed. Then the product is on the market for seven years, and with some variants even longer, so you always have to think long-term. Automotive is not a business where you can make money fast.
Q: Auto makers also are notorious for knocking down prices from semiconductor companies.
Ziebart: The price pressure is no different in other segments. Whenever there is a segment that is more attractive, this draws competition. The auto market is tough, but in other markets you can’t exploit it for very long.
Q: Who are your top competitors now?
Ziebart: The competitors vary from one segment to another. In automotive, Freescale is number one, with roughly 12 percent. We are number two with about 9 percent. In other segments, it is Texas Instruments in mobile, and so on. It varies with the market segment.
Q: Let’s roll back to a point you made earlier about the three market demands. What are the others besides energy conservation?
Ziebart: The second area is all about mobility and connectivity. It’s not only the mobile phone. Every electronic device will be connected to something in the future. The potential applications are much more widespread. In the wireline business, in Europe and in Asia, the telephone has become the main connection to the outside when it comes to the Internet and now TV. IPTV is gaining momentum in Europe and other areas of the world. You don’t have to stick to 40 or 50 programs. You can have video on demand. If you want to watch the news at 8:25, you can watch it from beginning to end at that time. Watching TV will become much more interactive than in the past.
Q: We’ve heard that pitch before and certain market segments have embraced it, but the majority of markets are not going in that direction.
Ziebart: This is still in the beginning, and it takes time. But I’m quite sure this will happen. It may be too early now and the program offering is not optimized yet, but I am convinced this will be the future way we watch TV.
Q: How about the third area?
Ziebart: Security. With new technology being available for the benefit of the people and also abused—the personal attacks are becoming more sophisticated—and protection against those becomes a major goal. This is all about passports with integrated chips, health cards, credit cards. There will be a much better level of protection than in the past. It’s also showing up with RFID in things like medicines. Fake medicine is quite an issue. With RFID you can label so you can distinguish between what is fake and what is not. It’s more than just labeling. It’s security. In chip cards, we are number one in the market. We are bigger than the other two competitors combined.
Q: But RFID is more than just security, too, right?
Ziebart: It has several advantages. You can use it for logistics purposes to show the expiration date. The main issue, however, is preventing fake drugs. That is one case where it goes well beyond labeling.
Q: Do you find the research you do in one area has applications in the other two areas of your focus?
Ziebart: This is often the case. Connectivity, for example, is something for the automotive area. In the United States, OnStar is already going in a very good direction in terms of connecting each car to the infrastructure. It helps if you have this technology in-house.
Q: Given that crossover, what is your R&D as a percentage of revenue?
Ziebart: It should be roughly 18 to 19 percent.
Q: Will that go up? It sounds like R&D is going up throughout the industry.
Ziebart: The industry is becoming more R&D intensive. The figures are going up. I hope they will go up at a slow speed, but R&D is becoming the major source for economies of scale. In former times, economies of scale came out of the fab. If you had a bigger fab, you had more economies of scale than if you had a smaller fab. Now it’s more about the R&D. Many areas have R&D as high as 25 to 30 percent. By having higher volume, you can get a strong edge in your cost structure.
Q: Because of that, are you hiring different kinds of engineers or experts with different skill sets than in the past?
Ziebart: I don’t think this has much effect on the skills. I think you are much more concerned about who you hire. In former times, most companies were working out of one location. Most of the R&D was concentrated there. Now you are much more conscious about where you put your R&D resources. There are three factors determining that. The first factor is, where is the lead market for a certain product? Most products are brought out in one market first, where the customers are the most demanding regarding certain improvements. In automotive electronics and in safety, Germany is the most demanding market. In consumer electronics, Japan is the lead market, followed by South Korea. That means you cannot serve the lead market from far away. You must have a major engineering presence in that lead market. The second important factor is, where are the proper skills and resources? There are knowledge clusters. Certain areas like Silicon Valley, or in the south of France for communications—here you find the right skills. Skills are not dispersed evenly around the world. The third factor is, where is the lowest-cost engineering? Often engineering consists of a highly creative part, followed by a part that needs intensive customer contact. But there is also a part where people can work for months without interaction with the outside. That type of product is an ideal candidate for being done in a low-cost location. So your engineering is not just done in one place. You set up your engineering according to those three factors.
Q: So where is Infineon’s engineering?
Ziebart: We are located more or less everywhere. We have major activity in Germany, Austria, Denmark, France, China, India and South Korea. In the United States we have several centers. Most of the automotive work is done in Detroit. Either you are there or you are not in that industry. We are also in Silicon Valley.
Q: How about Japan?
Ziebart: We don’t have as much as we would like there. The ties between semiconductor companies in Japan and the customers are very tight, so it is not that easy to develop a relationship. On the other side, you must start with something so you never get that relationship. That’s one reason we currently are investing in engineering resources in Japan preceding projects to come.
Q: Will you make an acquisition there?
Ziebart: That is one alternative to speed up your entry. You more or less buy the relationships by taking some candidate over, but there is nothing determined yet.
Q: Will Infineon make acquisitions? Is that part of the plan?
Ziebart: My first priority is organic growth. Organic growth is something you can plan for better. We have many opportunities in our company for organic growth. In the power semiconductor market, we have very good differentiating technology. One way to speed up the organic growth is to invest more in our new facility in Malaysia to have higher output earlier. I do not want to rule out acquisitions, though. They are my second priority. In Japan this could speed up our growth. But it can speed it up in other areas, too. Sometimes you can take someone over to get economies of scale faster.
Q: One last question—is Infineon better off without its DRAM business?
Ziebart: DRAM is a tough market, but you can make money. It is more cyclical, so the focus must be on improving everything over the cycle. It’s not easy to think in quarters with DRAM. But if you have the right technology and good customer contacts and you’re addressing the right segments, you can make money there, too.
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