TG Daily visits Qimonda: 300 mm fab focused on DRAM, not flash

Richmond (VA) - Its name means "key to the world," or "energy and vitality" being given to the world if you use the Asian pronunciation "chi-monda." In all, "it is a made up word," as the company's own executives freely admit. One of the smaller challenges before Qimonda (key - mon' - da), the newest name in the semiconductor industry, is to establish itself in the minds of its customers as a tier 1, key player. Not quite two months old, Qimonda has already inherited the position of world's #2 DRAM manufacturer, according to both iSuppli and Gartner, from its corporate parent, German-based Infineon Technologies. The bigger challenge before Qimonda will be to maintain Infineon's newly regained momentum.

The Qimonda 200 mm and 300 mm semiconductor wafer production facility in Richmond, Virginia, on a hazy summer afternoon from 10,000 feet.

Infineon - itself a subsidiary of Siemens - has had to overcome a storm of torment, some of its own making. In early 2004, along with Samsung and Hynix Semiconductor, Infineon found itself the target of a US federal investigation into price fixing in the DRAM industry. In March of that year, its CEO resigned amid the controversy; and in September, the company plead guilty and accepted a $160 million fine over five years. That led to a lackluster fiscal 2005, with revenues down 6% over 2004 and a net loss of €312 million. A downturn in its communications business was to blame, the company said.

The perfect storm would only get worse. Beginning in late 2005, the bottom dropped out of the NAND flash market, with prices plummeting still today. Just last March, Hynix released a report predicting NAND flash prices to have dropped by as much as 50% by the end of this calendar year, over the previous year, and by more than 25% just in the last quarter. iSuppli analysts blame a temporary glut in NAND supply, yet they decline to say just how temporary.

Out from under the storm

The crazy thing is, now may very well be the best time of all to invent a new word for the semiconductor industry. Spinning off its own DRAM business was supposed to have been a remedial measure for a company as plagued with trouble as Infineon. But remarkably, Infineon's strategy is no longer being perceived as remedial, as its memory business - which includes a brand new 300 mm fabrication facility in Richmond - has made bold strides forward in just the last fiscal quarter. Revenues from its DRAM sales leap-frogged 49% over the previous year, seizing nearly 5% of DRAM market share from Hynix and Micron Technologies. In recent weeks, Infineon clinched a critical contract with Microsoft, making it the principal supplier of memory for the Xbox 360 game console.

Essentially, all the data shows that Stage I of Infineon's strategy is working, with Qimonda's launch a full two months ahead of schedule, and an IPO in the finalization stage. But Qimonda's first move under its own leadership proves this newborn company knows it isn't yet in the clear. With market leader Samsung leading the race to the smallest die, promising to retool from 90 nm lithography down to 70 just when Infineon has completed its move from 110 nm to 90 nm, Qimonda is gambling everything on DRAM. Contrary to what the German press service AFX reported just last Friday, Qimonda will invest its resources in distinguishing itself technologically from market leader Samsung, in effect making the quality play for performance, speed, and lower voltage.

It will not be an easy sell. Commoditization is the process that takes place when any product or service starts to be sold to consumers with a narrow scale of options, with fairly uniform prices regulated in large part by what the market will tolerate. Memory can easily become a commodity product, unless a market player with some influence successfully establishes a qualitative difference, such that customers begin comparing producers using factors other than just price. AMD has been perceived as having succeeded in making the quality play, in a CPU market that could easily have been commoditized by the dominating presence of Intel. Now, with Samsung enjoying a dominant presence in memory - though not nearly as controlling as Intel's was in the 1990s - Qimonda seeks to copy from AMD's playbook.