Will Infineon’s power IC gambit pay off?
Obviously, the markets where Infineon plays today are much more narrowly defined. But the twist in this saga is that the company’s core business — power electronics — is flourishing because of Infineon’s manufacturing prowess.
EE Times’ recent visit to Infineon in Munich and Dresden reveals the German company’s renewed focus on power semiconductors and their production.
Against several of the financial community’s shibboleths (get out of manufacturing, get rid of fabs, sell businesses with product development that demands endless investment), Infineon not only kept its fabs but upgraded them. The company turned an old 200-mm fab in Dresden into the world’s most highly automated. Infineon also made its 300-mm fab in Dresden the first high-volume fab for power semiconductors worldwide.
Infineon’s Dresden facilities. Far left is 300mm fab, the rest are 200mm fabs.
In doing so, Infineon proved that going fabless is no sure route to salvation.
Investors often urge chip vendors to bring "focus" to their business. Translation: Sell divisions with product development that is expensive, stick with segments where you’re already winning, and take no risks.
Many semiconductor companies have taken this advice, chopped themselves into pieces, and turned lean and mean. The result has often been a shrunken chip vendor with shrinking business.
Infineon, a spinoff from Siemens AG, sold its wireless business to Intel in 2010, just after unloading its wired business in a deal with Lantiq. These reductions followed the decision in 2006 to split Infineon’s memory business and form a separate company called Qimonda (which is now defunct). Today, Infineon’s substantially narrowed businesses are down to only a handful of areas: automotive, industrial power control, power management, and chip cards.
The questions now: How are the remnants of Infineon is doing today, and how sustainable is the company’s business strategy over the long term?
Infineon in 2013 generated close to 45% of its revenue from automotive, 26% from power management and multimarket (power supplies for PCs, servers, and mobile devices), 17% from industrial power control (renewable energy generation, industrial drives, traction, and home appliances), and 12% from chip card and security.
Infineon’s revenue split by segments in FY 2013 (Source: Infineon)
Of these segments, Infineon sees power electronics as a common thread. It sees its future as a leader in the global power electronics market.
Since Infineon is already one of the world’s most prominent power semiconductor vendors, this outlook seems like a no-brainer.
As Steve Ohr, research director of Gartner, told us, "Your power transistors are absolutely essential for any kind of power transmission." They cannot be obsoleted. The biggest market drivers for power transistors are "computer power supplies (which use switching MOSFETs), industrial and automotive motor drive (which use bipolar junction transistors, some with insulated-gate bipolar transistor)," he explained.
The Power IC market is notoriously price-sensitive, because its business is ruled by low cost structure. To maintain its lead in power ICs, Infineon must keep pumping them out at its depreciated fabs, fiercely competing over pennies of profit. This isn’t an enterprise for the faint of heart.
Ohr said, "If you can undercut your competitors with a lower cost structure (even fractions of a cent), you can gain market share."
Infineon’s manufacturing muscle
Ohr told us, "In this [power IC] market, manufacturing muscle counts." And that muscle Infineon actually has.
The company’s front-end production facilities include: Kulim, Malaysia; Villach, Austria; Regensburg, Germany; and now Dresden.
Ohr believes the Kulim fab turned out to be Infineon’s big break in power IC production. He said Infineon’s competitors (particularly Toshiba and Fairchild) have been "reticent about investments on power transistor manufacturing, and it has cost them in market share."
Infineon, ranked at the top by Gartner in 2013, generated $1,026 million in revenue from shipments of power transistors in all applications, carving out an 11.6% market share globally. Trailing Infineon are Mitsubishi (9.6%) and Fairchild (8.7%). Toshiba dropped from third place in 2012 to fifth in 2013 with a 7.1% share.
What about production muscle? How much fab capacity does Infineon have today and how does it compare?
Peter Schiefer, president of operations at Infineon, told us during a briefing in Munich that Infineon’s wafer capacity is ranked 14th in the world. Almost 45% of worldwide fab capacity is held by Samsung, TSMC, Intel, Hynix and Toshiba. Among "pure" IDMs, Infineon comes in fourth, after Texas Instruments, Renesas and STMicroelectronics.
Further, Schiefer stressed that Infineon’s in-house production is focused on power electronics, not in CMOS. He said that CMOS will end up in foundries, and "Infineon will not continue with in-house CMOS production."
Clearly, one of the financial community’s big concerns appears to be: "Can Infineon afford to continue in-house manufacturing?"
Schiefer’s answer is obviously yes. He pointed out that the investment required for maintaining a leading-edge fab in power semiconductors isn’t as huge as what’s demanded for bleeding-edge CMOS fabs. Schiefer emphasized a decrease in Infineon’s investment volume from about 15% to 13% of annual revenue.
Second, the ramp-up of Infineon’s thin wafer technology justifies the cost since it is increasing productivity.
Third, Schiefer reiterated that Infineon is not averse to outsourcing. For products in standard CMOS technology with structures of 65-nm or less, the company will depend on manufacturing partners. Some of the automotive MCUs currently manufactured in Infineon’s 200-mm fab, indeed, will be eventually outsourced to foundries, he added.
(Source: Infineon)
Schiefer’s most important point is that in the power semiconductor business, "In-house manufacturing is a strong differentiating factor."
(Source: Infineon)
It’s important to note, however, that in the power semiconductor business, what makes Infineon a winner today isn’t exactly the technology behind its production.
Len Jelinek, senior director and chief analyst at IHS, observed that most discrete products undergo few manufacturing steps compared to complex CMOS IC’s. Manufacturing IP tends to be minimal. Jelinek said, "The real key is that most discrete fabs are 100% depreciated and run at very high yields." So what separates winners from losers in power semiconductors are "barriers to entry of building a fab."
No business model exists that is financially viable to build a fab for the sole purpose of manufacturing discrete components, Jelinek added. In short, Infineon’s manufacturing advantage is "fab efficiencies, high yields and depreciated fabs."
Gartner’s Ohr noted that having its own in-house production capacity "can help tune a fabrication process for a special result (like faster switching speed)." He added, agreeing with the IHS analyst, that "the big advantage is cost. You pay a premium when you outsource your manufacturing."
Ohr went on, "If you’re trying to show margin on a 9-cent part [like discrete power ICs]," doing it on your own in a depreciated fab is the answer. "For analog and power semiconductors, a "fab lite" strategy is a mistake… and companies who’ve made a big to-do about that (like Intersil and, most recently, Fairchild) have generally been trying to please Wall Street."
Future challenges
Jelinek at IHS observed that Infineon has a strong market position in commodity discrete transistor components. However, the analyst added, "the fundamental challenges to the power semiconductor industry are competitors that can add other components in addition to power semiconductors that help optimize system performance and efficiency."
Infineon is fully aware of the trend. A "Product to System" approach has been a mantra within Infineon for over a year now. The goal is to know exactly what Infineon’s end-system customers need.
If these customers are server companies, Infineon intends to supply not only the MOSFET for the power converter but also the driver and controller.
The same goes for white goods like induction cooking devices. Infineon has developed an application-specific RC-H5 IGBT device that improves, on the component level, thermal performance and power dissipation, offering better soft-switching capabilities to reduce EMI. Results on the system level are less stress on passive components, higher system reliability, less filtering requirements and lower system cost, explained Helmut Gassel, president of Infineon’s industrial power control division.
Separately, Gartner’s Ohr observed, "Infineon needs to beef up its power management (e.g., switching regulator) capability, and work on coupling power transistors seamlessly with the switching regulators." He noted, "The switching regulators will commutate much faster than the transistors can switch under load, and you need to tune the performance of the transistors-and-switching combination (International Rectifier has been doing this for years) to reduce dynamic losses. The tuning is a matter of overcoming gate capacitance: a bigger technology challenge."
Infineon’s recently announced International Rectifier acquisition is expected to help Infineon expand its footprint in computing realms — through IR’s MOSFET. The IR products will take advantage of unused capacity at Infineon’s 300-mm Dresden fab.
But the real future for Infineon probably lies in the industrial power control market. Ohr said, "We at Gartner perceive that the growth of the industrial infrastructure (e.g., factory automation, smart buildings, etc.) will soon outpace computing as the driver for power-transistor growth. This will utilize more high-voltage parts (600V or above). Infineon (with on-going partnerships with its former parent Siemens) is fairly well-positioned in the HV market."
Infineon agrees. The German company predicts strong growth rates in Industrial Power Control market including factory automation, renewable energy, trains, and invertilization of home appliances.
(Source: Infineon)
300mm thin wafer fab
Infineon is staking its power electronics future on the first 300mm high-volume fab, specifically designed for power semiconductors, in Dresden.
This is the same storied Dresden fab, first unveiled in 1994 as the most modern fab in the world, transformed seven years later into the world’s first 300mm fab. It reopened in 2014 as the first 300mm thin wafer, high-volume fab, for power electronics.
The company is withholding some specifics — about production capacity and the schedule for manufacturing new power semiconductor products. Helmut Warnecke, the Dresden managing director, said the fab is in its "enabling phase."
Thus far, the 300mm fab has begun producing CoolMos (Infineon’s brand for commercial devices based on the super junction principle) used for power supplies for servers, PCs, notebooks and mobile devices. IGBT production will follow in 2015, according to Warnecke. Automotive sensors will be manufactured at the fab. Within the industrial power control division, components for renewable energy (used in solar and wind power plants) and for electrical motors are expected to move to the 300-mm production line.
Infineon Dresden is "establishing a broad power semiconductor portfolio," said Warnecke. But that also means, fab engineers need to introduce one product type at a time — first verified in Villach in Ausria — then to move that onto the volume production in Dresden.
IHS analyst Jelinek said, "Developing the technology to make 300mm ‘thin wafers’ is extremely difficult. One key issue is that for discrete components there is a backside contact. This means that the wafer must be very thin and be able to make electrical contact to the back of the wafer. Typical CMOS ICs only make front side contact."
The challenge is to thin the wafer without damaging the silicon (otherwise, it would cause deterioration in electrical performance), then deposit metal on the back of the wafer, Jelinek explained, all while not breaking the fragile 300mm wafer.
Is anybody else catching up?
Jelinek said, "No one else is working on 300mm wafers for discrete components." Key hindrances include obtaining the tools and investing in the necessary R&D. Advantage for Infineon is that it already has the tools, acquired from a court settlement dating back to the bankruptcy of Qimonda.
— Junko Yoshida, Chief International Correspondent, EE Times
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