Infineon and the nuclear option

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Steering a company into a near-suicidal megamerger has to be one of the more creative ideas to get rid of a chief executive that a chairman has ever had. But that seems to be the upshot of the story reported by the Financial Times Deutschland earlier today. The story has no named sources. But, at the same time, Reinhard Ploss, head of operations at Infineon Technologies, had to recruit vice president Eric Mayer to stand in for him at the IET/GSA Semiconductor Forum today while Ploss apparently dealt with things back at base.

According to the story, Infineon chairman Max Dietrich Kley thinks buying NXP Semiconductor, currently owned by private-equity KKR, is a good idea. Chief executive Wolfgang Ziebart disagrees strongly. There is no real way to reconcile these differences so one of them will have to go, and it will probably be Ziebart. As the story in FTD sums up:

Despite Ziebart's competence, "in a shark-tank like Infineon he is out of place," said a senior manager.

Joining from tyre-maker Continental in 2004, after former Infineon chief executive Ulrich Schumacher resigned, Ziebart moved to rid the chipmaker of what would prove to be his albatross: the memory maker Qimonda. However, he didn't move quickly enough. A few years earlier and it might have been possible to flog Qimonda on the public markets. However, under Schumacher, floating off the memory operation was never going to be a starter. The result was that Qimonda emerged into a crunching recession in the DRAM business. Ziebart was left to explain to shareholders why Qimonda was still around and dragging down Infineon's numbers.

Kley, it seems, is keen to blame the situation on Ziebart. But, in case anyone thought Kley might have a handle on the business, apparently has floated the idea of a purchase or merger with NXP. It's not hard to see why Infineon executives would be keen to leak this one: they know a calamity when they see it. The only winner in such a deal would be KKR, which bought NXP when times were good and has now found that any chipmaker would be tough to offload.

The problem with such a combination is not so much that NXP is in dire trouble but that any attempt to take on a merger of this kind would cripple both companies. Not only would you have the problem of resolving huge product overlaps, there would be the slightly crazy situation of Infineon's wireless chip business competing with the ST/NXP joint venture. It's not beyond the bounds of possibility that ST would wind up taking on Infineon's communications-chip operation. But, if you were an Infineon shareholder, you would wonder whether handing Carlo Bozotti a further boost in wireless is a good use of your money.

People such as NXP's Frans van Houten and Ziebart seem happier doing much smaller slice-and-dice deals that add a business unit here, lop one off there as they try to find markets they can lead. This is the sensible route in the fab-light world. Slamming two top-20 chipmakers together is an strategy from the last decade.