Wolfgang Ziebart has been ousted as the CEO of Infineon after disagreeing with the supervisory board of the company about strategic direction. Peter Bauer, a management board member, takes over.
The German two tier board system has rarely been seen in a poorer light than at Infineon.
The supervisory board got involved in the plotting to oust Ziebart's predecessor as CEO of Infineon, Ulrich Schumacher, after Schumacher had just delivered a 32 per cent growth year.
So it's politics, not performance, which seems to motivate the supervisory board. For some time now, the supervisory board has been plotting to remove Ziebart, who had another 16 months to run on his contract, and has delivered notable success in the wireless (No.4 worldwide), automotive (No.2 worldwide) and smartcard (No.1 worldwide) chip markets.
But, in the eyes of the supervisory board, that mattered little compared to the lack of financial success caused mainly by the vagaries of the DRAM market to which Infineon is exposed by its 77 per cent ownership of Qimonda.
Behind that is a tale of personal losses sustained by those who invested in the Infineon IPO in 2000. The IPO created a huge bubble of expectancy as Siemens sought to sell off its old semiconductor division which had been renamed Infineon.
Under the charismatic Schumacher the offer was touted as a huge opportunity and everyone with the slightest connection to Siemens and Infineon begged and lobbied for an allocation of the 'friends and family' share application forms believing they were onto a one-way bet to wealth.
The shares sold at 70 euros at the IPO and, since then, have remorselessly slumped to their current level of 6 euros. Massive egg-on-face of all those associated with Siemens and Infineon who twisted arms to get allocations of 'friends and family' share applications.
So, ever since then, the pressure and the recriminations have been on. No matter how well Infineon performs in its product markets, there are powerful forces out there baying for the blood of any CEO who doesn't reverse the share decline.
And this, in the semiconductor industry, is extraordinarily difficult to do to order. It is not a mature industry, the markets are highly volatile, the costs are increasing all the time.
Even those supposedly sophisticated financial investors, KKR and Blackstone of Wall Street, had egg all over their faces when they overpaid for NXP and Freescale at the top of the semiconductor business cycle in late 2006.
The semiconductor market is, and has always been, as vertically erratic as a pair of whore's drawers. Expecting it to behave like other industries with predictable growth and margins has always led to disappointment.
Ziebart did a valiant job, but circumstances were horribly against him.
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Comments (2)
Dear Mr Manners,
Here is the inside story on Infineon:-
As I am sure you are aware, Infineon has been suffering huge losses for some time. In fact it last returned a dividend to shareholders in 2001. The huge losses (mostly from within the memory products division) have been financed by handing over more and more control of the company to the banks.
The reason Ziebart had to go was that we had to write down 2billion Euro at the end of the last quarter. As a result, in just one quarter we went from 50% of the company being in the hands of the banks to 62% of the company being in the hands of the banks. If the current rate of losses is not stemmed (which seems unlikely in the present economic circumstances) Qimonda will be totally insolvent within 12 months. When this happens the banks will own at least 66% of the remaining Infineon Group.
Ziebart decided to float off Qimonda some time ago - its initial share price was $17, but Ziebart dithered and only got rid of 25% of Infineon's holding. If Infineon had floated the full 100% of Qimonda, almost all Infineon's debt would have been paid off, and Infineon would be in a very strong position to face the difficult economic times ahead. Now Qimonda's share price has fallen to $4 and if Infineon sold its remaining holding, it would make no net gain.
Then there was the LSI deal. Ziebart bought LSI wireless in order to get into Samsung mobile. It cost $450million Infineon didn't have. Ziebart was challenged about this on his company blog. He assured the employees that it was a great strategic decision and wouldn't end up a disaster like previous aquisitions. However, as soon as Samsung realised that LSI wireless were being bought by Infineon, they kicked LSI out and LSI lost 50%+ of its business, pushing it into a loss within one quarter of buying it!
Basically that's two huge mistakes made by Ziebart and he should have been kicked out months ago. Neither the employees nor the shareholders back him. We are fully behind Max Kley's decision to find a new CEO.
As for Schumacher, he was in charge of Infineon when they were found guilty of price fixing in the US and several top executives ended up in gaol, hence his departure.
There is a fundamental problem in Europe with the semiconductor industry. We simply are not able to attract senior executives with the experience of running succesful semiconductor companies.
Ryan.
Posted by Ryan | May 28, 2008 1:37 PM
Posted on May 28, 2008 13:37
Thanks Ryan, I take your points but I do think Dr Ziebart was fighting with one hand tied behind his back by the supervisory board.
As Dr Schumacher tried beofre him, Ziebart wanted to minimise costs by moving a lot of HQ and other activities out of Germany into low-cost areas but was not allowed to do so by the supervisory board.
Yesterday I heard Carlo Ferro, ST's CFO, saying that ST had the lowest exposure to tax in the industry at 13-16 per cet as against an average 27 per cent for his competitors. That's because Pasquale Pistorio set up the company to operate in low-tax, low-cost areas.
Ziebart wasn't allowed to do that by the supervisory board.
As for the value of the LSI deal, it looks as though Samsung have gone for Infineon's chip-set. Quite a coup in ousting Qualcomm from the monopoly supplier situation.
As for Schumacher's price fixing debacle, it was not only Infineon but Samsung, Hynix, and the rest of the major DRAM makers who all got fined, and had execs imprisoned, after Micron blew the whitsle on them to escape censure themselves.
As for the quality of Europe's semiconductor execs: Cees Krijsman, Jurgen Knorr, Pasquale Pistorio, Robin Saxby, Scott McGregor, Jacques Noels, Doug Dunn: Need I go on?
Best wishes
David
Posted by David Manners | May 28, 2008 2:15 PM
Posted on May 28, 2008 14:15