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.
Qimonda makes the quality play
One quality play Qimonda will make is to seize the initiative in the production of fully-buffered DIMMs (FB-DIMMs), which Intel is prescribing for its upcoming Bensley server and Glidewell workstation platforms. It’s been called “serial RAM,” because FB-DIMM replaces the traditional parallel communications bus with a serialized system that enables point-to-point buffering. By reducing the number of memory “drops” that take place at once, throughput rates can increase dramatically, to a data rate Qimonda clocks at 4.8 GB/s.
It’s the bigger guys in the mobile space, says Qimonda VP Bernd Lienhard, who are driving up price stability.
But the problem, as Tom’s Hardware Guide discovered last October, is keeping these new modules cool. Intel requires something called an Advanced Memory Buffer (AMB), which controls the critical timing settings between the memory controller on the motherboard and all the memory modules in the system (FB-DIMM allows as many as eight). Timing is critical here not just for performance’s sake, but for temperature as well. This is where Qimonda will make its play: As the company’s North American division vice president Bernd Lienhard explained, at a “Fab Day” gathering last week at Qimonda’s Richmond fabrication facility that included TG Daily, Qimonda’s AMB will be capable of driving throughput connections of up to 6 GB/s per pin, using timing specifications it worked out last May with Intel and the JEDEC Solid State Technology Association.
Although neither Qimonda nor Infineon invented the AMB, Qimonda believes there’s something to be gained from the perception of being the company that typically produces the advanced buffer – a perception of qualitative distinction, as opposed to being the low price leader. (Think Target as opposed to Wal-Mart.) This perception is designed to pervade the server market, and carry the Qimonda brand to a distinctly defined group of customers.
Qimonda intends to mass-produce this AMB device mainly through its fabrication facility in Dresden not only for its own FB-DIMM modules, Lienhard said, but for other memory producers as well, with the intention of capturing a full 50% market share in the near term. Last May, Qimonda acknowledged iSuppli’s estimate of 6.8 million FB-DIMMs to be sold to the OEM server market this year, by way of reporting iSuppli’s forecast of 68% share of that market for Qimonda by the end of this year.
Surprisingly, though, sizable market share isn’t really Qimonda’s key goal. As Qimonda North America President Henry Becker told us last week, “I don’t think market share guarantees profitability.” Infineon had a surge of DRAM market share once before, Becker said, back in 2003, closing to within two percentage points of then #2 player Micron, according to iSuppli. “Infineon gained market share,” Becker said, “but didn’t capitalize.”
Capitalization, the way Becker sees it, means for Qimonda to use market share as an elevated platform to make its permanent value proposition, to specific groups of customers. This is what the company means when it says it’s targeting applications of technology; German semiconductor analysts in recent weeks have mistaken this to mean it’s moving away from DRAM and into logic units, such as dedicated ICs for handsets.
Qimonda President Henry Becker describes his as a “creative memory company.” “Without creativity,” he said, “Moore’s Law would have run out already.”
In an extraordinarily frank tone which was maintained throughout last Thursday’s session, Becker and his colleagues basically acknowledged that Qimonda won’t make Infineon’s mistakes. One example he cited was Infineon’s earlier push toward a broader portfolio that included logic units, following the path its competitors had blazed. As Joanne Itow, managing director of Semico Research, told Becker, generally memory fabrication facilities make the shift toward logic. Why is Qimonda’s direction the other way around, she asked? The trend toward logic, Becker responded, typically gives semiconductor producers a way “to do something with their memory factories as they grow older.” Micron, for example, had an aging 200 mm production facility that it shifted from memory to logic over time, just to keep it operational. Samsung, meanwhile, has the revenues to maintain a broad portfolio.
But Becker saw a “diverging set of synergies between our logic business and our memory business,” he said, making a similar path for Qimonda not quite feasible. There’s a significant cost advantage to be realized, he said, by concentrating Qimonda’s 300 mm facilities – especially in Richmond – on DRAM. Meanwhile, its 200 mm fabrication unit continues operation within the same complex – in fact, just across the walkway – devoted to a variety of tasks, but staying largely within the framework of memory.
Another example of a mistake Qimonda will avoid, Becker said, is investing too much resources in a technology where it can’t make a competitive play. Flash memory is that potential pitfall. “We’re not competitive in flash memory,” Becker said multiple times during the session. “It’s not a significant part of our business yet.” The company’s revenue in 110 nm flash is fair, but not anything wonderful, and certainly not reliable. And since other “800-pound gorillas” are more than willing to go down that road, wherever it leads, then good luck to them.
Qimonda will work on developing a superior flash memory technology, using 75 nm technology. (That’s not a typo; 75 nm is the lower number Qimonda pointed