MUNICH, Germany — Against the background of towering losses at subsidiary Qimonda and unexpected performance problems in its mobile communications business, Infineon CEO Wolfgang Ziebart has increasing difficulties to explain his strategy. The company's supervisory board is about to lose its patience.

During Infineon's annual general meeting, supervisory board chairman Max Dietrich Kley found unusual strong words to comment on the board's strategy and the company's recent results. “Significant improvements have to be made in order to earn at least our capital costs”, he said. “If the market does not help, it is at least necessary to cut down on costs more intensively”, he added — a remark that only can be understood as a critic on Ziebart's management.

A week ago, Infineon's 1Q2008 report had shocked shareholders and industry: Towering losses from still-subsidiary Qimonda had caused deep red figures in Infineon's business figures. And for the communication branch, the company had to reduce its outlook for the current year.

Against the background of his rather gloomy outlook, Ziebart's position becomes increasingly difficult. Media reports already speculate that his days are numbered if he won't succeed to turn the situation around quickly and for good.

Thus, the atmosphere was quite icy when Ziebart came to the lectern during the general meeting (February 14). However, he had not much news as to his course. “We are on the right way – this way, however, is longer than we believed”, he said.

Qimonda's and, thus Infineon's losses have been aggravated by the unfavorable Euro/Dollar exchange rate, he explained to his defense. “In comparison to all of its competitors, Qimonda has the highest share of its value chain in the Euro space. However, the company's business is mostly executed in the Dollar space,“ he said, reiterating his goal to reduce Infineon's holdings in Qimonda to below 50 percent before next year's general meeting. Minority holdings do not have to be consolidated in the balance sheet and thus would have a much less devastating effect on business figures. This could become difficult since Qimonda's shares are still in Infineon's books with a value about three times higher than the current market value. In order to get the task done, the Infineon management already has suggested creative measures; one of them is to give Qimonda virtually away as property dividend to Infineon's shareholders.

The Euro/Dollar exchange rate also spoiled the figures in Infineon's core business, in the first place in the communication segment. “The communications business achieves 70 percent of its revenue in the Dollar space”, Ziebart said. “The strong Euro cost us in FY 2007 about €80 million”.

The options to dislocate value creation from Europe to other regions are “very limited in the short run”, Ziebart said, adding that he intends to leave the competencies for telecommunication technologies as a future growth market in Germany.

Ziebart announced to continue Infineon's strategy of selective acquisition. “We will play an active role in the consolidation of the semiconductor industry”, Ziebart said. The paramount aspect at any acquisition always will to strengthen the respective business segment instead of sheer size. In this, he has support from the supervisory board; any proceeds from sales of Qimonda will be used to either launch a share repurchase program or can be used for acquisitions, Kley said.

The Infineon CEO also announced to further reduce capital expenses by 1 to 2 percent in 2009, continuing his 'fab lite' strategy. During the current year, capital expenses also will be under scrutiny; Ziebart announced to spend between €400 and €500 million —”but rather at the low side”, he said.

With respect to the company's position in the automotive semiconductor market, Ziebart announced to support developments towards hybrid drives, explaining that energy efficiency will create huge market opportunities. “A hybrid drive car has twice the semiconductor content in comparison to a normal car”, he explained one of his major long-term goals.

The highest priority in his strategy, however, is to separate Qimonda and to lastingly achieve a turn-around in the telecommunications business, Ziebart said.

The applause was rather lukewarm.