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NET VALUE: INFINEON FILLIP FOR KEDAH |
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Net Value: Infineon fillip for Kedah
By Toh Mei Ling
Email us your feedback at fd@bizedge.com
Can you imagine Kedah as Malaysia's next Silicon Valley? No more the country's rice bowl with its lush rice fields but the producer of billions of microchips, which will be embedded in every electronic and electrical device made in the future, including our clothes? Hold the sniggers because the state is indeed giving Penang a run for its money.
Infineon Technologies' decision to locate its first Asia-based front-end power fabrication plant in Kulim Hi-Tech Park was an excellent fillip for agriculture-based Kedah to move towards an industrial-based economy. The sprawling 26ha plant was built within 12 months, which is fast for a facility that size. With a production capacity of 100,000 wafer starts per month for eight-inch wafers, the RM3.8-billion facility will employ 1,700 employees at full capacity.
(Semiconductor processing is often separated into 'front-end' and 'back-end' steps, with the former referring to the fabrication of the transistors and the latter to the on-chip 'wiring' or interconnects.)
While Infineon has a back-end factory in Melaka, the Kulim plant will be focusing on the production of power and logic chips used in industrial and automotive power applications. Infineon president and chief executive Dr Wolfgang Ziebart was in Malaysia for the first time to officiate at the Kulim launch.
He took over as CEO in September 2004 and since then, Infineon has carved its memory products business into a new subsidiary and managed to turn around a few loss-making divisions. After suffering four consecutive quarters of Ebit (earnings before interest and tax) losses, the company was Ebit positive again in the second quarter of this year. Hit hard by the declining prices of memory chips and Siemens' exit from the communications industry (in a previous life, Infineon was Siemens' semiconductor arm), prospects for Infineon are looking up this year. It is optimistic of breaking even by year-end.
In an exclusive interview with netv@lue2.0, Ziebart talks about the challenges of keeping up with developments in the fast-moving semiconductor industry and moving Malaysia up the value chain.
netv@lue2.0: Microchips are being used in more and more products. What role do you think the semiconductor industry will play in the future?
Wolfgang Ziebart: When you think about innovation and what drives it, we often refer to products like automotive and other devices. Automotive companies have said about 80% of their innovation is being driven by electronics. And in electronics, innovation is mainly driven by semiconductor development. So I think semiconductors is the key industry that drives innovation. With the smaller structures and more powerful processors, you can realise many more features and functions than are currently available.
A good example is the first anti-lock braking system (ABS). When it was introduced in the 1970s, it cost nearly 1,000 each to manufacture. Now, you pay anywhere from 40 to 70 for an ABS system. The productivity that has resulted from semiconductors is so enormous that it drives the industry even though you don't feel it.
The cost of functions is slashed by 30% to 50% a year. Another example is the personal computer. The PCs of 10 years ago, today and 10 years from now will be three different machines with different capabilities.
How is Infineon dealing with globalisation and the shorter cycle of the semiconductor industry?
Competition in the semiconductor industry is worldwide. There is no local business in semiconductor because it is globalised — on the customer side, where the customers are worldwide, and on the supply side. Wafers, although they have huge value, have no weight, so they are free to travel around. In the normal manufacturing process, most of the wafers are travelling around the world anyway. The packaging and assembly are mostly located in Asia, so the wafers are sent to wherever the front end is.
On the customer side, it is important to understand the dynamics of the market and understand where the lead markets for certain products are. These markets are spread all over the world. And if you want to play, for instance, in semiconductors for consumer electronics, you either have a strong presence in Japan or you are not in that market at all. The same goes for automotive electronics. One of the few exceptions is the mobile phone market where the lead market is totally global from the US, Europe to Asia. However, we see the other markets are now moving more and more towards this situation, where the world is one big market.
Another indication of globalisation is that previously, it took quite a while for an innovation from one country to penetrate another. Globalisation is speeding up this process so much so that a new feature available in Japan or China takes a very short time to be also available in the rest of the world.
Malaysia has always had a strong presence in the back-end semiconductor industry but has failed to move up the value chain into development or design work. What do we need to do better?
Well, I think we have now taken an important step [with the opening of the new plant in Kulim]. We have always been very well represented here in back-end, but this is our first major content building activity. It is really a quantum leap in terms of sophistication. Actually, in our industry, you never work out of one location. Our R&D activities are dispersed throughout the world according to three different criteria.
The first is proximity to the customer. It is no longer the case where a customer writes the specifications for the product and the codes are created in Germany. Innovation happens when our customer's engineer sits with ours at Starbucks and they work together to find the best solution to the problem. And these solutions are often entirely different from the original idea. This is the reason we need strong engineering capabilities in the various lead markets.
Second is the availability of qualified people. You can find specific expertise clusters in different areas around the world. For instance, there are mobile phone clusters in Helsinki where you can find many small companies that deal in all aspects of mobile communications. This is a good source of knowledge for those operating in this industry.
The third aspect is access to low-cost engineers. Engineering is more or less 100% labour cost. When there are processes that don't require any more customer interaction, just execution of a list of specifications, those jobs are best done at low-cost locations. Many of these activities are currently being done in China, for example, in Xi'an where we have a major plant. These three criteria cannot be found in a single location.
› Part 2 |Net Value: Infineon fillip for Kedah |
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