One Bailout Won't Save Qimonda
Lionel Laurent, 12.22.08, 08:40 AM EST
A rescue package offers a short-term reprieve, not a cure, for the ailing chip-maker.
Qimonda is getting the help it needs from a motley group of saviors: its parent company Infineon along with the German state of Saxony and a Portuguese bank have put together a 325 million-euro ($454.7 million) rescue package designed to stave off impending bankruptcy for the struggling chip maker. This was good news for Qimonda and Infineon on Monday, as investors jumped back into the hammered stocks, but the cash injection does not change Qimonda's status as a hot potato.
Qimonda's problems include an estimated quarterly cash burn of 200-300 million euros ($279.7-$419.5 million), which would barely be covered by the 325 million euros ($454.7 million) in loans from Saxony, Infineon and Portugal; it also has no real solution to the slump in prices for DRAM memory chips, its flagship product. Qimonda (nyse: QI - news - people ) wants to use the new funds to invest in chip production technology to help cut costs, but this new technology--known as "Buried Worldline"--will not really get going until late 2009.
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The package does at least give Qimonda more time, which was enough to increase investors' appetite for a pretty risky bet. Frankfurt-listed shares of Qimonda skyrocketed 72.3%, to 41 euro cents (57 cents), while shares of Infineon (nyse: IFX - news - people ) advanced 9.9%, to 73 euro cents ($1.02). Qimonda's New York-listed shares have lost more than 92.0% in six months, helping to push Infineon down by 87.9% in the same period.
"For now, it's quite positive for Infineon. You don't have the short-term risk of a Qimonda bankruptcy and more time to find a buyer," said Tobias Loskamp, an analyst with Kepler. Infineon has been desperately trying to offload its 77.5% stake in Qimonda for over a year, but it is fast becoming an albatross that is impossible to shake. The very possible outcome of a Qimonda bankruptcy would be devastating for Infineon, which itself is struggling with a slump in the automotive sector and the prospect of debts to repay. (See "Infineon Faces Dark Future.")
Kepler's Loskamp said the bailout package could be enough to help Qimonda survive until September, but it would have to dramatically restructure itself. Although the rescue package may not seem big, the German government and Saxony have additionally offered guarantees worth 280 million euros ($391.5 million) to help Qimonda raise additional financing from banks
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