Infineon moves to stop DRAM production at Promos

In a move that could bring production of memory chips to a halt at one of Taiwan's largest memory makers and bring about a shortage of PC memory chips, German chip maker Infineon Technologies AG announced Monday it was immediately terminating a technology licensing deal with Promos Technologies Inc.

The termination of the technology licensing agreement could have devastating consequences for Promos, which relies on Infineon's technology to produce DRAM (dynamic RAM) chips, but is not expected to have an immediate affect on the pricing or availability of memory chips, according to one analyst that tracks the memory market.

"That (decision to end the licensing agreement) means Promos cannot make any products," said S.K. Kim, a DRAM analyst at IDC.

However, Kim expressed doubt over whether Infineon would actually be able to stop Promos from producing memory chips since the current licensing agreement is valid until 2005. "I don't think Infineon can stop Promos from making DRAM right now," Kim said.

"There will be a big lawsuit," he predicted.

If Infineon is able to force Promos to stop production of DRAM using its technology that would dramatically alter the face of the DRAM market, Kim said. "This could turn the DRAM oversupply situation into a shortage," he said, noting that Promos accounts for between 5 percent and 6 percent of worldwide memory production.

Infineon's announcement that it had terminated the licensing agreement came as the Hsinchu District Court in Taiwan Monday issued an injunction to reinstate two Infineon employees that had been removed from their positions at Promos earlier this month.

The two Infineon employees, Michael Buckermann and Angela Shih, had been "illegally" removed from their posts, as a member of Promos' board of directors and supervisor at the company respectively, at a shareholder meeting on Jan. 10, Infineon said in a statement. The injunction reinstates them to their former posts effective immediately, it said.

Promos plans to issue a statement on Infineon's termination of the technology licensing agreement and the court's ruling either late Monday or early Tuesday, a company spokeswoman said.

Promos was established in 1996 as a joint venture between Infineon and Taiwanese DRAM maker Mosel Vitelic Inc. The company operates two chip fabrication facilities (fabs) in Taiwan: a 200-millimeter fab with a monthly capacity of 39,000 wafers per month and a 300-millimeter fab with a capacity of 9,000 wafers per month. Both fabs rely on technology licensed from Infineon to produce SDRAM (synchronous DRAM) and DDR DRAM (double data rate DRAM) chips found in personal computers.

Trouble has been brewing between the two partners since last year, when Infineon announced plans to sell off its shares in Promos and said Mosel had repeatedly violated the terms of the joint venture agreement.

Despite announcing plans to sell off its shares in Promos, Infineon said it would negotiate a new production agreement with Promos but those talks broke down in December and Infineon announced it would terminate its production agreement with Promos on Dec. 31, 2002.

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