Below is the transcript of a CNBC Exclusive interview with Reinhard Ploss, CEO, Infineon. If you choose to use anything, please attribute to CNBC and Tanvir Gill.
Tanvir Gill (TG): Reinhard, first up, with China auto demand picking up for August. What does that mean for your automotive business? Do you see the business bouncing back because that’s 20% of your overall sales?
Reinhard Ploss (RP): The business has come back quite strongly in the last month and we see a strengthening across the globe. Of course, China is leading quite significantly the recovery and other areas are strengthening. What we see that some of the governmental programs fostering electromobility are kicking in and we see rising demand also there. On the long term, it has to be botched out, how things are developing. I think in some countries, the recovery will be quite slow, and we will wait for quite some quarters until we are back on the level prior to the pandemic.
TG: Right. What can you share with us about your overall recovery plans because you operate in so many segments? When do you see yourself getting back to pre-pandemic growth levels?
RP: The business model of Infineon is pretty resilient. We are addressing a lot of different markets like energy efficiency, big data and others. During the pandemic, we even have seen additional demand, especially in the data and the communications area. Renewable has been pretty much unchanged. So, here we have not seen such a big drop, which we also could support the continued manufacturing. So the biggest question we have, how the request from the consumers area will be and how the automotive segment will develop. The rest is pretty stable and strong, which I think be reflected in our expectation in the business numbers.
TG: Oh, interesting. Good to know that. There has been a deal that’s happened in the vicinity. Do want to get your thoughts in on Nvidia buying ARM Holdings for 40 billion dollars. Now I do know that they’re not direct competitors. But even so, do you think that the deal signals more consolidation for the sector.
RP: The semiconductor sector has always been characterized by consolidation. We ourselves just closed the acquisition of Cypress. And I think here this is a signal of ongoing trends. We perceive ARM architecture as very important for the industry. And our interest is that the ARM architecture becomes an open platform to all players in the markets. And we hope that this is considered valid and all the trade ahead of us.
TG: But do you think that their open licensing model is under threat given that Nvidia will be buying them out?
RP: I have no information about this. And I think the logic of ARMs’ business and Nvidia’s deal should not address this. On the other side, we also see and are exploring ourselves the RISC-V architecture, which is a very open and common platform, and Infineon is very much supporting open platforms where IP is available to everybody. So let’s see how things develop. Sometimes these moves can change the overall setup and industry. But we believe that the ARM environment is pretty strong and we are very interested, and we’ll have the dialogue with Nvidia being invited to make sure that the interests of the industry are covered. We have heard from others that they are very concerned. For me, I always prefer to have a dialogue and see how the best deal can be made up for the future. And maybe that the ARM architecture might even be propelled by this deal, everything else may be adverse to the business.
TG: Would you be looking at more acquisitions, Reinhard, at this stage given the landscape for the sector to expand your market share as well as expand your client base? And if so, in what areas?
RP: Our strategy always has been that after the acquisition of International Rectifier, which was more an acquisition of scale, the acquisition of Cyprus was an acquisition of scope. Infineon has a very clear strategy moving from the product complete solution. And the acquisition here completed as quite well with microcontrollers and connectivity, which is essential for growing our IoT segment. Currently, we are not pursuing significant M&A as we are in the integration of Cypress, which is a very unique experience considering that we are doing this in a kind of a shut-down environment. But as acquisitions and mergers are part of semiconductor industry, this of course is a consideration of Infineon. But for the moment it is more strengthened us in technology elements. So far new elements and interesting elements come up. Our priority is always that besides M&A, we are able to create and develop new IP ourselves and achieve with this an advantage in the market.
TG: I do understand that both US and China are important markets for you given rising US China tech tensions, where semiconductors have become a key battleground. Do you worry you could be caught in the crosshairs of their respective protectionist policies given now that you own a US domiciled company as well in Cyprus tech?
RP: Well, I think here the constraints are already today, present or have been present before the acquisition of the Cypress company. And because we have to follow all the regulatory approvals on export, which we do very diligently, the geopolitical tension between the two superpowers are a big concern. Because we think we should not focus on countries we should focus on the needs of our global society and requirements. And this needs cooperation. So the tech dispute we have is, let’s say, definitely a concern of different reasons. But we are able to cope with it.
TG: You’re able to cope with it. But can these tensions, Reinhard, and that’s the important one here – can these tensions disrupt the supply chains that you are part of specially in sectors like automotive as well as IoT? I’m given to understand the some of your clients include Huawei and ZTE?
RP: The impression as of today is that the automotive value chain is less affected from this yes of course. You mentioned companies being in automotive, but the majority of the automotive supply chain is yet different than along the incumbent tier one players as the dominant players in this field. So for automotive, we don’t expect so much the major focus is around 5G and the data segment therefore, these, also the renewables and the rest we believe that the value chain can cope with it, and where constraints are arising we’ll find ways to get it done in an alternative manner. But the residual areas which are effective and will be even more effective from our expectation.
TG: So you do not think at any stage in the future, you could risk being in a position where you could be asked to limit ties with Huawei by US regulators, if not directly then through Cypress Tech?
RP: In general, the export rules already today limit our business with Huawei and ZTE. And this very significantly on the other side, the amount of business there is for the company a limited percentage.
TG: Right now there’s a lot of talk about how China is getting more self-reliant by setting up its own domestic supply chains. And I wonder how much of that is a risk for you? How closely are you watching that story? And where do you think China is in that process?
RP: Semiconductors always have been a key element for China and major import element and strategy to become autonomous on the sector always had been present and being followed very strictly. The current dispute, this accelerated very significantly, but we always had it on the screen and had watch points to do. The business of Infineon is around innovation, technical differentiation, complete, solutions, and we believe that this point especially all those things, with the acquisition of Cypress will help us to make our business in China growing successfully. But we always have expected an increasing competition out of China and prepare ourselves for this. So this is nothing new. Justice may be a very soft word for it but significantly accelerated now, and we cope with it. But here Infineon is a global player. We are strong and increasingly strong with our footprint in Japan related to automotive. The acquisition of Cypress has strengthened our position in US. But we also want to be part of the vibrant innovation area in the valley. And this also turns out to be very successful. So for me, it is an ongoing consideration that we strengthen ourselves and focus on our global success space.
TG: Infineon just a few days ago invested more in Malaysia and I wonder is that a conscious diversification strategy across Asia moving away from China to the rest of the region?
RP: We never considered to move away from China. We strengthened our China production, especially as an example for the modules for electromobility, and will continue to do so. Our investments, our manufacturing footprint, and our R&D centers, are very much located in areas where we see high trust version level of IP treatment availability of capable people and a stable social environment. So many years ago, we chose Malaysia in order to have our production there. In Singapore we have revolved our manufacturing to a highly automated run with the support of Singapore government. R&D I think has spread in a global manner, but for Infineon as being very IP conscious, and this is nothing against anybody, it is for Infineon that we are making sure nothing gets lost. The core IP is in countries like Germany, Austria, and others where we can hundred percent trust that IP is treated as we expected. So there is no defocusing on China, we will continue to focus but we also had a manufacturing strategy was around economies of scale. So all our factories should be large and not distributed across the globe.
TG: Right and lastly, Reinhard, through the pandemic, a lot of our lives have moved online and I wonder, what kind of opportunity does that open for you, for your business to explore different segments under IoT?
RP: So in the IoT segment, definitely the current push comes from the demand of connectivity, of server capacity. And this is what we expect also to grow near term. My personal expectation or the expectation of the company is that the human machine interface, the way we interact on a virtual basis will change significantly.
Today’s set up is I would say doing its job, but it’s pretty cumbersome. I’m very happy to see you smiling at me, but I miss this in a larger audience. So, I want to have ways where we can interact and can show emotions that I can understand and be more dynamic in the interaction. I believe that the new way of working will give us a push in productivity, but we have to address it smartly and the mix between presence and virtual interaction. But very clearly, we expect that human machine interfaces will be the next big thing, we sign all the area of IoT at edge of the cloud at edge performance. So, I think here also this very small AI in the edge will be another driving factor where we are preparing ourselves and are offering solutions to our customers. This is everything to be developed and moving forward.
END
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