Infineon's Reinhard Ploss: "We don't take chances anymore. When in doubt, we throw the thing away."
Munich, Germany-based Infineon specializes in electronics hardware, and it expects to benefit from the trend.
The company was created when Siemens AG spun off its semiconductor operations in 1999. Infineon's automotive business represented 25 percent of its 7.2 billion euros in sales last year, or about $9.50 billion at current exchange rates.
Ploss spoke with Automotive News Europe's Sylviane de Saint-Seine about the future of electronics in automobiles and the movement of r&d jobs out of western Europe.
Carmakers, in general, have complained about faulty electronics components. How has Infineon addressed this problem?
We've made heavy investments in new equipment. About 18 months ago, we launched a quality plan called Automotive Excellence. It resulted in 50 to 60 percent of our parts having zero defects. That compares with 30 to 40 percent before the initiative. We don't take chances anymore. When in doubt, we throw the thing away.
Some carmakers say they are cutting back on electronics.
That may be a public relations exercise. In fact, they don't. The major problem is with the connection between all the systems within the car. We typically have 80 computers talking to each other in a high-end car. What we need is to have four "brains," one for the engine, the others for safety, comfort and infotainment. Those brains will talk to their peripherals. That's one of the initiatives of Europe-based AUTOSAR. (AUTOSAR, an acronym for Automotive Open System Architecture, is an automaker and supplier group that is working to develop a common electrical architecture and operating system for vehicles.)
A recent study by Germany's chambers of commerce shows that more companies are moving r&d from western Europe to low-cost countries in eastern Europe and to China. Is Infineon doing that?
We are building up our r&d capabilities in low-cost countries, but it is not a substitute. It is complementary to what we do in western Europe. The definition of concepts is mostly done here. But the design can be done locally, together with customers, in China, for instance. In fact, 80 percent of our automotive research is done in western Europe, with the remaining 20 percent mostly done in Asia.
We shall expand our r&d capabilities in eastern Europe. But I stress we shall continue to grow here, albeit moderately, because we have a big market here.
There are a number of areas where Europe has a lead and will keep it. For instance, it takes five years to become a good designer of mixed signals circuits (which are used in sensors). Five years is a long time for countries such as China. The Chinese are hungry; they want a quick return on their money. In Europe, we are more speculative, we take a longer-term view.
What is Infineon working on?
The major growth area will be safety. For instance, systems that help cars keep a safe distance from one another, park assist and lane-departure warning systems like the one Citroen has on its latest cars.
The next phase, of course, will be to prevent the driver from going crazy because of all those warnings.
When will we see drive-by-wire cars?
It's some time off. It's mostly a question of price. Technically, it can be done. But what is the value for the customer? What we will have in five years is electrical steering assistance, which will help stabilize the car the way brake assistance already does.
What about camless engines?
They're about five to seven years away. They will help reduce fuel consumption by 5 to 15 percent. I think a mild hybrid, with the battery storing the braking energy, is much more efficient. Infineon's first production prototypes of power modules for mild or full hybrids will come out in the next two years.
Do electric cars have a future?
I believe in electric cars in a metropolis such as Shanghai. The problem with electricity is that you lose a lot of energy on the way - when you transform oil into electricity.
What are Infineon's business prospects?
There have been additional price pressures from our customers and lower sales volumes due to weaker demand. We have been cutting down inventories, and that increased idle capacity costs. And we were a little hurt by the weak dollar. All in all, we expect revenue in the second quarter to be up a bit but earnings to decrease slightly because of the annual price reduction in the automotive business.