MUNICH, Germany and RICHMOND, Va. – Two separate but related races have finally brought Infineon Technologies' (www.infineon.com) US$1-billion, 800-job expansion in Virginia to fruition.

The expansion will double the Virginia fab's capacity to use 300-millimeter wafers like the one pictured above. Each wafer contains approximately 2.5 times more chips than a 200-millimeter wafer, yielding productivity improvements of more than 30 percent.

        On one track was Infineon, Europe's second-largest chipmaker, struggling to return to profitability. On the other track were Virginia officials, working to salvage a huge deal that actually started four years ago, but then simply stopped.
        Infineon in 2000 announced a $1.5-billion expansion of its fab in Sandston, Va., part of the Richmond metro (www.grpva.com). But after project construction started, global chip demand went south with the economic downturn. Consequently, the company put the project on hold in June of 2001.
        Now, the expansion is back on for Infineon's Virginia fab, which already employs 1,750 workers.
        Chip sales have rebounded, and so have the company's fortunes. Infineon announced a $46.4-million net profit for first-quarter 2004, a 15-percent increase from fourth-quarter 2003. Those results continued the company's rebound from nine straight quarters of losses. Infineon first bounced back into the black in the third quarter of 2003.
        "Overall customer demand, both for logic as well as memory chips, is increasing at a strong pace," Infineon Chief Operating Officer Andreas von Zitzewitz said in announcing the expansion from the company's headquarters in Munich, Germany.

The expansion will more than double the Virginia fab's capacity in producing DRAM chips on 300-millimeter wafers. The chips are used in personal computers, computer servers and other advanced electronic devices. Once the expansion is complete, the facility will have the capacity to process 25,000 300-millimeter wafer starts a month.
        And the Richmond expansion will be finished very rapidly. That's because the earlier work that was begun and then stopped completed one major part of the project: the construction of a 550,000-sq.-ft. (49,500-sq.-m.) building shell to house the expansion. Consequently, the green-lighted expansion will now move quickly to completion. The expanded space will go into production in early 2005, Infineon officials said.
        "We are leveraging the existing building shell and the synergies gained with the experienced staff at Richmond to quickly bring 300-millimeter capacity on line in a way that is consistent with our corporate capital expenditure plans," von Zitzewitz explained. "The excellent infrastructure and state-of-the art manufacturing expertise at Richmond make this the fastest and most cost-effective way for us to respond to changing market conditions."
        Infineon Technologies North America President Robert LeFort called the Richmond operation "one of the company's most productive factories, measured by our own analysis and by global benchmarks for the chip industry."
        Infineon's only North American fab, the Virginia facility also produces 200-millimeter wafers. The plant will continue to maintain its current 200-millimeter capacity, said von Zitzewitz.

Equipment like that pictured above will be installed as part of the Virginia expansion, Infineon officials said.

        But the expansion will mean a shift in the product mix at Infineon's fab in Dresden, Germany. Seeking to broaden its product line, the company will increase the Dresden facility's capacity for logic chips once the expanded Virginia plant is online. Logic chips provide higher profit margins, and they're less subject to price fluctuations.

Another less obvious factor may've also prodded the Virginia expansion: the departure of Infineon CEO Ulrich Schumacher less than a month before the project announcement.
        Schumacher became Infineon's leader in April of 1999, when Siemens AG spun off the company. He cut 5,000 jobs as part of leading the company back to profitability.
        Schumacher, however, reportedly had sharp disagreements with other top executives over the direction of the company's strategy. With three years left on his contract, he resigned for what Infineon termed personal reasons. (Board Chairman Max Dietrich Kley was named interim CEO, with Continental AG board member Wolfgang Ziebart tapped as Schumacher's permanent replacement on Tuesday.)
        If Schumacher had still been at the helm, the Virginia project likely wouldn't have happened, some industry analysts maintain. They point to the fact that the former CEO concentrated on expanding capacity through Asian outsourcing partnerships, rather than investing in Infineon's existing facilities.

"We were all disappointed, but we didn't give up," said Gov. Warner (pictured) said. "We stayed in close touch with Infineon and worked hard to 're-recruit' this expansion." Photo University of Virginia.

        Infineon, which has some 32,500 employees, also has a fab in Taiwan in addition to its Dresden and Richmond chip-making operations.

Virginia's persistent pursuit of the project also likely affected Infineon's decision.
        "We were all disappointed when the original project announced in 2000 did not go forward," Gov. Mark Warner (D) said in Richmond. "But we didn't give up. We stayed in close touch with Infineon and worked hard to 're-recruit' this expansion."
        That effort included Warner's personal lobbying.
        "I met with their top executives when I was in Germany one year ago," the governor recounted. "Soon after I returned from that meeting, I toured the Henrico County plant and discussed the potential expansion with Henry Becker, their terrific Virginia manager. And the Virginia Economic Development Partnership (www.yesvirginia.org) has worked closely with the company to help bring this deal to fruition."
        Incentives also played in a role in Infineon's expansion, though how big a one is unclear.
        The state incentives announced thus far are modest, such as a $3-million project-assistance grant for Henrico County from the Governor's Opportunity Fund. The project is also receiving other state subsidies of still undetermined value, including Major Business Facility Job Tax Credits and job training.
        Infineon, however, now seems to be back on track to receive the $60-million package of performance-based incentives that the state offered when the company first announced the expansion four years ago. Said a release from the governor's office, "As part of the negotiated incentive package, legislation will be proposed to modify the existing performance grant to reflect the new completion schedule."
        And more incentives could possibly be in the offing. Virginia officials are working to develop a new program of subsidies to support expanding chipmakers.