Extreme price pressures in the previous quarter negated Infineon's overall efforts to increase production. Searching for markets with less price erosion, Infineon is now targeting the high end of the smart card market for applications like personal identification systems.

The growing popularity of smart cards is increasingly complicating vendors’ plans. While production runs are soaring, eroding prices are hurting projected margins. Despite a 40 percent worldwide market share last quarter, Infineon’s smart card chip earnings sank to a new low.

Infineon, based here, sees itself as one of the smart card industry’s most cost-effective manufacturers. For example, the current generation of chips requires 45 percent less space than previous designs. This has a direct impact on chip cost, which is why Infineon intends to continue shrinking chip size, said Alexander Everke, senior vice president and general manager of Infineon's smart card business unit.

Infineon’s new FCOS (flip chip on substrate) technology promises to deliver considerable cost advantages compared to the conventional bonding process. "This is a step that will reduce our backend costs,” Everke said.

Production of the next generation of smart cards is underway, but efficiencies have yet to show up in the chip maker's bottom line. Everke predicted that cost advantages will be reflected in future quarterly results.

For now, plummeting smart card margins are likely to continue. According to Everke, things look most grim in the cellphone card market where vendors currently earn next to nothing.

Thus, Infineon is pinning its hopes on the personal identification market. The German government is scheduled to introduce electronic passport systems soon. Last June, Infineon was awarded a government contract to supply half of Germany's ePass chips and antennas; the other half of the contract went to Infineon rival Philips.

By: DocMemory
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