The company also reported a 72% increase in revenue to about $6.3 billion for the last fiscal year ended Sept. 30, on the back of its growing memory and communications IC operations.

"Our optocouplers business has nothing to do with our strategic target segments," Schumacher said. "We also have 49% in the opto joint venture with Osram for LEDs. We will divest that. The negotiations are running. We hope to close in the next quarters and definitely by next fiscal year.

By shedding the units, Infineon will lose about $680 million to $770 million in revenue, "but we will raise an attractive amount of capital," Schumacher said.

Infineon has committed about 30% of its revenues to capital expenditure as it brings up additional capacity, particularly for logic products.

"In non-DRAM segments, we are almost sold out," Schumacher said. "With our 300-millimeter module, we are handing over our fast-growing wafer capacity to logic. And logic is eating fast into 8-inch lines."

Speaking of Infineon's planned commercial-scale 300-mm wafer production line in Dresden, Germany, Schumacher said, "85% of the equipment is in place. We expect to start production in the middle of 2001."

Despite recent declines in DRAM prices, Schumacher said he is confident that prices will stabilize after the company's first fiscal quarter, which ends with the close of the current calendar year.

To protect itself against the worst fluctuations in the DRAM market, Infineon has decided to switch its memory production to higher-density devices for workstations, servers and high-end PCs. "We already have 50% of our DRAM business in non-PC sectors," Schumacher said.

All of Infineon's products have been migrated to a 0.17-micron process technology, leading to a 70% increase in productivity, said Andreas von Zitzewitz, Infineon's chief operating officer. The company will reduce its 64-Mbit DRAM production to almost zero, down from its current 50% share of the company's DRAM business, von Zitzewitz said.

Production of 128-Mbit and new 256-Mbit devices will rise to sustain the company's 10-to-11% market share in those densities. Infineon will continue to make some 64-Mbit devices designated as long-life products for non-PC OEMs, von Zitzewitz said.

"We aim to maximize 256-Mbit sales as far possible, but 128-Mbit will have the higher market share," he said.

Schumacher said the productivity gains obtained with the move to 0.17-micron process technology would not be repeated in the 2001 financial year. "For the next nine-to-ten months, we will live out of 0.17 micron by improving yields," he said. "We will see no productivity gains beyond 30%, and probably a little less."

After that, the company intends to shrink geometries for memory products.

"Our plan is to qualify 0.14-micron by the end of 2001 and then do the ramp," von Zitzewitz said.

Chris Edwards is editor of Electronics Times, a sister newspaper of SBN in the United Kingdom.