Ulrich Schumacher

Former rising star CEO at Infineon faced the fallout from his racing car passion and began his bribery trial in Munich, Germany, which may last into next year.  Ulrich Schumacher, formerly CEO of one of Germany's top companies (see Schumacher Rises Through Siemens' Ranks), denied on the first day of his corruption trial that he had ever accepted a bribe.  Based on German media reports, he was charged with alleged eight counts each of corruption in business dealings and tax evasion as well as a single count each of misappropriation and attempted fraud.

Prosecutors allege that his car racing was funded by a former friend, Udo Schneider, who was sentenced in 2006 to four years in prison for corruption.  Schumacher denied accusations of receiving payments, and accused Schneider of lying. 

When Infineon went public in 2000, Schumacher attracted attention by driving a racing car down Wall Street in New York.  Now, his passion with motor car racing (he kept a Porsche engine in his office at Infineon) and the fact he mixed it with Infineon business has come back to haunt him.

It is alleged Schumacher obtained monetary kickbacks from BF Consulting, a Swiss PR firm that Schumacher had hired to coordinate Infineon's race car sponsoring programs.  The charges facing Schumacher stem from statements made by Schneider.

Today, Schumacher is president and CEO of Grace Semiconductor, a specialty Chinese foundry.  The trial and accusations against their CEO must present a PR nightmare for Grace.

Grace Semiconductor is a specialized semiconductor foundry with a strong focus on embedded nonvolatile memory, high voltage, and low leakage processes.  The company started operations in 2003 and has been one of the growing foundries based in China.  Grace is located in the Zhangjiang Hi-Tech Park in Pudong, Shanghai, and has several thousand employees.  Shanghai Alliance Investment is a leading shareholder of Grace Semiconductor.  Other notable shareholders of the company include Cheung Kong Holdings and Hutchison Whampoa of Hong Kong, as well as Silicon Storage Technology and Sanyo.  Two Asian private equity houses, GEMS and UCL Asia, are also investors in the company.

Schumacher Rises Through Siemens' Ranks

Ulrich Schumacher began in test engineering and rose through the ranks of Siemens components group to head the semiconductor group prior to the spin-off. He was always in the memory camp, and earlier efforts by other Siemens executives to head off into high-growth multimedia and consumer markets were nixed. During the spin-off, he won the internal political battle to take the helm. The board gave him some latitude to try to change the stodgy, centrist, and unionized culture of Infineon.

Under Schumcher, Infineon became a greatly improved and diversified semiconductor company compared to the old pre-spin-off Siemens Semiconductor.

He was instrumental in having Infineon assume a lion's share of the industry risk in the deployment of 12-inch fabrication facilities, an effort spearheaded in Dresden. Being the first to bring up next-generation technology is always more expensive, but usually brings strategic cost benefits downstream. Infineon's advanced manufacturing capabilities and its 26 worldwide design centers are its major strategic strengths.

While DRAM weighted heavily in the product portfolio, identified strategies to diversify into communications ICs and lessen its reliance on the memory sector. The company used its financial war chest to acquire companies to speed up this process.

In our view, the toughest job Schumacher faced was streamlining the bloated company, an effort akin to slimming down an elephant and teaching it how to dance. "Rebooting" the mindset of old-line employees takes time and consistent top management direction. When Infineon spun off, it not only inherited products and technology, it also acquired a legacy of inefficient internal procedures, too many layers of management, and a giant bureaucracy.

One former top executive told us that about 20% of the company's 29,000 employees at the time were on vacation and still suffered from the "biergarten" mentality. Another former VP told us about a company with 3,000 fiefdoms, with many of the rank-and-file employees motivated more by job security than performance. These cultural issues, along with the iron grip of its union, IG Metall, were like a ball and chain around Schumacher's neck. At Infineon, as in other German corporations, most of the exempt employees are also part of the union. Exit turnstiles and doors are clocked and recorded. Engineers might get reprimanded if they worked too much after hours. Unions are pushing for a 35-hour work week and are not in favor of stock-option compensation for employees.

We believe Schumacher was able to effect cultural changes within the top-level ranks, but success with the rank and file did not gel and there was a tremendous pushback from the unions. Trimming and slimming down the layers of the bureaucracy came slowly. His top generals were true believers in the transformation, and top management was well experienced in the chip business. Implementing a downsizing restructuring is very difficult in Germany, but early retirement programs can be used effectively to some extent. We saw a significant downsizing in its North American operations, which also underwent several U.S. CEO changes during Schumacher's tenure.

Schumacher, a Porsche and Ferrari fanatic often turned to his tennis passion with his old friend at Siemens, CEO Heinrich von Pierer, who was his mentor in troubled times. While the unions were pulling for a 35-hour work week, Schumacher was saying that he might move the headquarters to Switzerland to cut taxes, and move toward outsourcing as a way to compete cost-wise with aggressive American chip makers moving to offshore sourcing low-cost havens in a big way.

Differences in style between Schumacher and COO Andreas von Zitzewitz and CFO Peter Fischl did not help his cause, either. The board faulted him for his autocratic style, although a company like Infineon, which was overstaffed and floundering in a sea of bureaucracy needed strong direction from an experienced CEO.

When Schumacher was summoned to a last-minute emergency board meeting, he had a good idea of what was about to transpire and he was ready. It was called an "extraordinary supervisory board meeting," and it was not on the regular schedule. In the meeting, the board unanimously demanded Schumacher's resignation, and he gave it. Thus, Infineon's firebrand CEO, whose tenure lasted a mere five years, came to an abrupt end.

After the sudden resignation in 2004, Schumacher landed in the private equity industry as a partner of Francisco Partners, a private equity investment company based in the U.S.  In September 2007 he was hired by Grace Semiconductor Manufacturing as its president and CEO, where he is today.