UPDATE 2-Qimonda says to shrink chips months ahead of rivals

(Adds executive comments from interview, conference call)

By Georgina Prodhan and Jens Hack

FRANKFURT Feb 25 (Reuters) - Loss-making chipmaker Qimonda QI.N, under pressure from parent Infineon (IFXGn.DE) to turn around its business, announced new technology that it said would allow it to shrink its chips and cut costs faster than rivals.

The German company said on Monday its new "Buried Wordline" technology would mean it could mass-produce twice as much memory per silicon wafer by the second half of 2009, almost halving production costs, and would open new partnership opportunities.

Qimonda, the world's fourth-biggest maker of memory chips, said the technological breakthrough meant it could see its way to producing chips with tiny 30-nanometre circuit structures by 2010 or 2011, depending on market conditions.

Chief Executive Kin Wah Loh told Reuters in an interview the breakthrough put Qimonda "at least some months" ahead of rivals, which include Samsung (005930.KS) and Hynix (000660.KS).

By the start of 2010, all of Qimonda's DRAM production would be converted to structures of 46 nanometres, or 46 billionths of a metre, executives said on a conference call for analysts.

Qimonda's operating loss more than doubled to 590 million euros ($874 million) in the October-December quarter on declining sales of 513 million euros, hit like its competitors by a collapse in prices for standard DRAM memory chips for PCs.

It has been attempting to shift its product mix in favour of less-commoditised, more-specialist chips, but that move has been complicated by the need to rush to ever-smaller chip sizes -- a trend in which DRAM memory chips are at the cutting edge.

As it has failed to deliver more than intermittent profits since being spun off in 2006 from Infineon -- which still holds a 77 percent stake it is eager to divest -- Qimonda has become the target of persistent takeover rumours.

Chief Executive Kin Wah Loh said the technology breakthrough announced on Monday would increase Qimonda's partnership options but he and other executives declined to say whether they meant renegotiating deals with existing partners or finding new ones.

"We are using the step to reexamine our options. We have better opportunities in partnership now," Loh told Reuters in a phone interview. "All options are open," he said later on the conference call.

Executives said on the call that contact with partners had been initiated, but declined to elaborate.

Qimonda said the switch to the new technology would cost it an extra 100 million euros in investments in fiscal 2009 and 2010, which it would finance from its cashflow.

For the last quarter, Qimonda posted an operational cash outflow of 158 million euros, compared with an inflow of 211 million euros the previous quarter. It slashed this year's planned capital expenditure.

Loh, whose position as CEO was called into question by German market newsletter Platow Brief earlier on Monday, told Reuters he felt comfortable in his role. "For me, I see no reason to step down," he said.

The standing of Infineon's CEO, Wolfgang Ziebart, has also been hurt by Qimonda's performance as well as by dim prospects for sustainable profitability at Infineon's telecoms chips unit. ($1=.6750 Euro)