By Harro Ten Wolde and Irene Preisinger
MUNICH (Reuters) - Infineon does not expect to be able to salvage its $850 million purchase of Cree's Wolfspeed Power, which is under U.S. scrutiny over unspecified government security concerns, the German chipmaker said on Thursday.
U.S.-based Wolfspeed makes devices using gallium nitride, a sensitive powdery compound with military applications whose use by other companies has led the U.S. to block deals.
Infineon Chief Executive Officer Rheinhard Ploss told the chipmaker's annual shareholder meeting there was "a very significant risk that we will not be able to complete the takeover as planned or possibly even at all".
The German company said on Feb. 8 that it feared the deal "as agreed" could fail, suggesting there may be room for remedies, but Ploss said that U.S. government security panel CFIUS, which said the deal posed a risk to U.S. security, had not suggested any measures to address its concerns.
Infineon said it was in discussions with CFIUS, but Ploss declined to give any details.
Asked whether Infineon expected to save the deal through certain remedies, management board member Helmut Gassels told the meeting: "We are in discussions with Cree about what could work to address the issues of CFIUS. But we think that this will be very unlikely."
Infineon is making a long-term bet on a new generation of chips as Wolfspeed helps to make electronic devices operate more efficiently as its products are smaller, thinner and faster, lowering power loss in the process.
These silicon carbide chips are expected to gradually replace conventional chips, particularly for on-board charging in electric and hybrid cars.
Ploss said the Wolfspeed deal was not critical for Infineon's strategy. Although it would have given Infineon a head start in the specific technology of silicon carbide chips, it can develop these on its own, he added.
The Wolfspeed deal was announced last year and Infineon had said as recently as Feb. 2 it could close "any time soon".
If the deal does get blocked by CFIUS, it will follow the security panel preventing the acquisition of German chip equipment maker Aixtron by a Chinese buyer last year.
The $3.3 billion sale of Philips' lighting business, Lumileds, to a consortium of Chinese investors was blocked by CFIUS in January 2016.
Infineon shares were up 0.2 percent at 17.23 euros by 1300 GMT, slightly lower than the 17.32 euros it was trading at before the remarks about Wolfspeed.
(Editing by David Goodman and Alexander Smith)