Infineon Raises Forecast on Automotive Chip Demand

Infineon Technologies AG, Europe’s second-largest chipmaker, raised its full-year forecast after reporting a better-than-predicted first-quarter profit on surging demand for automotive and industrial semiconductors.

Revenue in the year ending September will rise by a mid- teens percentage, compared with a previous “close to 10 percent” forecast, Neubiberg, Germany-based Infineon said in a statement today. The operating margin, or the so-called segment result margin, is expected to be a “high teens” percentage of sales, up from a previous mid-to-high teens percentage forecast.

Infineon, whose chips go into cars, mobile phones and other devices, is benefitting like rivals including Intel Corp. from higher demand following the economic slowdown, which hurt sales and profit in fiscal 2009. The company predicted today it will grow faster than the high-single-digit percentage growth expected for the overall market.

“Their margins are surprising on the upside; this is the highest margin that Infineon has ever reported,” Sandeep Deshpande, a JPMorgan analyst, said in a phone interview. “Management is performing extremely well.”

Infineon’s segment result, or earnings before interest, taxes, amortization and one-time gains or costs, more than doubled to 177 million euros ($243 million), or 19.2 percent of sales, in the fiscal first quarter. That compares with a margin of 10.2 percent a year earlier.

Infineon shares rose as much as 3.4 percent to 7.98 euros in Frankfurt and traded 1.7 percent higher at 7.858 euros as of 2:05 p.m.

Outperforming Market

“We are playing in a different league now,” Infineon Chief Executive Officer Peter Bauer said on a press conference call. “The times of poor figures are over.”

Net income in the three months through Dec. 31 increased to 232 million euros from 66 million euros a year earlier. Analysts had predicted profit of 161.3 million euros, according to the average of 13 estimates compiled by Bloomberg.

It marks the sixth consecutive quarter of net profit, the longest winning streak at Infineon since 2000. Before returning to profit in the final quarter of fiscal 2009, Infineon had posted 10 consecutive quarterly losses.

Sales Target

Sales excluding the sold mobile-phone chip division dropped 2.1 percent from the previous quarter to 922 million euros, in line with the company’s “flat-to-slightly lower” forecast. Analysts estimated sales of 927 million euros. First-quarter sales rose 34 percent from a year earlier.

Bauer said the company is on course to reach its target for 4 billion euros in annual sales.

“Currently valuations are extremely high and acquisitions wouldn’t be the most efficient use of our capital,” Bauer said. “We are using funds for organic growth, but also have the possibility to strengthen Infineon in other ways.”

Infineon today lifted its capital expenditure target for the current fiscal year to about 700 million euros from 550 million euros.

The 700 million euros of investment “if it’s fully deployed,” will lead to annual revenue potential of about 4.4 billion euros to 4.5 billion euros, Bauer told analysts.

As demand slows and capacity utilization becomes less “tight,” investment will come down from that figure, Reinhard Ploss, a board member, said on a call with analysts today. Bauer said capacity utilization will remain at about 100 percent in the foreseeable future.

ARM Holdings

ARM Holdings Plc, designer of semiconductors that power Apple Inc.’s iPhone and whose chips will run Microsoft Corp.’s next Windows operating system, said today that net income in the quarter ending Dec. 31 rose 72 percent on a 34 percent increase in sales, helped by the demand for tablet computers.

Infineon said sales in the second quarter ending March 31 will be “up slightly” from the first quarter, with the automotive chip division expected to “grow markedly.” Chip card and security sales will see “some growth” and sales at the industrial and multimarket unit should increase “only slightly.”

Bauer said sales are expected to be flat in the third quarter, compared with the second, and the fourth quarter “remains to be seen.”

“With chip market growth slowing and Infineon likely at the peak of its momentum, we fear conditions are as good as they can get,” Bernd Laux, an analyst at Cheuvreux in Frankfurt, said in a note.

Legal Action

Infineon agreed in August to sell its wireless business, which makes chips for the iPhone, to Intel Corp. for $1.4 billion. Infineon said Jan. 31 that the transaction had been completed. Chief Financial Officer Dominik Asam said the net book gain from the sale is expected to be a “mid triple-digit million euros amount.”

Infineon’s remaining units make semiconductors for cars, wind turbines, household appliances, lighting systems and identity cards.

Before the Intel deal, Infineon disposed of its unprofitable Qimonda memory-chip unit to reduce its dependence on markets with volatile demand and prices. Infineon was itself sold by Siemens AG, Europe’s largest engineering company, in an initial public offering in March 2000. Munich-based Siemens sold its remaining Infineon shares in March 2006.

Infineon said today it is taking legal action against the Qimonda insolvency administrator. Infineon claims the right to use patents and licenses that were transferred to the unit when it was carved out of the group.

Automotive Growth

Infineon’s products are used by companies from Audi AG to China’s Chery Inc. that are looking to safely replace more expensive mechanical parts. The automotive chip market is set to grow to $26.3 billion in 2014 from as much as $15.1 billion in 2009, a compound annual growth rate of about 12 percent, according to researcher iSuppli.

Revenue in the quarter rose by 8.4 percent at Intel, the world’s biggest chipmaker, and 9.7 percent at STMicroelectronics NV, Europe’s biggest. Texas Instruments Inc. posted a 17 percent sales gain for the period while reporting higher inventories and lower orders.

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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