Infineon May Take Time to Meet Profit Target on Dresden Plan

Infineon Technologies AG (IFX) reported better-than-expected profit after boosting sales of chips in industries from automotive to power management. Europe’s second-biggest semiconductor maker said it won’t reach a profit target in the “short term” as it expands production in Dresden.

Earnings before interest and taxes, which Infineon calls segment result, fell 7.1 percent to 117 million euros ($155 million) in its third quarter ended June 30 from a year earlier. That compared with analysts’ 104.7 million-euro average estimate compiled by Bloomberg. The profit margin on that basis was 11.4 percent, from 12.7 percent a year earlier.

Infineon is pioneering production from larger-diameter wafers, which the company has said will help it manufacture 2.5 times as many chips from each slice. Increasing production in Dresden of chips cut from 300-millimeter silicon wafers will mean “it will take some time” to reach the Neubiberg, Germany-based company’s target for a 15 percent margin, Chief Executive Officer Reinhard Ploss said on a conference call.

“There are some concerns with regards to margin expansion going into 2014,” said Thomas Becker, an analyst at Frankfurt-based Commerzbank AG who recommends buying Infineon shares. “From a top-line perspective 2014 should be a year which will meet market expectations, though since they are close to a full utilization level, clearly investment levels need to rise as well.”

Photographer: Guenter Schiffmann/Bloomberg

An employee performs a quality control check on an Infineon Technologies AG semiconductor wafer in a sterile room at the company's factory in Regensburg, Germany. Close

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Photographer: Guenter Schiffmann/Bloomberg

An employee performs a quality control check on an Infineon Technologies AG semiconductor wafer in a sterile room at the company's factory in Regensburg, Germany.

Reversing Gains

The stock fell 4.1 percent to close at 6.70 euros in Frankfurt, after rising as much as 4.8 percent following the earnings report. It has gained 9.3 percent this year, giving Infineon a market value of 7.2 billion euros.

Sales in the three months through June rose 11 percent from the previous quarter to 1.02 billion euros, in line with the 1 billion-euro analyst estimate compiled by Bloomberg.

Fourth-quarter sales will be about 1.05 billion euros, while the profit margin will be about 13 percent, Infineon said.

In April, Texas Instruments Inc. (TXN) and Intel Corp. (INTC) forecast sales for the quarter through June that may top some analysts’ estimates. Dallas-based Texas Instruments cited strengthening demand from manufacturers of automotive and industrial parts, while Santa Clara, California-based Intel is betting on server chips to offset a slump in sales of personal computers.

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Simon Thiel at sthiel1@bloomberg.net

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