To Infineon and Beyond

Recovery means chipmaker could become a target
At Closing, June 18th
24.83 EUR

The global effort to avoid environmental cataclysm is proving excellent business for Infineon Technologies. The more people start driving electric cars and powering their homes with renewable energy, the more the German maker of specialized power-management chips will expect to profit.

It's particularly strong in automotive chips and sensors (it supplies Tesla). Products include a radar that helps a car brake by itself -- an essential bit of kit for semi-autonomous vehicles -- and it's helping develop a gizmo that can tell if a driver's falling asleep.

Infineon was itself guilty of nodding off at the wheel back in 2009, when its shares sank to a low because of large losses and the insolvency of its memory chip unit Qimonda. Today, after years of cleaning up the mess through restructuring, cost-cutting and disposals, it is thriving -- as shown by Thursday's consensus-beating fourth-quarter results.

The only possible dark spot on an otherwise pristine factory floor is the frenzy of dealmaking in the chip sector. Infineon's participation has been limited so far to the takeover of International Rectifier for about $3 billion. The deal was smart in that it built its position in power-management chips -- used to handle the flow of power used in electronics in anything from mobile phones to automobiles. It also gives it a stronger foothold in Silicon Valley.

Yet the purchase has been dwarfed by more recent industry acquisitions such as Avago's agreement to buy Broadcom for $37 billion and Intel's $16.7 billion offer for Altera. Infineon's capture of International Rectifier stands as the eighth-biggest deal in the chip sector over the past two years, according to Bloomberg data. 

Biggest Semiconductor Deals

Top 10 deals in the industry in the past two years

Figures are for equity value

Today's financial results suggest Infineon is doing well enough without needing to do anything desperate, as CEO Reinhard Ploss stressed on the earnings call. For 2016, it forecasts a 13 percent revenue increase and a healthy 16 percent operating margin. That helped dispel worries about a slowdown in automotive and China, and pushed the shares up by 12 percent. They've now risen 60 percent in a year.

Microsemi's recent victory in the battle for PMC-Sierra shows there may be few bargains around. It paid a 77 percent premium to the target's pre-bidding share price, with the implied ebitda multiple ranked near the top of recent chipmaker deals.

Nevertheless, Ploss himself acknowledged that Infineon intends to be an "active player" in industry consolidation. Semiconductor companies appear to have little choice given the pressure on prices from intensifying competition and the high cost of developing new chips. With debt cheap and cash on its balance sheet, Infineon could afford to strike again.

Earlier this month Bloomberg reported Infineon was the front-runner to acquire Fairchild Semiconductor. But it was pipped to that by ON Semiconductor. And last week the Wall Street Journal reported that Infineon had enquired whether it could invest in rival Renesas, the market leader in automotive semiconductors that is 70 percent-owned by a Japanese government fund.

The other possibility is that someone makes a move on Infineon, something Ploss acknowledges. After its recent rally, and amid the heat in the M&A market, Infineon wouldn't be cheap. It trades in line with the sector and would demand a hefty premium for its position in increasingly attractive markets. For Ploss, a model plane enthusiast, the question is whether he'd rather continue with the current assembly job or have someone finish it for him.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Chris Bryant in Frankfurt at

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