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Infineon Defies Weaker US$ With Strong Momentum

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Infineon Technologies AG reported its results for the first quarter of the 2018 fiscal year (period ended 31 December 2017).

"Infineon has made a strong start to the new fiscal year, stated Dr. Reinhard Ploss, CEO of Infineon.

Earnings and margin were better than forecast "“ despite the expected slight seasonal dip in revenues. The market for electro-mobility continues to drive growth. Infineon offers solutions for the entire range of drivetrain systems from hybrid to pure electric vehicles. Moreover, we continue to benefit from excellent market conditions, which are driving high demand for power components used in applications across the board, such as solar power plants, especially in China, and for data centres. Operationally we are fully on track. We could still defy the headwind from the weaker US$ in the fiscal first quarter. Adjusted for the depreciation of the US$ from 1.15 to 1.25, our revenue momentum is unchanged, in terms of the Segment Result Margin even slightly better. However, we are unable to compensate a further depreciation of the US$ by another 8 percentage points, which negatively affects more than half of our revenues. As such, we currency-adjusted our outlook accordingly."

Compared to the preceding quarter, revenue declined by 2 percent to €1,775 million in the first quarter of the 2018 fiscal year. Revenue in the previous quarter had amounted to €1,820 million. Compared to the first quarter of the 2017 fiscal year, revenues increased by 8 percent. The Industrial Power Control (IPC), Power Management & Multimarket (PMM) and Chip Card & Security (CCS) segments all reported seasonal decreases, whereas the Automotive segment (ATV) recorded seasonally atypical revenue growth in line with expectations.

The gross margin in the first quarter came in at 36.4 percent, compared to 37.5 percent in the previous quarter. These figures include acquisition-related depreciation and amortization as well as other expenses attributable to the International Rectifier acquisition totaling €17 million. The adjusted gross margin came in at 37.4 percent, compared with 38.6 percent in the preceding quarter.

The first-quarter Segment Result amounted to €283 million, compared to €328 million in the fourth quarter of the previous fiscal year, with the Segment Result Margin declining from 18.0 percent to 15.9 percent.

The first-quarter non-segment result improved to a net loss of €35 million, compared to the net loss of €56 million reported for the preceding quarter. Of the first-quarter figure, €18 million related to the cost of goods sold, €16 million to selling, general and administrative expenses and €1 million to research and development expenses. The non-segment result for the first quarter includes €30 million of depreciation and amortization arising in conjunction with the purchase price allocation and other expenses for post-merger integration measures relating to International Rectifier.

Operating income for the first quarter totalled €248 million, compared to €272 million in the preceding quarter. Income from continuing operations for the three-month period improved to €206 million. The corresponding figure for the previous quarter had been €177 million. Income from discontinued operations remained stable at a negative amount of €1 million. Net income increased from €176 million to €205 million quarter-on-quarter. The first-quarter income tax expense amounted to €28 million, significantly lower than the tax expense of €84 million reported for the fourth quarter.

Earnings per share improved quarter-on-quarter from €0.16 to €0.18 (basic and diluted in each case). Adjusted earnings per share1 (diluted) amounted to €0.20, compared to €0.22 in the fourth quarter. For the purpose of calculating adjusted earnings per share (diluted), a number of items are eliminated, most notably acquisition-related depreciation/amortization and other expenses (net of tax) as well as valuation allowances on deferred tax assets.

Investments "“ which Infineon defines as the sum of purchases of property, plant and equipment, purchases of intangible assets and capitalized development costs "“ amounted to €293 million in the first quarter of the 2018 fiscal year, compared to €370 million in the preceding three-month period. Depreciation and amortization remained almost unchanged at €204 million, compared to the previous quarter's €205 million.

First-quarter free cash flow2 from continuing operations was a negative amount of €135 million, compared to a positive amount of €249 million one quarter earlier. Net cash provided by operating activities from continuing operations amounted to €158 million, compared to the previous quarter's €616 million.

The gross cash position at the end of the first quarter of the 2018 fiscal year amounted to €2,312 million, compared to €2,452 million at 30 September 2017. The net cash position amounted to €503 million, compared to €618 million three months earlier.

Provisions relating to Qimonda decreased from €33 million at 30 September 2017 to €32 million at 31 December 2017. These provisions are recognized for legal costs in conjunction with the defense against claims made by the Qimonda insolvency administrator and for residual liabilities related to Qimonda Dresden GmbH & Co. OHG.

In the second quarter of the 2018 fiscal year, Infineon expects a quarter-on-quarter revenue increase of 4 percent (plus or minus 2 percentage points). The forecast is based on an assumed exchange rate of US$1.25 to the euro for the remainder of the quarter. At the mid-point of revenue guidance, the Segment Result Margin is expected to come in at 16 percent.



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