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Chip maker Infineon expects sales to decline in the current financial year due to the crown pandemic. In 2020, revenue should be 7.6 billion euros, 5 percent less than the previous year, the DAX group announced on Monday night in Neubiberg. Including the recently acquired US competitor Cypress Semiconductor, sales are expected to be around 8.4 billion euros, about 5 percent or so. The segment’s profit margin is expected to reach around 12 percent. Last year, revenue increased to around 8 billion euros, and the operating margin reached 16.4 percent.
It was only in March that Infineon withdrew its original forecast for 2020 due to the Corona crisis. The consequences of the pandemic cannot be properly assessed, it was justified at the time. The semiconductor specialist really wanted to further expand his business in the current financial year. However, CEO Reinhard Ploss had anticipated a difficult first half of the year before the crown pandemic.
Now he made it clear how clearly the semiconductor industry felt the effects of the pandemic. These are unprecedented. “Infineon is also not immune to the massive recession in the global economy,” said the manager, referring to the supply chain and manufacturing problems. The outlook for the second half of the year “deteriorated significantly”. Infineon expects a sharp drop in sales in the automotive business, giving the group the bulk of its revenue.
Infineon plans to curb investments in 2020. They are expected to drop slightly to 1.2 to 1.3 trillion euros. The Board of Directors expects free cash flow to be significantly negative due to the acquisition of Cypress. Excluding the acquisition, the value should be around 100 to 300 million euros.
In the current third quarter, sales should now reach 1.9 to 2.3 trillion euros after the acquisition of Cypress has been completed. Infineon’s leadership expects a single-digit positive average percentage for the segment’s profit margin.
According to the board, the “economic upheavals” caused by the Corona crisis led to clear forecast uncertainty. The time course of global infection rates and the start-up of the business played an important role, especially in the automotive industry. The level and effectiveness of state aid is also important.
Cypress’s acquired business has been in the group’s numbers since April 16, according to the announcement. Infineon expects Cypress to generate sales of around € 0.8 billion in the remaining fiscal year. Ploss was confident that the € 9 billion purchase of Infineon, which was successful after months of suspension, was a major step forward. The impact of synergies will not be felt strongly in the short term.
In the second business quarter, Infineon performed roughly as experts expected. Revenue rose about four percent compared to the previous quarter to almost two billion euros. In contrast, operating income (segment result) fell eight percent to EUR 274 million. The margin fell from 15.5 to 13.8 percent. Without special effects, it would have increased slightly.
The bottom line was that the consolidated surplus fell 15 percent to EUR 178 million. Compared to the same period of the previous year, the segment result even fell by 17 percent, the surplus decreased by almost a quarter. In contrast, sales remained at the level of the previous year. Due to strong fluctuations, trade figures in the semiconductor industry generally compare to the previous quarter.
JPMorgan analyst Sandeep Deshpande said Infineon’s second quarter was slightly better than expected. However, the signals for the third quarter are clearly worse. Confidence in specific annual targets appears to be quite low, even if the Executive Board expects a recovery in the last quarter. Meanwhile, Alexander Duval of US investment bank Goldman Sachs adjusted his estimates for gross margin and operating costs slightly, but the rating was “Buy”.
In the last quarter, Infineon was able to increase sales in the immensely important automotive business (ATV) by 2 percent compared to the previous quarter, but the segment’s result was down 24 percent. In the PSS division, where the business is integrated with chips for the power supply and chips for mobile devices such as smartphones and tablets, the segment’s result decreased by 5 percent. Conversely, Infineon increased sales and operating profit in the smaller segment of Digital Security Solutions (DSS). In the business with chips for industry (CPI), the result of the segment remained at least stable, while sales increased by 7 percent.
Infineon Shares Demand for a Strong Second Quarter
On Tuesday, a better-than-expected second quarter fueled the recovery of Infineon’s shares in XETRA trading. More recently, it rose 3.81 percent to 16.42 euros. However, the chip maker’s shares had fallen sharply the day before by almost 7 percent.
NEUBIBERG (dpa-AFX)
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Image sources: CHRISTOF STACHE / AFP / Getty Images
