Infineon Completes 2013 Fiscal Year with a Strong Fourth Quarter

November 12, 2013 by Jeff Shepard

Infineon Technologies AG reported results for the fourth quarter and the 2013 fiscal year, both ended September 30, 2013, including: Q4 FY2013: Revenue at €1,053 million as expected; Segment Result of €148 million, Segment Result Margin of 14.1 percent; excluding non-recurring items, Segment Result Margin would have been approximately 13 percent thus in line with expectations. Outlook for Q1 FY2014: Revenue between €960 million and €1 billion; Segment Result Margin between 8 and 10 percent. Outlook for FY2014: Revenue increase between 7 and 11 percent; Segment Result Margin between 11 and 14 percent. Finally, the Management Board proposed a dividend of €0.12 per share for 2013 fiscal year

Dr. Reinhard Ploss, Infineon’s CEO commented in a prepared statement: “I am glad to be able to tell you that – particularly in light of the overall economic background – we had a successful year. The year went better than we had expected in November 2012. With our two important future-oriented projects, our new strategic ‘From Product to System’ orientation as well as the development of 300mm thin-wafer manufacturing, we have made good progress this year.

“At my first Annual Press Conference as Infineon CEO one year ago, we were facing major challenges. Let us recall: At that time, we had forecast a revenue decline in the mid- to high-single-digit percentages and a segment result margin in the mid- to high-single-digit percentage range. This was because the development of the global economy was weak and difficult to calculate and demand for our products fell. We responded rapidly and flexibly, however. We temporarily shut down unneeded capacities, canceled or curtailed individual projects and took many other measures to reduce costs. The entire company cooperated remarkably, even though this demanded a great deal from employees. The savings we achieved were above our target of 100 million euros.

“Despite all cost-saving measures, we always had our long-term strategy in view. First, through focusing on energy efficiency, mobility and security we have adjusted our product portfolio in recent years and concentrated on high-margin activities. This supports our profitability even in economically difficult periods. Second, we have successfully used our extensive experience. The semi-conductor business – as industry observers like you know – is characterized by cyclical fluctuations. At Infineon, managing these ups and downs has become one of our core competencies.

“The result: In the 2013 fiscal year we earned Group revenue of over 3.84 billion euros. In comparison to the previous year, the decline was only two percent. Beginning in the second quarter, demand recovered more dynamically than expected. Business in Asia, especially China, was especially strong. We could more than offset the additional burdens arising from the weakness of the US dollar against the euro. We have significantly reduced our investments. This is reflected by the free cash flow, which improved from minus 219 million euros in fiscal year 2012 to plus 235 million euros. Infineon is financially strong. In comparison to the previous year, the gross cash position rose by a good 50 million to 2.286 billion euros; the net cash position was 43 million higher, at 1.983 billion euros.

“Our segment result for the entire year was 377 million euros. This represents a decline of 150 million euros compared to the previous year. The segment result margin dropped correspondingly from 13.5 to this year's 9.8 percent. The decline in result is a logical and industry-typical consequence of the relatively high fixed costs and the sharp decline in revenue that we experienced in the first quarter. This makes it all the more demanding and important that we can also ensure our profitability in such a situation as well.

“In the second quarter, the market began to recover; this continued over the rest of the year and we were able to consistently exploit it. This was con-firmed in the fourth quarter. For the third time in a row, our revenue, result and margin grew. From July to September, the Infineon Group turned over 1.053 billion euros – a plus of three percent over the previous quarter. The segment result even rose by a good quarter to 148 million euros. The segment result margin reached 14.1 percent – 2.7 percent points more than in the previous quarter.

“If we consider developments at the Division level, the following picture emerges. In the 2013 fiscal year, the three segments Automotive, Chip Card & Security, as well as Power Management & Multimarket increased their revenue compared to 2012. This more than offset the decline in the Industrial Power Control segment. The fact that overall Group revenue still decreased slightly, can be attributed to the Other Operating Segments, Corporate Functions and eliminations.

“Although Automotive slowed somewhat due to the continuing weak car market in Europe, sales in the USA and China developed very well. Demand for German premium cars also remained at a high level. In a year-on-year comparison, ATV's revenue thus increased by 3 percent to a good 1.7 billion euros. The segment result, in contrast, dropped by nearly one quarter to 167 million euros. The segment result margin was 9.7 percent.

“In the fourth quarter, revenue, at 455 million euros, remained almost at the level of the previous quarter. The usual decline in the summer months was for the most part absent. The segment result climbed by circa 10 percent to 57 million euros. This means a margin of 12.5 percent.

“Power Management & Multimarket, or PMM for short, continued to benefit from the increasing global demand for smartphones and tablets. PMM was hardly affected at all by the decline in demand for classic PCs. Sales of high-quality laptops remained fundamentally stable compared to the rest of the PC market. With plus 6 percent to 987 million euros, PMM showed the greatest revenue increase compared to 2012. The segment result increased slightly to 144 million euros, which corresponds to a margin of 14.6 percent.In the final quarter of the fiscal year, PMM increased its revenue by 2 percent to 271 million euros and its segment result by 7 percent to 49 million. The segment result margin was 18.1 percent.

“Of all the Divisions, Industrial Power Control had the most difficult year, particularly because global demand for capital goods was initially very weak. After a massive slump in the first quarter, however, the situation rapidly improved. In short, IPC ended the 2013 fiscal year with a revenue decline of 11 percent, to 651 million euros. The segment result decreased by 68 percent to 38 million euros; the margin was correspondingly 5.8 percent.

“The strong recovery of IPC continued in the fourth quarter. In comparison to the third quarter, revenue increased by 14 percent to 197 million euros. Demand improved in all fields where IGBT chips and modules are used. The segment result improved in a quarter-on-quarter comparison by 154 percent to 33 million euros; the margin thus jumped to 16.8 percent.

“Finally, Chip Card & Security was successful with its solutions for modern identity cards and passports, authentication and payment cards. CCS improved its annual revenue slightly by one percent to 463 million euros. The segment result stood at 39 million euros, 30 percent lower than the year before. The segment result margin was 8.4 percent.

“In the fourth quarter, CCS showed a revenue increase of 8 percent to 129 million euros compared to the previous quarter. The segment result climbed by one-fifth to 12 million euros and boosted the margin to 9.3 percent.

“In summary, this means that in the 2013 fiscal year, our revenue and margin were better than initially expected. We played on our strengths and demonstrated outstanding management of market cycles. Even in the downturn, Infineon remained profitable.

“This is good, but not good enough. Infineon has not yet achieved its long-term desired margin. During the past four years, our segment result margin through the cycle amounted to 14.4 percent, or slightly below our target of 15 percent. But we are making significant progress,” Dr. Ploss concluded.