Infineon gears up for stronger long-term growth

Infineon Technologies AG is seeing strong long-term growth drivers in its target markets – automotive, industrial, IoT and security applications – where business momentum is gathering pace. As part of its long-term planning process, Infineon is therefore realigning its target operating model, which sets target values for revenue growth, segment result margin and the investment-to-sales ratio over the cycle.

“A broad range of structural trends will drive growth in the coming years: electro-mobility, renewable energies, factory automation, data centers and a steadily increasing number of battery-powered, connected devices,” points out Dr. Reinhard Ploss, CEO of Infineon. “Thanks to our leading technologies and differentiated manufacturing expertise, we have established an excellent position in the markets in which we operate. We are determined to exploit the opportunities that result from this and, accordingly, apply a rigorous approach to investing. Our current plans are aimed at providing the necessary level of manufacturing capacity to meet expected growth. It is currently forecast that, by the middle of the coming decade, more than half of the power semiconductors produced by Infineon will be manufactured on 300 mm wafers (in Dresden/Germany and Villach/Austria).This will enable us to improve our profitability further, despite higher depreciation expense”.

In view of the current strength of the order book and based on a euro/US dollar exchange rate of 1.20, Infineon expects revenue to grow at least in the coming 2019 fiscal year by a minimum of 10 percent. For the fiscal years following this accelerated growth period, Infineon assumes that revenue will grow at an average annual rate of 9 percent (previously 8 percent).

Given that this superior growth is being driven in particular by strong demand for power semiconductors – an area in which Infineon’s in-house manufacturing capabilities provide a competitive advantage – it is necessary to adjust the investment-to-sales ratio:

• On average, annual investments are expected to amount to 15 percent (previously: 13 percent) of revenue. Approximately 2 percentage points of this figure will continue to relate to the capitalization of development costs in accordance with IFRS, with the vast bulk of the remainder relating to manufacturing and IT equipment.
• Any increase/decrease in revenue growth compared to the above-stated 9 percent will – for each percentage point – result in a slightly less pronounced change in the investment-to-sales ratio.
• In addition to the investment-to-sales ratio described above, further investments in the low three-digit million euro range in total are planned over the coming years to enable Infineon to exploit additional business opportunities and react appropriately to structural changes. Furthermore, Infineon intends to invest a total of approximately €700 million in front-end cleanrooms and certain larger-scale office buildings during the coming five-year planning horizon. Of the investments in Villach (Austria) that have recently been announced, this figure includes the 300 mm cleanroom and the research and development building. Implementation of these measures on the stated scale will temporarily result in an investment-to-sales ratio well above the ratio envisaged in the target operating model.

Due to the increased investment activity, Infineon expects depreciation of property, plant and equipment in relation to revenue to increase by approximately three percentage points over the next five fiscal years. However, by increasing the share of cost-efficient 300 mm manufacturing and further measures, the gross margin is projected to be maintained at the level of the 2018 fiscal year. In addition, Infineon plans to gradually improve the segment result margin from its current target level of 17 percent by ensuring that operational expenses rise at a lower rate than revenue. Selling expenses are expected to increase by 90 percent of the rate of revenue growth, while general and administrative expenses are expected to increase by 60 percent of the rate of revenue growth.

On 12 June 2018, Infineon will hold a Capital Markets Day for investors and analysts in London, during which its strategy and realigned target operating model will be explained in more detail. The presentation documents and statements will be made available via live stream and subsequently as recordings on the internet.

Top Image: Reinhard Ploss, CEO Infineon Technologies AG