Infineon Tech AG

Welcome to the conference call for analysts and investors for Finian's 2024 fiscal third quarter results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance and Treasury and Investor Relations at Finian Technologies. As a reminder, this call is being recorded. The conference call contains forward-looking statements and or assessments about business, financial conditions, performance and strategy of the Infineon Group. These statements and or assessments are based on assumptions and management expectations resting upon currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance and strategy may therefore differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to upward forward-looking statements. At this time, I would like to turn the call over to Infineon. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining the Olympic edition of our quarterly earnings call covering fiscal Q3 2024. The team lineup on our side is well known. You have our CEO, Jochen Hanebeck, our CFO, Sven Schneider, and our CMO, Andreas Oerschitz. Jochen and Sven will provide an overview on the market situation and divisional performance, key financials, and our outlook. After that, we will start our Q&A session. As usual, the illustrating slideshow, which is synchronized with the telephone audio signal, is available at infineon.com slash slides. As last quarter, we will again provide a PDF with Jochen's and Sven's introductory remarks in the course of the call on our website, namely infineon.com slash investor. There you will also find a recording of this conference call, including the aforementioned slides, a copy of our earnings press release, as well as our investor presentation. And now, Jochen, over to you.

Thank you, Alexander, and good morning, everyone. We have labeled 2024 transition year and it is turning out to be just that. The cyclical bottoming process is indeed playing out. The rolling correction is continuing across many of our target markets. Some of them have entered a phase of gradual recovery. This, in conjunction with our structural growth drivers, is allowing us to see slight sequential improvements in revenue and segment results in the running second half of our fiscal year. For the full 2024 fiscal year, we confirm our outlook to be well in the previously guided range. As in every down cycle, it is key to focus on the structural elements. Regarding these, I will comment on three important topics and milestones. First, We see significant traction for our industry-leading AI power franchise, where we are gaining sustained strong interest from virtually all relevant customers, many of them opting for our vertical power solutions. The encouraging momentum is in line with our expectation that this business will double next year and cross the 1 billion euro revenue mark within two to three years. Second, to serve the growing demand for wide band gap semiconductors, we will officially open our CoolM3 facility for silicon carbide power devices later this week. Ramping CoolM3 will create the industry's leading fab in terms of cost competitiveness and put us in an ideal position to shape this market. Third, Our step-up program, with which we are structurally improving our profitability, is very well on track to deliver a high triple-digit million-euro margin improvement with a full effect becoming visible in the first half of our 2027 fiscal year. Before getting into these aspects, let's have a look at the June quarter's results. Group revenues came in at 3,702,000,000 euros. The sequential uptake was a bit less pronounced as some shipments corresponding to a mid-double-digit million-euro amount just missed the quarterly cut-off and will therefore materialize in the current quarter. The segment result was slightly better than anticipated, 734 million euros corresponding to a segment result margin of 19.8%. A resilient level for bottoming cycle and fully in line with our target operating model. The slight quarter over quarter improvement is the result of higher revenue as well as better cost performance, dampened by increasing idle charges as expected. Currency effects once again were virtually negligible as the quarter's USD-EUR exchange rate of 1.08 was very close to the prior quarter's rate of 1.09. Our order backlog at the end of June reached a value of around 22 billion euros. In times of widely available inventories throughout most supply chains, customers are ordering inside lead times. In particular, long-dated orders have thus been declining and we are seeing more turns business. Now let's take a closer look at our divisions. In the third quarter of the 2024 fiscal year, automotive achieved revenues of €2,112,000,000, a slight increase in comparison to the previous quarter. Volume gains in microcontrollers were slightly outpacing the still ongoing inventory digestion in classical applications. Also, the segment result of 537 million euros and the segment result margin of 25.4% pose slight sequential increases in line with improved volumes. Broadly speaking, AutoSemi's demand is at the cross-section of ongoing inventory rebalancing and secular content growth. These forces are pulling in opposite directions. In this environment, and also charged by our continued... market share gains, we keep seeing growth of around 3% for our automotive division in fiscal 2024. With unrivaled portfolio breadth and system competence, we address key growth trends like e-mobility, be it fully battery or the resurgent plug-in hybrid electric vehicles, as well as software-defined car architectures with advanced power distribution. Looking at the global adoption of electric vehicles, regional divergence remains pronounced. China sees healthy consumer demand, which helps us particularly, given our number one automotive market position there. Meanwhile, demand in Western markets is tepid. We expect some positive impulse from tighter EU emission targets in 2025, as well as new and more affordable model launches in the coming years. In the interim, plug-in hybrid cars are staging a comeback, benefiting our leading IGBT franchise. With a well-filled pipeline of upcoming IGBT generations, we will further push major cost performance improvements in this field. At the same time, we continue to seek good traction in our automotive silicon carbide business, with new design wins from an American EV company and a German Tier 1. Together, these design wins cover a volume of more than 1 billion euros. Significant parts of them were re-awarded to Infineon from other players in the industry due to superior technical properties and supply resilience. Our unrivaled mastery of all relevant power semiconductor technologies, silicon, silicon carbide and gallium nitride, allows us to also come up with novel concepts like our fusion hybrid pack drive modules combining silicon and silicon carbide for an optimal cost performance ratio. We are constantly expanding our e-mobility offering, which goes far beyond switches in power systems. Together with the leading automotive system partner Swoboda, we have developed a high-performance current sensor. In fully encapsulated modules and designed for seamless integration into our leading hybrid pack drive Gen2, the sensor enables customers to build the most compact traction inverters in the market. Furthermore, within our next generation Aurex microcontroller family, we are bridging edge AI to the battery. With a parallel processing unit or PPU it will be able to run complex battery diagnostic algorithms for accurate useful life predictions. Recently we saw a nice confirmation of our leading e-mobility position. Jaguar Land Rover awarded Infineon a Supplier Excellence Award representing our alignment on core values including teamwork welcoming challenges together and empowering each other to deliver technical and commercial excellence for the next generation electric architectures. Moving to green industrial power which compared to the last quarter saw virtually stable revenues at 475 million euros reflecting the late cycle nature of the business. Also, the segment result in the June quarter stayed essentially constant, with €88 million and a corresponding segment result margin of 18.5%. Inventories remain elevated throughout industrial supply chains. Underlying demand, however, shows very different patterns, which is why we expect the recovery to be bifurcated from here. Specifically for renewable, structural growth remains strong, with photovoltaic installations growing by 24% in 2024, according to S&P globally. The same holds true for wind power, with an expected high teens percent growth rate in 2024. Once inventories have normalized, auto momentum in these application fields will return. Power requirements from EVR charging and AI data centers will further drive demand across the energy value chain. On the contrary, for core industrial applications like automation and drives, underlying demand remains lackluster at this point in time. Therefore, a prolonged phase of muted development is likely. A few days ago, we announced the design win for a key building block of the sustainable energy transition, grid storage systems. The Japanese Daihin Corporation will employ our Coolsic MOSFET 2kW module. It enables high voltage, superior thermal dissipation and high power density. Infineon has been pioneering the industry with the introduction of the 2kV class for silicon carbide modules once again. We remain firmly convinced of the highly attractive growth potential of silicon carbide. For the near term, we can fully confirm our revenue growth target for the fiscal year 2024 of about 20% to a level of around 600 million euros for the company. For the mid and long term, the ramp-up of our Coolum site combined with the expected 200 mm transition come into focus. Both have been progressing very well. Indeed, in just a few days from today, on August 8th, we will be opening the new Coulomb 3 module, complementing our long-term wide bandgap competence center in Villach, Austria. As a large-scale greenfield FAB with highly competitive labor costs and unmatched economies of scale, Coulomb 3 will significantly strengthen our competitive position in silicon carbide. Our silicon-carbide strategy ticks off all key success factors. A globally diversified wafer and bull sourcing network, best-in-clutch trench devices, the most comprehensive packaging and module offering, superior system understanding generated from working with the broadest portfolio of automotive industrial and renewable energy customers, and going forward, a best-cost and highly resilient manufacturing footprint which can be scaled as a function of actual market demand. It is the unique combination of these factors which sets up the Infineon power business and in particular silicon carbide for accelerating success in the coming years. Now over to power and sensor systems which saw revenues increase sequentially by 5% to 749 million euros. As anticipated the June quarter saw the inflection after a string of six consecutive downward quarters. The segment result of PSS increased to €70 million after €64 million in the previous quarter, in each case corresponding to the same segment result margin of 9.3%. Rising underutilization charges have capped margin expansion. In the majority of consumer compute communication markets, the trough is behind us. Recovery will be somewhat projected as inventories still have to be worked through. In this context, Infini will benefit from unique drivers first and foremost our AI power business is scaling up. We have multiple ramps for lateral and vertical power delivery solutions going on. At the same time, we have a comprehensive roadmap to further increase power density and efficiency with our state-of-the-art modules leading to several exciting launches at upcoming customer platforms. Our modules are key to increase rack density and therefore facilitate higher compute performance. This allows for even more efficient systems on data center level. We are on a track to doubling our revenue in AI power in the next fiscal year earlier than originally anticipated. Crossing the 1 billion euro revenue line for AI power will occur in the next two to three years. Furthermore, we see very strong traction with our new sealed dual-membrane sensitive microphones. In addition to an industry-leading signal-to-noise ratio, which is especially beneficial in an AI context, they come with an environmental barrier enabling water-resistant use. This value proposition confirmed by customer wins at well-known manufacturers together with the smartphone recoverer will fuel growth going forward. Moreover, we are beginning to ramp into substantial volume with our own package, further expanding our bill of material. Meanwhile, we continue to shape the gallium nitride market, landing an important design win for high-voltage GaN power switches for power supplies at a British high-end home appliance company. We were selected due to our leadership in GaN technology in combination with our solution-oriented technical competence. This is just one example for GAN-related design wins we are currently accumulating. Lastly, a look at connected secure systems, which is showing basically stable quarterly revenues of €366 million. The segment result of CSS came in at €42 million, corresponding to a segment result margin of 11.5%, essentially flat in comparison to the previous quarter. Demand in the IoT and security markets has found a bottom. Inventories at distributors have come down over the course of the June quarter, paving the way for a slight cyclical recovery. As a huge driver for structural growth, over the coming years we continue to develop exciting new edge AI solutions. Artificial intelligence is moving to the edge, motivated by advantages in terms of latency, power consumption and data protection. This will drive new industrial and consumer use cases. To position ourselves for these, we have released the PSoC 6 AI Evaluation Kit for embedded edge AI and machine learning systems designs. The new kit provides all the tools required to build intelligent consumer smart home and IoT applications. This unique solution executes inferencing next to the sensor data source, providing enhanced real-time performance and power efficiency compared to cloud-centric solution architectures. Now over to Sven, who will present our key financial figures.