Infineon Tech AG

Good morning everyone and welcome to the conference call for Analysts and Investors for Infineon's 2025 Fiscal Second Results. Today's call will be hosted by Alexander Fultin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technologies. As a reminder, this call is being recorded. This conference call contains four looking statements and or assessments about the business, financial condition, performance and strategy of the Infineon Group. These statements and or assessments are based on assumptions and management expectation, 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 developments, financial conditions, performance, and strategy may therefore differ materially from what is discussed in this conference call today. Beyond disclosure requirements stipulated by law, Infineon does not take... and the obligation to update these forward-looking statements. At this time, it's my pleasure to hand over to Infineon. Please go ahead.

Good morning, ladies and gentlemen. This is Radio Infineon with the 100th broadcast of quarterly earnings in our corporate history. On the mics today, you have our CEO, Jochen Hanebeck, our CFO, Sven Schneider, and our CMO, Andreas Orschitz. Jochen and Sven will provide a comprehensive overview on the market situation and divisional performance, key financials, and our revised outlook. After that, we will start our Q&A session. As usual, the illustrating slideshow, which is synchronized with a telephone audio signal, is available at infineon.com slash slides. We will again provide a PDF with Jochen's and Sven's introductory remarks in the course of the call on our website, infineon.com investor. There you will also find a recording of this conference call, including the slides, a copy of our express release, as well as our investor presentation. And now, Jochen, over to you.

Thank you, Alexander, and good morning, everyone. What a difference a quarter can make in terms of macro and geopolitical events shaping the environment in which we operate. Looking through these external factors for a moment, the underlying business dynamics are largely unfolding for us as predicted. We are past the cyclical trough with customers and distributors in most of our target markets in the process of ending their inventory corrections. Besides normalizing inventory levels, the other key ingredient needed for a cyclical recovery is end demand picking up. And it is here where the headwinds from tariffs are expected to come in. An impact on demand over the remaining course of our running fiscal year is likely, but nothing is yet visible in our order book. For Infineon, we therefore focus on managing what we can control, staying agile in the face of shorter market changes, and simultaneously work on innovation and structural improvements to optimally set up our company for continued future success. let's now look back at our march quarter which has been an inline one we recorded revenues of 3 billion 591 million euros five percent up compared to the previous quarter positive volume effects were partially offset by annual price declines as expected currency played a minor role the average actual us dollar euro exchange rate was 105 in comparison to 107 in the quarter before The segment result amounted to 601 million euros. The corresponding segment result margin of 16.7% is the same as in the prior quarter, which was supported by a compensation payment from a customer of a mid-double-digit million amount. We were thus able to compensate for the kicking in of annual price adjustments in a fairly robust way. Our order backlog at the end of March was standing at around 20 billion euros, constant quarter over quarter in spite of annual price adjustments and a significantly weaker US dollar at the end of Q2 compared to the end of Q1. Now to our divisional review beginning with automotive. In the second quarter of 2025 fiscal year, automotive achieved revenues of 1,858,000,000 euros. This reflects healthy sequential growth of 6% and confirms the underlying improvement of the inventory digestion by customers throughout the quarter. Please note that all reporting figures reflect the transfer of the Sense and Control business line from ATV to PSS as of January 1st, 2025. All comparisons provided are adjusted accordingly on a like-for-like basis. The segment result of ATV amounted to 385 million euros, corresponding to a segment result margin of 20.7%. This represents a sequential improvement driven by higher volumes and a favorable currency effect, which more than offset annual price adjustments and slightly increasing idle cost. We are very pleased to share the latest study from Tech Insights, which confirms once more the exceptionally strong traction of our automotive semiconductor business in the market. Based on numbers for 2024, we continue to be in the number one global automotive semiconductor provider, with a market share of 13.5%. We have improved our regional positions further and climbed to number one in Europe and number two in US. We also continue to hold the pole position in China as well as in Korea and the number two spot in Japan. Our market share in automotive MCUs has risen to 32%, bringing us even to the global number one position across the entire MCU market for all applications. Now to the present situation. While our recent business performance was slightly better than our initial expectation, the geopolitical environment has become significantly more volatile in recent weeks. Recently implemented US import tariffs are likely to create headwinds for global vehicle production. In response, market researcher S&P Global has recently lowered its forecast for this year to around 88 million units. Turning now to our recent achievements. We are pleased to share several notable milestones for the ATV business. For example, we won several slots with our Aurix and Traveo microcontroller franchise in one of the lead platforms of a European premium OEM. the lifetime of this platform lasts well into the 2030s more than half of all microcontroller sockets in the respective vehicles will be supplied by infineon resulting in an average content value of several hundred euros per car solely from our microcontroller solutions Another success includes the usage of our latest Aurex TC4 microcontroller as a safety companionship for the next generation of a leading autonomous driving platform. This high-performance processing unit requires an extraordinarily capable safety host. Together, they enable high-speed ADAS calculation and central compute operations in a secure and dependable way. Moreover, this design win also incorporates Infineon's automotive-grade OptiRec PMIC, providing a complete power management solution. Lastly, we are proud to highlight a significant milestone in battery management system. A leading Chinese EV manufacturer has selected our new 18-channel battery management system, marking the first design win for this next-generation solution. The setup from the previous 12-channel design enables more compact battery management systems, which is especially important for the upcoming 800-volt battery systems. This innovation sets a new industry benchmark for high-precision sensing and intelligent fast charging capabilities. Finally, on April 8th, we announced the signing of an agreement to acquire the automotive Ethernet business of Marvell for a purchase price of 2.5 billion US dollars. This strategic acquisition marks an important step in strengthening our market-leading microcontroller franchise, particularly in the context of zonal controllers laying the foundation for software-defined vehicles. Besides this, Ethernet will play a key role in other highly promising future application fields such as humanoid robots. The business to be acquired is experiencing strong growth, is highly profitable and will thus be accretive to ATV growth and gross margin upon integration. The transaction is subject to customer regulatory approvals and we expect closing to occur within the calendar year. Let's now move to in green industrial power. From the very low revenue level of the December quarter, GIP recorded the expected sequential growth. Revenues increased by 17% quarter over quarter to 397 million euros. All applications areas contributed to this growth, hinting at the anticipated gradual recovery of industrial markets setting in. That being said, the fact that GIP's revenue level is 15% below last year's is showing that such recovery has still a long way to go. The segment result of GIP came in at 38 million euros in the second quarter of our 2025 fiscal year, leaving the segment result margin at a depressed level of 10%. Essentially, annual price declines offset sequential volume increases, while underutilization charges remain a burden. From a cyclical perspective, industrial markets are at the early stage of a gradual recovery. Customer inventories are trending downwards, but have not yet normalized. Orders in the value chain are picking up slowly, but have yet to translate into broader demand for power semiconductors. Rising tariffs, whether threatened or enacted, are adding a layer of uncertainty. In this environment, pricing pressures are persisting, and particularly for standard power components in China. Therein, silicon carbide is seeing a dynamic evolution of prices, not least driven by declining substrate prices in a more and more commoditizing market where we benefit from our well-diversified supplier base. In addition, market participants apply forward pricing on the anticipated transition to 200 millimeters. As a consequence, pricing pressures will dampen market expansion in the near term. Therefore, we adjust our projection and now estimate a low annual growth rate for our fiscal 2025 silicon carbide revenues on group level before any tariff impact. Meanwhile, structural growth drivers are unabated. Globally rising power and efficiency requirements support demand for energy generation from renewables, as these are oftentimes the most economical sources. Related to this, continuous power infrastructure investments are driven, for example, by capacity extensions of key players in China and government initiatives in Europe. This affects area like transmission and distribution, energy storage systems or uninterruptible power supplies, not least to support AI data center build outs and also EV charging infrastructure. With our unrivaled offering of power solutions, we are applying a key role in these areas. Now to our power and sensor systems segment. PSS recorded revenues of 979 million euros in the March quarter essentially flat compared to the previous quarter. These numbers include the mentioned automotive sensor business line transfer from ATV to PSS. While we noted continued strong growth momentum for our power solutions for AI servers, most consumer-related applications saw the expected price downs. Revenue for smartphone components as well as for our sensor portfolio were flat quarter over quarter. The segment result of PSS decreased to 138 million euros, corresponding to a segment result margin of 14.1%. Please keep in mind that the previous quarter's numbers contained a compensation payment of a mid-double-digit million euro amount received from a customer. In other words, like for like, the underlying margin has slightly expanded sequentially. Looking at PSS target markets, we see that from a cyclical perspective, consumer computing and communication applications have left the trough behind. This is confirmed by business indicators such as rising short-term orders backlog building, low cancellation rates, and not normalized channel inventories. AI is poised to remain an engine of growth. The build-out of AI data centers and related infrastructure is continuing at a fast clip, and we see our business scaling up dynamically along the lines we had predicted. A key factor driving Infineon's success in this market is the unrivaled breadth and depth of our product offering. Instead of just focusing on individual power conversion steps, we are closely working together with the development teams of all top customers to realistically design and optimize the entire power flow from grid to core. By bringing together the best silicon, silicon carbide, and gallium nitride dies with leading-edge packaging technologies like chip embedding, we achieve superior power density, energy efficiency, and thermal performance. As an example, beyond power stages, we are now designed into the intermediate bus converters or IBCs of one of the platforms of a leading AI processor company. With our optimal six in a five by six millimeter dual side cooling package, we are setting a new industry benchmark fitting optimally into the constraint space of AI servers for accelerated compute. To complete the divisional review, let's take a look at a connected secure system. CSS recorded quarterly revenues of €356 million, representing a 3% increase compared to the December quarter. Driven by higher revenues and some structural effects, the segment result of CSS rose to €40 million, corresponding to a segment result margin of 11.2%. IoT and security markets remain close to the bottom as macroeconomic uncertainties continue to weigh on consumer sentiment and corporate spending. Against this backdrop, we continue to innovate and deliver cutting-edge products that lay the foundation for future growth. Executing on our development roadmap, we have further expanded our PSOC microcontroller portfolio. Following the successful launch of PSoC Control, we introduced PSoC MultiSense family. This new lineup enhances Infineon leading CapSense capacitive sensing technology by integrating proprietary inductive sensing as well as non-invasive liquid sensing solutions. These advancements provide developers with unparalleled flexibility to create advanced HMI and sensing applications, ranging from sleek metallic product designs with touch-on metal buttons to waterproof touch interfaces and innovative liquid sensing technologies. In addition, we are driving the adoption of AI-enabled application with a piece of Edge family. By integrating NVIDIA's TAO models into a comprehensive development ecosystem, including tools, libraries, and documentations, we enable developers to accelerate innovation and shorten time to market for Edge devices. This positions Infineon as a key player in the very dynamic Edge AI space. Sustainability continues to be a core focus for Infineon. And we are proud of the strides we are making in this area. With Sikora PayGreen, we are leading the way in sustainable payment technologies. This solution enables the production of fully recyclable dual interfaces, contactless payment card bodies that eliminate the need for an additional card antenna. Our innovation has been recognized by both customers and industry leaders, including MasterCard, which has added Infineon to its greener payments partnership. Now over to Sven, who will comment on our key financial figures.

Thank you, Jochen, and good morning, everyone. Starting as usual with a gross margin, as most of you are following Infineon already for a long time, you're aware that the bulk of our contracted annual price changes is kicking in in the March quarter, typically constituting a burden. Considering this and the revenue levels still impacted by inventory digestion by our customers, we are pleased to see that we could keep the adjusted gross margin above the 40% mark. With 40.9%, it remained flat to the previous quarter's 41.1%. Several factors were at play here. Volume and productivity gains contributed positively as well as a slightly favorable currency development. On the other hand, idle costs went up to some extent quarter over quarter. The reported gross margin decreased slightly quarter over quarter from 39.2% to 38.7%. On the OPEC side, research and development expenses went up slightly to 559 million euros in the March quarter after 544 million euros in the December quarter. We are consistently building an innovation roadmap to nurture future opportunities for profitable growth. Prime current examples are a 12 nanometer FinFET tape out for future generation for our AURIX automotive microcontroller family or the introduction of a trench-based super junction concept for silicon carbide devices. Our selling general and administrative expenses declined sequentially from 395 to 376 million euros, evidence of strict cost discipline and showing the first fruits of the SG&A part of our step-up initiative. Net other operating expenses amounted to 138 million euros, mainly related to impairment charges on manufacturing equipment at our 200-millimeter Austin site, which we plan to sell to the U.S. foundry Skywater. These charges are part of the non-segment result, which amounted to minus 283 million euros for the March quarter. The financial result for the second quarter of our 2025 fiscal year amounted to minus 28 million euros after minus 17 million euros in the quarter before. Income tax expense for the March quarter amounted to 63 million euros, equivalent to an effective tax rate of 22%. Cash taxes for our second fiscal quarter were 80 million euros, down from 152 million euros in the previous quarter, which had contained payments made for prior years. Adjusting for PPA effects, the quarterly cash tax rate stood at 20%. Our investments into property, plant, and equipment, other intangible assets, and capitalized development costs went down noticeably as planned and in line with our annual CapEx budget from 731 to 470 million euros. Depreciation amortization expenses, including acquisition-related non-segment result effects, remained essentially flat with 483 million euros. Our free cash flow improved quarter over quarter from minus 237 to plus 174 million euros. Main drivers for the improvement were lower investments, less pay taxes, and the non-recurrence of annual bonus payouts in the December quarter. Also, changes in inventories contributed positively. Here, our cycle management efforts are showing positive effects. In a challenging market environment, characterized by customers and distributors destocking, our inventories went slightly down over the course of the March quarter, their reach declining from 190 to 177 days. Towards the end of our running fiscal year, we continue to target a reach level in line with end of last year. This implies that we will need to keep FAB utilization levels at low levels also in the light of potential tariff-related demand risks. Going forward, quarterly idle charges will therefore be higher than previously anticipated and be a margin drag in our fiscal H2. Jochen will comment on it in the outlook session. Now to our liquidity and leverage. Our corporate finance team had an eventful and successful quarter. After signing a €2 billion committed stand by revolving credit facility, about which we reported already last time, a €700 million bond was issued in February with a five-year tenor and a coupon below 3%. Also in this quarter, we repaid a 500 million euro bond at maturity, called and redeemed a 600 million euro hybrid bond, and paid out our annual dividend of 455 million euros. At the end of March, our gross cash position equated around 1.7 billion euros. Our gross debt amounted to 5.5 billion euros. These figures contain 400 million euros in drawn short-term credit facilities. Our gross leverage is 1.5 times, net leverage is amounting to 1.1 times. The financing of the planned acquisition of the automotive Ethernet business from Marvell is another example of how we apply our conservative financial policy. We have put in place a committed acquisition facility from our banks consisting of a 1 billion euro and a 1 billion US dollar tranche. This facility will be drawn at closing. For the majority of the remaining related currency risk of the planned acquisition, we have concluded so-called deal contingent foreign currency hedges. S&P Global has confirmed that the fully debt financed acquisition is commensurate with our investment grade rating of BBB plus stable. Finally, our after-tax reported return on capital employed for the second fiscal quarter of 2025 came in at around 5%. Now back to Jochen, who will comment on our outlook.

Thank you, Sven. When looking at the cyclical dynamics in our target markets, our initial predictions are providing to be fully correct. Inventory corrections by automotive customers have largely ended. In industrial, they are getting less intense. Stock levels in consumer markets have normalized. With this, the foundation for a cyclical upturn would be laid. In principle, observing short-term customer order behavior and a high share of turns business, we had so far been cautiously optimistic, calling for a modest recovery in the second half of our 2025 fiscal year. We continue to think this is what best describes the underlying dynamics. And if there weren't any changes to tariff policies, we would essentially reiterate and confirm our guidance from last quarter, even taking a substantial negative currency effect from moving our U.S. dollar-euro exchange rate assumption from 105 to 1.125 into consideration. But the world has changed, and the macroeconomic and geopolitical factors are fast-moving goalposts at present. Trade conflicts have intensified, sparked by announced, enacted, and partly forced tariffs and counter-tariffs. There are not yet semiconductor-specific tariffs in place. However, in the flux situation around tariffs is impacting customer demand and likely leading to end market weakening. After the announcement of a 90-day pause on the so-called reciprocal tariffs, there is currently no clarity around the extent of U.S. and potential retaliatory tariffs. But it seems logical that whatever the outcome, economic growth is already impacted as uncertainty is weighing on consumer sentiment and corporate investment in the short term. Chip demand is also likely to be affected by supply chain disruptions as OEMs assess the impact on their product demand, their manufacturing strategy, and which locations they would want chips to be delivered to. Some are likely to cut inventory levels further in the light of potentially weaker demand. Others might restock to manage geopolitical volatility. To be clear, we do not see any of these described impacts in our order books yet, but we expect them to come to a certain degree in the remainder of our current fiscal year. The magnitude and duration of these indirect effects is highly difficult to predict, but being mindful of them and fully transparent to you, we decided to prudently adjust our outlook downward. Let me start with our outlook for the full 2025 fiscal year, which under German disclosure rules, in contrast to our main international peers, we have to provide. As you are aware, we had so far predicted our annual revenues to be flat to slightly up compared to fiscal 24, based on a US dollar-euro exchange rate of 105. We are now changing our currency assumption to 1.125 for the remainder of the fiscal year. Even with this adverse currency effect, we would still be within the range of our former guidance, including a mid to high teen segment result model level. However, we need to be mindful of likely tariff-related indirect demand effects. Take, for example, the recent announcement of several automotive OEMs who either pulled or meaningfully reduced their forecast for 2025. Also, other markets will probably be affected by tariff-related headwinds. As said, we are not able to calculate these effects or derive any number from our order intake or change in order behavior of our customers at this moment in time. Therefore, we guesstimate them at a magnitude of around 10% of our planned Q4 revenue. Including both these factors, tariff and adverse currency impacts, we now predict our revenues for the 2025 fiscal year to be slightly down on an annual basis. Our reduced revenue outlook consequently affects our margin assumptions for the 2025 fiscal year. We expect our full year adjusted cross margin to come in around 40%, whereas our segment result margin should land at a mid-teens percentage level. Idle charges in the second half of our fiscal year will be higher than previously assumed. For the full year, they are expected to amount to around 1 billion euros. The vast majority of them is of a cyclical nature to keep our inventories at healthy levels, considering a margin headwind of now around 600 basis points for the 2025 fiscal year. We will continue to manage what we can control and put in significant efforts to safeguard and improve our current margin levels, benefiting from the first positive effects of our step-up initiative. Overall, we are progressing with step-up as planned. In the current context, we plan to reduce our investments, including capitalized development expenses, to around 2.3 billion euros from around 2.5 before. For depreciation and amortization, we now anticipate around 1.9 billion euros, including around 400 million euros resulting from purchase price allocations, which are recognized in our non-segment result. For the reported free cash flow, we continue to expect a level of around 900 billion euros. Our adjusted free cash flow, net of investments into major front-end buildings, is now expected to come at around 1.6 billion euros compared to 1.7 billion euros as predicted before, given that some of the invest is push-outs affect large front-end buildings. For the sake of abundant clarity, our forecasts do not include the automotive Ethernet business of Malwarelle, which we intend to acquire. For the currently running third quarter of our 2025 fiscal year, we expect revenues to come in around 3.7 billion euros equivalent to around 3% sequential growth. This also assumes a US dollar euro exchange rate of 1.125. And hence, the like-for-like growth at constant currencies would be around 8%. On a divisional level, we expect a higher quarter-over-quarter growth rate for GIP and PSS, whereas ATV is assumed to grow below group average. For CSS, we forecast revenues to be sequentially down. For the June quarter segment result margin, we expect a mid-teens percentage level. In comparison to the March quarter, we expect less favorable currency relations as well as an impact from annual merit increases, which became effective on April 1st. Before coming to the summary, I would like to share two additional news with you. The first is another milestone on our sustainability roadmap. The science-based target initiative has officially approved our science-based target. This includes scope three emissions in covering purchase goods and services, capital goods, and upstream transportation and distribution. having a validated science-based target including scope 3 emissions is an important milestone for us and will further strengthen infinian's position as role model in sustainability the second piece of good news is about our smart power that we are currently building in dresden the german government has issued the final funding approval supporting fifth of the overall investment. Meanwhile, the construction of our new FAP for analog mix signal and power is proceeding as planned. The building shell almost is complete, bringing highly efficient, scalable and resilient supply for fields like renewable energies, data centers and e-mobility. Before going into Q&A, ladies and gentlemen, let me summarize. The second quarter of our 2025 fiscal year came in fully in line with our expectations, with revenues of 3.6 billion euros and a segment result margin of 16.7%. As market data is showing, Infineon has fortified and expanded its global leadership in automotive semiconductors. The planned acquisition of Marvel's automotive Ethernet business will position us optimally to shape the future of software-defined vehicles, but also in areas like humanoid robots. Outside of automotive, several high-growth applications areas prove our innovative strengths and system competence. First and foremost, powering AI data centers, but also energy storage systems or edge AI solutions are gaining traction. Our markets have bottomed and inventory levels mostly normalized. Normally, the runway would be clear for the envisioned modest recovery to set in. Alas, tariffs-induced market uncertainties are constituting indirect demand headwinds. To account for these, we can only guess the potential impact at this point. Including this, as well as a weaker U.S. dollar, we revise our revenue guidance for fiscal 25 to slightly down. cycle management and focusing on things we can control remain keenly to navigate their near term beyond that our growth potential remains highly attractive and we are strengthening our innovation power and leverage structural improvements to optimally benefit from secular threats thank you ladies and gentlemen this concludes the introductory part of our broadcast today

We're now opening the call for the interactive part, i.e. your questions. We kindly ask you to limit yourself to one question and one follow-up. Operator, please start the Q&A session. Thank you.

Our question and answer session will be conducted electronically. If you would like to ask a question, simply press star followed by one on your telephone. If you're joining us using a speakerphone, please ensure that your mute function is turned off. And we'll take our first question from D.R. Shimana, Bank of America. Please go ahead.

Yes, good morning, James. Thanks so much for taking my question. My first question may be for Sven on the margin guidance for the full year, the revision from mid to high team to mid team. I just wanted to understand the mechanics a little bit obviously you were not quite there when you were guiding at 110 before. So I just wanted to understand gross margin. You said adjusted about 40%. Are there any specific elements in OPEX we should be mindful of? Or are you, you know, seeing more pricing pressure perhaps that would warrant the lower segment result margin? And I've got a follow-up. Thank you.

Yeah, Didier, thank you for asking. So, first of all, starting with the gross margin. So, indeed, it's around 40, which stays at that level and is now around 40. There are different levels at play. Taking our haircut for the Q4 into consideration, there's, of course, a certain volume reduction included, which then is also translated to be consistent in higher underutilization. And that's, of course, a negative for gross margin and segment result margin. That's one change to the last call. To what extent that will materialize, we, of course, do not know. As Jochen has said, it's a guesstimate. The second point is currency. There is a currency effect which is pretty relevant, and maybe I also take the liberty to answer that because I get a lot of questions in the meantime here from you guys. These 7.5 cents from 105 to 112.5, and please don't ask me where the dollar will be. Honestly, I don't know. I've given up on forecasting the dollar. We just took the midpoint between 110 and 115. That's why it sounds a little bit mathematical. The 7.5 cents translates into close to 400 million of revenue headwind for the second half and translate into, give or take, 150, 170 million of segment result headwind for second half. So that's another impact. And then lastly, I'd also say that In the intro, there are in certain components, standard power components, some price reductions on the industrial side. Also, that is reflected in the margin guidance.

Okay, very clear. Thank you so much. For my follow-up, I just wanted to also understand a little bit the guesstimate on the tariff-induced reduction. So what are you assuming for the September quarter for the various divisions? Are you expecting, for instance, automotive to decline sequentially? Or if you could help us understand a little bit where the haircut is coming from.

yeah so dj again it's uh it's a guesstimate i mean we are all looking at the uh tariff uncertainty uh as we said some tariffs and i'm talking indirect tariffs some indirect tariffs have been announced in our life already others have been announced and taken away reciprocal tariffs the retaliation all these things are uncertain therefore we do not have any mathematical mathematical calculation behind this haircut and to be also transparent 10 of q4 translates into give or take 400 million euros of revenue haircut so no mathematics behind it it's not visible in our order book we do not see it in our numbers we do not get clear messages from our customers that they are postponing or cancelling orders It is a guesstimate. It could also have been 5%, to be honest. We decided to give you 10%. You have now full transparency both on currency and on our haircut with regard to revenues, and you will have lots of intelligence to deal with it and put it accordingly into your models. Nothing else than that is included. We think it's a de-risking of this year's guidance.

No, I think that's very clear and I think it's brilliant what you've done. Maybe my final question on AI, I just wanted to know because you haven't really talked about your guide for this year or for next year. So are we still on track for 600 million for this year and is the 1 billion sort of achievable next year in spite of FX or should we assume a haircut also because of FX?

Yeah, Andreas is speaking. Didier, hello. To cut a long story short, we absolutely confirmed the 600 million prediction for the running year. As you know, Infinen is powering AI, so we do that from what we call the grid to the core. We, in the meantime, occupy all the meaningful steps in between. So talking about this power flow, so from the AC to DC converter, the switch for power supply over the intermediate bus converter, Jochen commented on this, towards then powering the core processors and within that, We have sustainable differentiation potential going forward, optimizing with GPU makers, but also server rack makers and data center operators. The power efficiency and also power density in given AI data centers, which Infineon is simply excelling. So having said that, full confirmation.

And did you – no, sorry, go ahead, because I just wanted to add something to your previous question, but do you have a follow-up to Andreas? Please go ahead.

No, just on the $1 billion for next year, I think last quarter you said that that's very much, I wouldn't say in the bag, but that's a realistic ambition. Is that still the case?

Did you – yes, we reconfirmed the billion. Okay, great. Thank you.

And now my small addition, because I forgot to mention that on the segment resulting gross margin effect, also one last comment on guesstimates and potential defects. I think we should also be realistic. I mean, this is a guesstimate, as I said. The later it comes, or the smaller it gets, the more upside we have on our mid-teen segment result margin, to be also very clear and transparent on that level.

That's incredibly clear and really appreciate all the work you've done there to make our life a bit easier. Thank you.

The next question comes from . Please go ahead.

Hi. Good morning. Thanks for taking the question. I just want to go back to the Q4. fiscal Q4 outlook, let's assume that you don't get any kind of a tariff impact, which may be unrealistic, but just looking at where your order book is currently, how would you expect the different businesses to perform into Q4? I'm not asking for specific quarter-on-quarter guidance by business, but would the maximum strongest momentum be in the automotive division into Q4 based on your current visibility, or would it be a continuing rebound in industrial, both GIP and the PSS, as well as in AI? I mean, just qualitatively, can you tell me, based on your current visibility, what Q4 is looking like?

Yeah, Jonathan, thank you for the question. So, again, it's difficult to predict, but if we just go back to a normal seasonality for an uneffected quarter or second half, you would usually see a stronger growth momentum for automotive and for PSS. Industrial, the inventory digestion is abating but still going on, and CSS has improved. different dynamics, as you know. So I would probably answer with a normal quarter unaffected auto and PSS.

Understood. And on the GIP price pressure, you know, it appears to me that, you know, this is not going to go away because Chinese competitors are predominantly competing with you in the power discrete side, especially IGBTs and going forward possibly silicon carbide, and some of your non-Chinese competitors are also likely to be trying to get some share there. How do you see, how do you envisage dealing with that in the longer term? Not so much what's the FY25 outlook, but, you know, 26, 27, you know, this is something you'll have to deal with on an ongoing basis. Is there Is there any action or strategic approach that you can take to sort of mitigate this effect on overall Infineon's numbers going forward?

Yeah, thanks for the question. I tried to answer. I think we have to segment that market more. There are clearly products which we call standard power semiconductors taken in IGBT or also our silicon carbide device in a TO247 where differentiation becomes more challenging. If it comes to high reliable semiconductors, high reliability modules, the game looks very different. And this is what you need, for example, for ESS, but also for transmission. So here we can clearly differentiate ourselves in the market by the package side. On the technology side, we are in terms of silicon carbide MOSFETs, one or two generations ahead of competition when it comes to our technology. area efficiency and figure of merits for silicon carbide MOSFETs. And by the way, the same is true for silicon MOSFETs. We are ahead one or two generations. So we have to segment that market, and some market segments like, for example, a solar residential inverter built up by discrete solar is probably not an area for us to play. But when it comes to higher reliability and high performance application, we clearly have a right to play. And just a case in point, as you asked also for the overall effect on Infineon, which of course is highly A good part is automotive. Our revenue in China for automotive year over year grew double digit. Automotive revenue China year over year grew double digit. And that includes also the whole portfolio.

Okay. Yeah, I'm assuming that this effect will be much more on your industrial business than on your automotive business in general.

because in automotive, higher reliability performance plays out, but don't underestimate the requirements in power infrastructure. The more renewables come into the net, into the grid, the more demanding the application becomes, effects like grid shaping. plays a role and so we expect there is a good part of the market where we can play our offshore wind, right? Same thing in China. Maintenance of offshore wind is difficult. Understood. Thank you very much.

The next question comes from Stefan Hury, AutoBHF. Please go ahead.

Yes, good morning, everyone. Actually, I have a question on your comments about the end of the inventory collection, notably in the automotive space. Can you maybe remind us what is the current level of inventories in terms of number of weeks at your automotive customers? And do you see the automotive market, let's say, stabilizing everywhere in terms of geography, but also in terms of mix, EV versus hybrid, IC, et cetera? Can you maybe give us some overview about what's happening there? Thank you.

So the inventories at the customers are difficult to state. We can share with you that our overall inventory in our distribution channel is very much on target. We have a target in 10 to 12 weeks. And we are at the upper end of 12 weeks, and automotive is not really an exception to that, but very much in line. On the inventories beyond that, meaning at the Tier 1s, we do not really have transparency. We call, of course, our major customers, get indications, and from that we have derived our – which I made in the introduction that we see things coming to a normal level in some areas. That's, of course, an average statement. In some areas, it's already in a, let's say, risky territory because some tier ones, of course, under cash constraints manage their inventory further down. In other areas, it might be a little bit higher, but the average is normal. And therefore, we also see that our automotive business now in the last quarter picked up, especially currency neutral or that same currency.

Okay. And regarding China, is there anything specific happening in the Chinese market which has been driving the growth while the others were a bit, let's say, negative so far?

on on automotive i think you have seen the latest number for april in china the market is is is is there and we are participating uh in a nice way i i just mentioned in the previous uh question that our automotive revenue um grew double digit year over year in the quarter So we are participating. We are exposed to the right OEMs. I think we made it public in the past. We have a broad coverage. So I'm very happy with the development I see there. Anything to add, Andreas?

Just to build on what Johan has been saying, so as a matter of fact, Talking about China, in the automotive sector, we continued to increase auto market share to 13.9 percentage points. So you can see it also in the market share. This revenue growth as a result of many, many things, including portfolio breadth, our P2S approach, reliability commitment, and a couple of other such factors that play into the equation.

Okay. Thank you very much.

The next question comes from Joshua Buchalta, TT Cohen. Please go ahead.

Hey, guys. Thank you for taking my question. For my first one, I wanted to ask about the auto MCU business. You showed another year of very meaningful share growth. I think you hit 32%. I mean, how much further can that go? Are you reaching the point where the market's getting pretty saturated and more concentrated than usual, or do you think there's more room to run on the auto MCU share gain side? given your investment in SDV and your Oryx family. Thank you.

Yeah, you know, probably that this story dates back many, many years. So the design wins we harvest today date back three, five years in case of platforms. I do expect some further gains, but, of course, always keep in mind that FX and inventory effects can alter the numbers. But we are just in the transition from the 65-nanometer generation to the 40-nanometer generation, and the big design win step function took place in the 40-nanometer generation. So I think we have still a good runway. Where it exactly reaches is very difficult to predict.

Okay, thank you. And I apologize, it's early here, but I'm a little confused on the gross margin half over half direction. I mean, it looks like revenue is going to be up sort of high single digits. You know, you mentioned how you basically maintain the guidance despite the 10% haircut. So I can't imagine there's a huge change in volumes there. Is there a currency impact on the COGS line? I know you give the rule of thumb on revenue and operating income. But, yeah, I just remain a little bit confused as to why gross margin is going to be down sort of 100, 150 basis points, half over half. Thank you.

Yeah, Josh, I take the question. So, of course, you are an expert. It's an around number. So you can look at an around from the north or from the south. And here, to be fair, I would say the second half is probably more looking from a northern perspective to the 40%. whereas the first half is more from a northern perspective. The second half, if our haircut comes and materializes, is then maybe looking a little bit more from the south to the 40%. For the full year, it still remains around 40%. That's our current view, but you are right. There are a couple of our sites which are also benefiting, of course, from lower costs in U.S. dollar, but that is factored in in our rule of thumb. 10 on the cent for the profitability, and 25 on a cent per quarter on revenue. Okay. Thank you.

The next question comes from Sandeep Deshpande, J.P. Morgan. Please go ahead.

Yeah. Hi. Thanks for letting me on. I have a question actually following up with Janadam's earlier question on pricing, but actually related to automotive. I mean, one of your bid U.S. competitors has talked about using pricing as a lever to keep their share or grow their share. I mean, are we going back to the bad old days in semiconductors and particularly in automotive semiconductors where they seem to be wanting to keep their share in terms of pricing? And how is Infineon seeing this game being played out?

Sandeep, in automotive, you know, most of it is under annual price agreements and they came in exactly as we predicted. I mentioned in the intro, there is this specific area of silicon carbide where prices are coming down, but please keep in mind, that's to a very good extent is forward pricing the substrates becoming a commodity which is beneficial for us and the eight inch transition is in roll out for all market participants which in typically is a situation where forward pricing is applied But remember, we also have other means in our hands, the extension of more and more volume now coming out of coolant. And at the same time, our leading edge technology, the trench, silicon carbide trench. So I do not see it as a general automotive pricing problem. and I don't know exactly what this competitor has in mind.

Understood. And a follow-up on your business with the hyperscalers, et cetera. You clearly gain more share than you expected in the first half of the year because of how the share between yourselves and some of your other competitors played out in the platform. From what we are hearing through the supply chain, that share between yourselves and the competitors is going to change somewhat into the second half of the year. Is that going to play out in your revenues, and is that going to impact your revenues into the second half of the year at all?

So it's all within what we've been stating before. So we are about to grow the revenue towards – 600 million, so coming from 400 million in the previous year. Next year, we go towards the billion. So having said that, obviously, we are gaining a share in that growing market against competition. So I can just reiterate what has been said before. Last year, 250, not far enough.

So we are growing, and yes, there's always some noise, Sandeep, but rest assured, we will deliver.

Thank you.

The next question comes from Jacob Bluestone, BNB Paribas. Please go ahead.

Hi. Thanks for taking the question. I just had a question on the CapEx guidance. You cut your CapEx by 200 million. Is that just currency or are there areas where we're scaling back in anticipation of the essential tariffs effects? Thanks.

Hi, Jacob. Sven here. So there is a minor currency effect, but the bigger one is push outs of major front-end buildings into next fiscal quarter. That relates mostly to Dresden and Kulin. And if you want a split of the 2.3 ballpark, very rough, a bit more than a billion is maintenance and the capitalization of A good half is for the front-end buildings, and a good half is for capacity growth, the latter mostly around AI and wide band gap.

And maybe let me add to this. I mean, we talked about the tariff effect. We don't know how it will play out. We would still consider Dresden Module 4 necessary because we would foresee if then the tariffs will play out in the way of a delayed upturn. But mid to long term, of course, our structural growth drivers kick in, like the AI topic we just discussed. And therefore, it's more of a, let's say, detailed timing question now, when exactly we ramp up Dresden and in which modular steps rather than, Any second thought on whether we need the module at all? We need it and we will ramp up according to demand in a modular way. Thank you.

The next question comes from Andrew Gardiner, Citi. Your line is open, sir. You may proceed with your question.

Hello, can you hear me?

Yes, Andrew, we hear you.

Sorry about that. I had one just on the outlook and how you're perhaps managing between what you're telling us in terms of the financial communication and the actual operations. I fully appreciate you trying to de-risk numbers for this year. I think we all appreciate that relative to the approach some of your global peers have taken. But when you've got orders actually increasing and customers aren't actually changing anything yet, you're factoring in an underutilization charge in the guidance that you're giving us. But are you actually slowing the fabs already? How are you managing that risk? You can tell us that you're taking a guess in terms of the communication to the market, but it's obviously much more difficult and more risky for you to just take a guess as to how to actually manage the fab loading and your production.

Yeah, very good question. And we are preparing measures for the summer to potentially reduce our loading further. We will observe the order entry for the next, let's say, two, three months, and then we still have actions is time to act and of course our high inventory levels also help us to balance any short-term movements. But it's a bit of a challenge. You're spot on.

Okay. Thank you.

The next question comes from Adita Matyuku from HSBC. Please go ahead.

Yeah, good morning. Thank you for taking my questions. So firstly, just thinking about the underlying guide, you are clearly upgrading your guide, excluding the impact from tariffs and FX. So I just wondered if you could give us some color on which end markets are driving this underlying upgrade. Where are you seeing better trends than you expected maybe a quarter or two ago? And then just as a follow-on to the previous question, if your tariff assumptions turn out to be conservative, say midway through the quarter, how quickly can you ramp up production to meet end demand? You know, any color around that would be great.

Adi, I take your first question. Hello. So, I mean, let's go back again to what we have done and depicted. I mean, if you just take no currency and no haircut, then we would be in line with the previous guidance. And even with the currency change, we would still be around last time's guidance. So I do not think that's an upgrade. It's a confirmation. of the previous guidance without the tariff haircuts. And it's just a confirmation of what we said from November onwards, that there is this modest recovery in our key end markets in the second half, once the inventory digestion has happened. That's how I would characterize the guidance and the upgrade.

And on the second question, it's basically the other side of the question that has been asked just before. If we are too conservative on this assumption, on this guesstimate of the tariff impact, Then, of course, we would need to continue with our loading. And here, of course, we have several means in our hands going from overtime budgets where we can ask colleagues to stay at home or come in. We could also make use of the German scheme Thank you. Which is also rather flexible, so I think we have a lot of ways to manage the loading, but it's, as I said before, it's a bit of a challenge.

Understood. Maybe just a quick follow-up on silicon carbide. Post the BYD announcement around the megawatt charging, I just wondered if you are seeing any additional interest in SICK design wins picking up from customers for fast charging?

Yeah, I think the presentation of BYD is interesting, even though it's first of all a topic of the battery and, of course, of the infrastructure. We offer also 1,500, 1,700 volts silicon carbide MOSFETs. Whether this becomes mainstream, we need to see. But the value proposition... of silicon carbide is fully intact even without that topic. And for a battery electric vehicle, it's the choice and we see it fast, quickly being adopted across the world.

Got it. Thank you. Understood. Thank you.

In the interest of time, we kindly ask you to limit yourself to one question. The next question comes from Lee Simpson, Morgan Stanley.

Thanks for squeezing me in. So let's keep it at one question then. Maybe I'll just ask on product development. We've had a lot of questions already on the tariffing. I thought it was quite interesting. You mentioned a couple of developments there. I think the PSOC, especially the working cap sense, Looks quite interesting. Could you maybe just surmise for us what the end markets would be? It does look as though physical AI might be something you're considering. And then maybe just associated with product development. Are we writing assuming that you've done super junction for quite some time, but trench in super junction here for silicon carbide, that looks like a first for the market. And did you say 800 volts? And is that really being targeted at China? Thanks.

So I take the question even though Sven raised the topic of super junction. So indeed, we are coming out with our first super junction trench combination for silicon carbide, which I believe propels us forward. because combining trench and super junction is the perfect match. If you add super junction to a planer or other constructions, it doesn't add so much benefit. So we are very enthusiastic about the capabilities of this cell, and we will also communicate here more into the market soon. Again, contributing to the mantra, we stay ahead in terms of cell. generations compared to competition, whether they are based in the east or in the west. In terms of PISO ChemSense, that's a very interesting IP. So far, we used it for capacitive sensing. So if you think about, for example, your major home appliances at home, Likely they use this technology but you might also have experienced a situation where you have a wet hand and then these capacitive based buttons do not work and that's why we're working for a while on inductive where you can then use it also perfectly with wet hands to give you a very practical example. And also we are using this technology now for liquid level sensing. There are many industrial applications where you need to know the level of a liquid in a given box or whatever. And that's also a very nice application. So we offer now inductive and capacitive applications. And Sven wants to add to R&D. Please, go ahead.

I probably triggered the question. I also need to contribute. So, therefore, Lee, just to add, the step-up initiative, as we said, is an initiative to structurally improve our competitiveness, but on the other hand, it should by no means damage our innovation strength or pipeline. And so I think this quarter is a very good example where on the R&D we keep investing into the right profitable growth buckets, whereas on the SG&A side you see the first impact. So I think that's pretty relevant.

Great. Thanks for the clarification and well done in the quarter.

The next question comes from Sebastian Stabocic. Please go ahead.

Yeah, hello, everyone, and thanks for taking my question. One on the FAB loading. Where are you standing right now in both your front-end and back-end FABs, and how do you see your FAB loading moving into the second part of the year, given your assumptions for top line and the 10% haircut? Thank you.

Fab loading, Sebastian, in the 70s and in the high 60s. This is the answer to the first question. Front end and back end. Front end and back end.

And for the second part of the year, where do you see the loading trending? Trending.

Yeah, that depends now on whether this guesstimate materializes or not. If it doesn't materialize, I think it will gradually slide, no, slightly gradually go up. But of course, if this effect happens, as outlined by Sven, we might have to adjust the loading, but that's incorporated in the guidance. So we have taken out the 400 million in Q4. including then the higher underutilization charges.

Therefore, on the underutilization charges, Sebastian, we said a billion, give or take. So we had to now include more in the Q4 than previously. So, therefore, the split has changed also a bit. Now it's, give or take, 55% first half, 45% second half. Last time I said 60-40. So you see here this shift coming from the haircut-related additional idle in Q4.

Okay, thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the word over to Alexander Foltin for closing remarks.

Thanks, everyone. Radio Infineon will go off the wires for today, but we are certain you will remain tuned in. For doing so and any further questions, please feel free to contact the IR team here in the Munich studio. Take care, good day, and good luck.

Ladies and gentlemen, that concludes today's conference call. Thank you everyone for joining us. You may now disconnect your lines. Goodbye.