Infineon Tech AG

Good morning. Welcome to the conference call on the results of the first quarter of fiscal 2026 of Infineon Technologies AG. I'm Mathilde. I'm your chorus call operator. We would like to point out that all participants during the presentation are in listener status and that the conference call is being recorded. After the presentation, you'll be afforded the opportunity to ask questions. Do so by pressing star 1 on your keypad. Should you request the assistance of an operator, please press star 0 on your keypad. The conference call may not be recorded for publication purposes. I would like to now hand the floor to Florian Martens. Thank you very much. Good morning, ladies and gentlemen. I hope that you all got off to a wonderful start to the new year. And I would like to welcome you to our conference call on the results of the first quarter of fiscal 2026. Participating at this conference on behalf of the board are Jochen Hanebeck, the CEO, and Dr. Sven Schneider, our CFO. Dear listeners, As usual, Mr. Hanebeck will start by giving you an overview of the business performance of Infineon. Afterwards, both members of the Board of Management will be available to answer any questions you may have. Our conference call will end on time at 8.45. Of course, our press team, headed by André Tauber and me myself, will be available for any follow-up questions. And I would now like to hand the floor to Jochen Hanebeck.

Thank you, Florian. Hello and welcome. Dear listeners, we're only one month into 2026 and yet a lot has already happened when you consider the numerous geopolitical developments of the past few weeks. The markets and Infineon as well have seen quite a few events in the few recent weeks and our company has been successful. At our annual press conference call in November, we already noted that the highly dynamic conditions make it challenging to predict the breadth and the intensity of the recovery in the semiconductor markets, with the exception of the AI-related business. we are seeing initial positive trends in the short-term indicators such as order intake and lead times, which means that visibility is slowly improving. Nevertheless, we still believe that our assessment that the recovery will be gradual and uneven is correct. The automotive and industrial markets have passed through the cyclical trough, but demand has not yet really picked up. The markets for consumer, communications, and computing applications, with the exception of AI, are only slowly beginning to recover. In contrast, AI-related applications continue to experience rapid growth. This is driven by ongoing massive investments in data centers for AI and the associated infrastructure. To make the most of the highly attractive opportunities available to us as the market leader in powering AI, we will expand our manufacturing capacity in this area even faster and bring forward the corresponding investments. Let me start by commenting on our planned acquisition of the non-optical analog mixed signal sensor portfolio of AMS Osram, which we announced last night. The 570 million euro acquisition is a perfect strategic fit. We are further expanding our leading position in sensors and will be able to offer our customers even more comprehensive system solutions in the future. The additional portfolio includes advanced mixed signal products and leading solutions for medical imaging. We are strengthening our leading position in sensors for automotive and industrial applications and expanding our product range in sensors for medical applications. The additional portfolio covers these three end markets in equal parts. The acquired business is expected to generate revenue of around 230 million euros in the 2026 calendar year and support Infineon's profitable growth. The transaction will have an immediate positive impact on earnings per share upon closing. Future synergies will enable additional substantial value creation. Part of the agreement is a multi-year supply agreement with AMS Osram. Now, as part of the transaction, approximately 230 highly qualified and motivated employees with expertise in research and development, marketing and management will join Infineon from AMS Osram. They will strengthen our sensor units and radio frequency business unit within the PSS division. We highly value the extensive experience and expertise of our future colleagues and are looking forward to welcoming them very soon. The transaction does not include any production facilities. It comprises sensor products, research and development expertise, intellectual property, and test and lab equipment. The completion of the acquisition is subject to the customary conditions, including regulatory approvals. We expect to complete the process in the second quarter of the calendar year. We are convinced that AMS Osram's sensor portfolio is a perfect strategic fit for Infineon, not only technologically and financially, but also culturally. The acquisition opens up new opportunities to us in established as well as in emerging target markets, such as the market for humanoid robotics. Now, as you can see, Infineon and the start of 2026 have one thing in common, momentum. Let's now take a look at the development in Q1 of fiscal 2026. Infineon generated revenue of €3,662,000,000. The decline of around 7% compared to the previous quarter and is in line with our expectations and usual seasonality effects. To put this development into context, compared to the same quarter last year, our revenue rose by 7%. Adjusted for currency effects growth would have been almost 14% compared to the same quarter last year as the US dollar has significantly weakened over the last 12 months. The segment profit declined to 655 million euros. The segment profit margin was at 17.9%, which was relatively stable compared to the previous quarter at 18.2%. Our order backlog rose by a good 1 billion euros compared with the previous quarter. At the end of December, it amounted to around 21 billion euros. We are encouraged by the fact that we have now seen a continuous increase for around six months. Free cash flow amounted to minus 199 million euros in Q1 compared to minus 1 billion 276 million euros in the previous quarters. The previous quarter's figure, however, was significantly impacted by the completion of the acquisition of Marvell's Ethernet business. When comparing the figures, the strong organic free cash flow of 904 million euros in the September quarter must also be taken into account. Now, this was offset in the December quarter by lower business volume, less public funding, higher capital expenditures, the payment of most of the annual variable compensation and an overall negative impact on working capital, the latter mainly due to higher inventories. Those have been deliberately built up in preparation for a broader market recovery. Now onto the results of our four business areas in Q1. The automotive segment generated sales of 1,821,000,000 euros. This represents a decline of 5% compared to the previous quarter. The main reason for this were the usual seasonal order patterns and as expected, our customers pronounced inventory management at the end of the calendar year. Compared to the previous year, ATV grew by 4%. at constant exchange rates growth would have been as high as 10%. Segment earnings amounted to €403 million. The segment earnings margin remained virtually stable at 22.1% compared to 22.4% in the previous quarter. Lower sales volumes weighed on the margin. We were able to largely offset this effect through lower underutilization costs in our production and product mix effects. We shifted production capacities to AI-related products. Looking at the development of the automotive semiconductor market in 2026, we continue to assess the situation as cautiously as we did in November. Vehicle numbers are in line with expectations or slightly above. There are still some uncertainties regarding the dynamics in China and the effects of US tariffs. As far as the development of the semiconductor value per vehicle is concerned, we see a mixed picture in the short term. In the field of electromobility, there are headwinds due to the less favorable regulatory environment and the withdrawal or reduction of purchase incentives. Recent announcements, such as the reintroduction of purchase premiums for electric cars in Germany, will only have a limited impact on the business development in the current year. In contrast, the transition to software-defined vehicles is gaining momentum as more and more models are launched worldwide. Progress is also being made in advanced driver assistance systems, more comfort features, and the switch to 48-volt architectures. All of these trends are continuing unabated. With our leading range of automotive semiconductor solutions, we are ideally positioned to supply our customers in all of the above mentioned areas of application. We are aware of the different developments and are aligning our portfolio accordingly. In the case of power semiconductors for electric vehicles, we are reducing our involvement in less differentiated silicon-based solutions for the powertrain. Instead, we are focusing more on silicon carbide solutions, supplemented by analog sensor and control and connectivity components. In the area of software-defined vehicles, our recently acquired automotive Ethernet expertise and portfolio are proving ideal for providing comprehensive support to our broad customer base. In addition, sales of our Aurix microcontroller family are growing faster than the market, and we expect several new vehicle platforms featuring our products to be launched this very year. Lenovo's decision to use our Oryx microcontrollers as the safety host in the company's most advanced zone controllers for autonomous driving is one of the latest examples. We are also seeing continued design wind momentum with power semiconductors outside the powertrain and with analog semiconductors. These include the latest 48V based control system from a major American automaker and a steer-by-wire system from a German premium manufacturer. Let's now move on to green industrial power. This division posted sales of 349 million euros. The December quarter is usually the weakest in the fiscal year and all application areas recorded declines in sale with the exception of the grid infrastructure segment where sales increased significantly. I would also like to point out at this point that we took the GIP gate driver business and transferred it to our power and sensor systems division at the beginning of the current year. This business has an annual sales volume in the high double-digit million euro range. The historical figures have, of course, been adjusted accordingly. On a comparable basis, GIP's 21% decline in sales compared to the previous quarter is high. In addition to the seasonality mentioned above, it reflects the continuing difficult market environment for GIP. Accordingly, segment earnings also declined significantly to 31 million euros. The segment result margin fell to 8.9% after 16.3% in the previous quarter. Our sales and industrial applications are closely linked to the global economic situation. Now in view of the continuing macroeconomic uncertainties, we expect only a weak recovery for core industrial applications. There are also no clear signs of a recovery in demand for air conditioning systems or household appliances. In the renewable energy sector, we expect demand for solar and wind power systems to remain at a high level, but not to grow significantly compared to the record year of 2025. In contrast, demand for grid infrastructure looks more promising. Steadily increasing investments in AI data centers and a higher share of renewable energies in the energy mix require the expansion, modernization, and the stabilization of the power grid. This trend will support our growth in the midterm. With our product portfolio, in particular our leading silicon carbide technology and power modules, we are excellently positioned to benefit from the grid expansion and conversion. Key elements include large energy storage systems, uninterruptible power supplies, electronic circuit breakers, and semiconductor supported transformers. With regard to the latter, we are working on dozens of customer projects to drive forward medium-term business opportunities. Now onto the power and sensor system segment. Sales in Q1 amounted to 1 billion 171 million euros, which represents a decline of 3% compared to the previous quarter. On the one hand, our power supply solutions for AI data centers continued to enjoy very high demand, but on the other hand, we saw the usual seasonal weakness in demand for smartphone components. In addition, as announced, we reduced sales of less profitable products compared to the previous quarter. The aforementioned revenue effects are also reflected in the segment results, which improved to 204 million euros and the segment result margin rose to 17.4% up from 14.5% in the previous quarter. Now looking at market developments, we are seeing the first signs of a broader revival in demand for consumer, general computing, and communications applications. However, given the overall economic volatility, customers continue to place orders on a short-term basis. The situation is quite different, however, for AI-related semiconductors. The power supply for AI data centers represents an unprecedented growth opportunity for Infineon, and we are the leader in this field. Our unmatched portfolio, our understanding of systems, our speed of innovation, and our commitment to the highest quality and delivery reliability make us the partner of choice, both for leading manufacturers of AI chips and for large operators of high-performance data centers. Our sales of AI power supply solutions continue to grow rapidly. We are reaffirming our target of around 1.5 billion euros for the current fiscal year, and this figure is limited solely by supply, which is by how quickly we and our manufacturing partners can actually increase capacity. Actual demand is in fact higher. I would also like to emphasize that, unlike some competitors who do not distinguish between AI data centers and other data centers in their sales forecasts, Infineon's 1.5 billion euros is purely AI-related business. In addition, we expect further sales of around 500 million euros with power supply solutions for traditional data centers. At the same time, forecasts for the expansion of AI data centers and the associated infrastructure continue to rise. Artificial intelligence is demonstrating more and more tangible benefits and real-world applications. We are experiencing some of these in our own company, for example the improvement and acceleration of chip design, software development, and our customer support. Demand from our customers for our power supply solutions continues to rise from quarter to quarter. We are therefore bringing forward investments of 500 million euros in the expansion of our AI-related manufacturing capacities to this fiscal year in order to drive growth beyond the current fiscal year. These investments, including the conversion of existing production capacities for IGBT power modules to AI products, are capital efficient and will reinforce our market leadership position. We are using a large portion of the investments to accelerate the ramp-up of our new smart PowerFab in Dresden, which we will open this summer, just at the right time. With the additional capacities, we expect to generate AI-related sales of around 2.5 billion euros in fiscal 2027, which is an additional 1 billion euros compared to the sales forecast for the current fiscal year. This would equal a tenfold increase in our AI sales within just three years. And very importantly, this is a margin-enhancing sales. Now to our connected secure systems segment. In Q1, the division generated revenue of 321 million euros. The 13% decline compared to the previous quarter is due in part to seasonality. In addition, however, we also had so-called capacities reservation agreements with our customers in the previous quarters, which we had fulfilled. Segment earnings declined to 23 million euros. The segment earnings margin was at 7.2% compared to 12.2% in the previous quarter. The market for IoT solutions remains in a weak phase. Macroeconomic risks and low consumer confidence are weighing on expectations of a recovery. Over time, artificial intelligence in end devices will open up more and more opportunities for innovative industrial and consumer applications. Secure, connected devices equipped with AI and lower power consumption will become more widespread. Market researchers expect their number to reach the threshold of 30 million devices worldwide. By further strengthening our hardware and software expertise in this area, we are positioning Infineon ideally to take advantage of structural growth opportunities. Connectivity is a good example. Infineon is launching the first Wi-Fi 7 20 MHz tri-radio chip on the market. This new product integrates Wi-Fi 7 and Bluetooth Low Energy in a single device. Extremely low energy consumption combined with high radio performance The chip, which is optimized for the Internet of Things, enables our customers to achieve reliable performance in frequency-congested environments. Dear listeners, this brings me to the outlook. It continues to be determined by our market assessment of a gradual and uneven recovery. The timing and momentum of the cyclical upturn vary greatly across different market segments. Despite ongoing geopolitical and macroeconomic uncertainties, visibility is improving as our customers place more and more orders for delivery in two or three quarters. In some cases, this appears to be due to concerns that strong demand in the AI sector could lead to capacity bottlenecks for similar products in non-AI areas. Inventories in the automotive supply chains have normalized, but our customers' confidence in the market still needs to increase before they replenish their semiconductor stocks. Against this backdrop, we are confirming our full-year guidance today. Effects from the upcoming acquisition of the sensor portfolio of AMS Osram are not included in the guidance. For the current second quarter of our fiscal year, we expect sales of approximately 3.8 billion euros. Our forecast is based on a US dollar to euro exchange rate of 1.15. We expect the segment result margin to be in the mid to high teens. We expect that volume growth will be partially offset by contractually agreed annual price adjustments as is customary in the first quarter of a calendar year. Now for the group, we expect price declines in the low to mid single digit percentage range with significant differences between the individual business segments. For fiscal 2026, we continue to expect a moderate increase in revenue compared to fiscal 2025. The segment result margin should be in the high double-digit percentage range. The unfavorable currency development and the usual price decline will offset the positive effects of higher volumes and additional earnings contributions from our step-up structural improvement program. Now onto our investment. As previously mentioned, we are bringing forward investments of around 500 million euros to accelerate the expansion of manufacturing capacity for power supplies for AI data centers and to support the expected strong growth in this area in the upcoming year. We are therefore now planning total investments of around 2.7 billion euros in the current fiscal year. Our expectations for free cash flow are as follows. Reported free cash flow is expected to be around 1 billion euros, slightly less than the 1.1 billion euros previously expected. The reason for this is that part of the increased investments will be paid for in the current fiscal year. Free cash flow adjusted for major investments in front-end buildings and acquisitions is expected to be around €1.4 billion, down from €1.6 billion previously. This should be viewed in the context of the expected significant value creation from profitable AI growth. Dear listeners, this concludes my remarks. Before we now move on to the Q&A session, I would like to remind you of an important date. In just over two weeks, on February 19th, our annual shareholder meeting will take place. After several years, we are once again holding this as an in-person, on-site event. We cordially invite you all to participate either on site at the Munich Trade Fair grounds or online via the live stream, which we will be, of course, offering on our website. And now, together with Sven Snyder, I will be happy to answer your questions.

We will begin the Q&A session now. If you'd like to ask a question, please press star one on your keypad. you'll hear a tone which will indicate that you're being included in the queue. If you'd like to withdraw a question, please press star two. Participants are kindly requested while asking a question to use their handset. If you have a question, please press star one on your keypad now. The first question comes from Sebastian Ash from Financial Times. Please go ahead, sir. Good morning, everyone. I wanted to know about the prices for raw materials. In recent weeks, they have changed substantially. They've fluctuated, actually. Do you believe this will have ramifications on the business operations of Infineon during the course of the current fiscal year? Yes. Sven Schneider here. Thank you for your question. Indeed, you're right. We have witnessed price increases in a market that has been very volatile to a certain degree. Gold, palladium, silver have all demonstrated this dynamic. These increases have been calculated into our guidance. Of course, we have to brace ourselves for this situation continuing, but the price increases that we've seen so far have been considered. The next question comes from Joachim Hofer from Handelsblatt. Please go ahead, sir. Good morning, everybody. I have two questions. The first one is, what volumes are you unable to handle when it comes to AI chips? Because you may be lacking capacity. What ballpark are we talking about here? That was the first question. The second question is, you said that you are placing your bets on silicon carbide more than ever before. Can you tell us how these operations are actually faring? If I remember things correctly, ST last week had news that was not very encouraging. What is the situation at Infineon in this regard? Thank you. Good morning, Mr. Hofer. With respect to your two questions, What I have to say is that demand for AI chips is slightly above the 1.5 billion euro mark. And we're working extremely hard also with our suppliers to remove the bottlenecks in the supply chain and in the value added chain. On top of that, we have a ramp up ahead of us. This is progressing quarter to quarter. Silicon carbide. Well, here at Infineon, the business is expanding this year as well. This has to do with the fact that from the very beginning, we placed our chips on a very broad basis, a number of applications, numerous customers, and all of that is paying off now. So we expect growth from one fiscal year to the next. Thank you very much. The next question. comes from Joachim Herr from Börsenzeitung. Please go ahead, sir. Thank you and good morning. I have three questions with respect to the acquisition of AMS Osram, or rather its subunit. Mr. Hanebeck, you said that from the beginning it would be earnings accretive. Is it also margin accretive? The second question relates to a supply agreement that you have with AMS Osram. Are you talking about components? that you will source from ASM Osram, or will you also supply parts or products to AMS Osram? The third question is that in the Q1 report, you say that the acquisition was financed with equity and debt. How is the split? Thank you. I would like to answer the first two questions and then Mr. Schneider will give you some information on the acquisition financing. The margin right after the acquisition, if you look at the segment result margin, right now is in line with Infineon's margin and it will increase as a result of the transfer, which will be rolled out over a number of different years, a large share of the production volumes will then be shifted to our factories, in particular Kulim. And this brings me to your second question. What you can see in the press release with respect to supply agreements means that the products that we acquire now will initially, over a certain period of time, be manufactured in Premstetten and then a large portion of that production will be shifted to Kulim. This overall will lead to further significant synergies and will make the business extremely profitable for us. I will continue. Good morning. I'm Sven Schneider. With respect to the margin, I have one further remark. The acquisition is, of course, in terms of scale, too small to have a huge impact on margins at the group level. We're only buying 230 million in revenue just to put that in perspective the second question related to refinancing now no equity i must be clear about that this is a fully debt financed acquisition um and we've we will embed this in our normal customary refinancing measures in terms of investments because we also have other maturities so it's all debt no equity Thank you. The next question comes from Christina Kiriasoglu from Bloomberg. Please go ahead, madam. Good morning. You're increasing your investments, as you said, in particular in Dresden. Could you give us some more information on the other manufacturing capabilities that are going to be expanded? Thank you. This is Mr. Hanebeck speaking. The increase in the investment budget by 500 million euros is purely related to AI. In other words, the AI chips. And it relates to capabilities in Dresden in Module 4 for highly differentiating leading edge MOSFET, silicon MOSFET generations, the type of which are required in data centers in order to maximize efficiency. And we also have the analog mixed signal products that latch onto that. A small portion of that goes to Philach, where we have a similar product portfolio. What is wonderful, however, is that the market for AI chips and the strong demand for AI chips is a perfect match for our timing with Dresden, will be opening the fab in summer and actually can ramp up production right away as well. The next question comes from Christoph Ruhrmeier from DPA. Please go ahead, sir. Good morning. I would like to have some more information about the dollar exchange rate and your forecast, the 1.15 rate. is lower than we have seen in recent times, how dangerous for your forecast is the fluctuation in the dollar? Could you give us your assessment on this? Now, for example, if averaged over the year, it were a 1 to 120, what would that mean? Well, Mr. Ruemeyer, this is Sven Schneider. Thank you for your question. First of all, the dollar indeed has weakened substantially in the last quarter. In the last fiscal year, we had an average ratio of 1.11, and now we're in Q1 and at 1.16, and now it's at 1.18. We can all see that it's extremely volatile and that it hinges on statements made by major market participants. They cause spikes and valleys, so we will remain at 1.15 for the time being. You asked for the effects. Well, we have a rule of thumb here. It's a formula. If you see a change by one cent, it has an effect of 25 million on revenue per quarter and 10 million euros per quarter in the result. So if instead of 115, the dollar wound up at 120 over the year, we would be speaking about five times 25 over three quarters. So that is roughly the effect that we would feel as a result of the weakness of the dollars. And of course, the opposite is also true. Thank you. Just a reminder, in order to ask a question, please press star on your keypad and one. The next question comes from Samuel Reyes from Agence France Presse. Please go ahead. Hello and good morning. Last month, there were reports about an Infineon transistor being used in a drone in the Ukraine. Do you know how this component found its way into the Russian drone? It's a Russian drone, not a Ukrainian drone. It was used on an attack on Ukraine. Do you know how it found its way there and do you know who supplied that transistor to Russia? Thank you for your question. This is Sven Schneider. First of all, we take these events and incidents very seriously and that is very displeasing, of course, but it is outside of our remit. We have no control over this. Since the beginning of the war on Ukraine, we have informed all partners and we continue to do this time and again that we always comply with all statutory regulations because we're obliged to do so. We have certain customers and also countries that have been ruled out because of that. On the other hand, if you look at Infineon, globally we sell 30 billion chips worldwide and they go to partners who may sell them on. And this is exactly the link in the chain that we cannot control. But believe you me, we're doing everything we can through order tracing and monitoring to ensure that what we can influence complies with the law. This is Mr. Hanebeck. I would like to add that this is very demoralizing, but only 50 nations have signed off on the sanctions list. That leaves us with a number of countries who have not agreed with the sanctions, including countries in which a lot of our products are purchased. And if these products are then sold on three or four times, we cannot track them anymore. We regret this, but unfortunately, that's a reality. Thank you very much. To ask further questions, please press star 1 on your keypad. We have a follow-up question from Hakan Ercan from Thomson Reuters. Please go ahead, sir. Good morning. I have a question with respect to the AI chips. You spoke of bottlenecks, which you intend to remove. At the same time, however, You anticipate for 2027 a weakening of growth in this sector. Could you give us some more information on that? Thank you. This is Mr. Hanebeck speaking. I don't quite understand what you mean, weakening growth. We're talking about 1.5 billion euros this year, going up to 2.5 billion euros. So that means that we continue to grow. Now, if you look at it in relative terms, we're talking about a doubling this year over last year. 2.5 billion isn't quite a doubling, but quite a lot would have to happen for us to be able to implement this. On the one hand, we're talking about applications that are very sophisticated from a technical point of view, and we have very demanding customers as well. On top of that, we have to make sure that the capacities are available along a long value added chain that Infineon has through to assembly. We have a series of bottlenecks along the way, which we have to remove. So this means we have a lot on our plate. And of course, we want to leverage the maximum potential on the market, both this year and next year. And this is Mr. Schneider speaking now. With respect to the figures, I would like to offer you a commentary We have said before that the biggest growth driver in our history is the AI server business, and this is just this year. The conventional server business also accounts for 10% of group revenue. If we go up to 2.5 billion, let us look at the consensus figures for 2027 in terms of revenue. We are trending towards 15%. for a company the size of infinion this is quite a substantial step you can see how strongly this business is growing and how greatly it influences the company ladies and gentlemen that was the last question i would now like to hand the floor back to mr hanebeck for his concluding remarks

Thank you very much, ladies and gentlemen. Allow me to summarize. Infineon had a great start into 2026. The results of Q1 are at the top range of our expectations. The geopolitical and macroeconomic uncertainties continue to dampen economic momentum. This is in line with our base scenario of a gradual and uneven market recovery. We are reaffirming our forecast for the fiscal year. Fact is, of course, without electricity, without power, there is no AI. And we want to seize this historic opportunity for our company in this area. We confirm our revenue target of around 1.5 billion euros for the current fiscal year and expect around 2.5 billion euros in fiscal 2027. The acquisition of the automotive, industrial and medical sensor portfolio from AMS Ostrom strengthens our outstanding portfolio. In the future, we will be able to offer our customers even more comprehensive system solutions. This puts us in an ideal position to leverage structural trends for profitable growth. Thank you very much for your interest and goodbye.