Infineon Tech AG

Good morning everyone. Welcome to the conference call for the analyst and investor of Infineon's 2026 financial third quarter results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technology. As a reminder, this call has been recorded. This conference call contains forward-looking statements or assessments about the business financial condition, performance and strategy of Infineon Group. These statements or assessments are based on assumptions and management expectations restricting up to currently available information and present estimates. They are subject to multiple uncertainties of risk, many of which are particularly 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 the conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statement. At this time, I would like to turn the conference call over to Infineon. Please go ahead.

Many thanks, operator, and good morning, ladies and gentlemen. Thank you for joining our mid-summerly earnings call covering our fiscal third quarter 2026. On air today you have our CEO, Jochen Hanebeck, our CFO, Sven Schneider, and our CMO, Andreas Urschitz. Following our well-established procedure, 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. The accompanying slideshow for the call is available at infineon.com slash slides and we will provide a PDF with Jochen's and Sven's introductory remarks in the course of the call on our website, namely infineon.com investor. This is also your go-to spot for 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. At present, positive cyclical momentum and structural growth are converging into a bright picture, and Infineon is generating value from it. The recovery continues to gain traction. The upcycle is fully on track. What initially started in selected segments is now becoming broad, supported by improving demand patterns, normalized inventory levels and increasing order activity across many end markets. The strongest dynamic continues to come from AI related infrastructure. Investments in data centers continue to go up. Energy efficient power delivery solutions are required to support ever growing processing capabilities. Thank you very much. The prime example for the later is the recent opening of our new smart power fab interest. The cleanroom space available there enables us to ram the world's largest fab for cutting-edge power semiconductors and analog mix signal technologies at just the right point in time. Furthermore, we closed the acquisition of the sensor portfolio from AMS Osram as planned within a very short time frame. Let us now turn to our third quarter performance. The third quarter of our 2026 fiscal year was the first one with over 4 billion euros of revenue for two and a half years. With 4 billion 172 million euros we achieved an all-time high in quarterly revenues and came in a bit ahead of expectations even considering a minor positive currency effect. All our divisions contributed to 9.4% sequential growth on group level. Compared to the same quarter one year earlier, our reported revenue grew by close to 13%. Thank you very much. Our order backlog witnessed another material increase and stood close to 30 billion euros at the end of June, a clear indication of recovery momentum getting even stronger. Now to our divisional review, beginning with automotive. The third quarter of our 2026 fiscal year revenues increased by 6% quarter over quarter to 1 billion 932 million euros. Growth was driven mainly by microcontrollers and smart power components as well as our Ethernet products. All these are core building blocks of software-defined vehicles. The segment result increased by 8% sequentially to 356 million euros, corresponding to a segment result margin of 18.4%. As a reminder, the refocusing of our business with high voltage components for electric powertrains that we explained in our last earnings call is expected to burden segment result margin of ATV in this fiscal year by a low to mid single digit percentage reflected in our guidance. Thank you very much. The long-term trends driving automotive semiconductors demand remain firmly intact and continue to support content growth. Rising fuel costs are beginning to support XEV adoption in Europe, India, and Southeast Asia, while the shift towards software-defined vehicles continues to accelerate globally. Alongside these structural growth drivers, supply constraints in the Chinese automotive-grade semiconductor market create opportunities for us. Thank you very much. We are also seeing further design win momentum in China. For Xiaomi, we will support a cockpit and ADAS fusion unit incorporating three different Micron controller families. In another win with a leading Chinese car manufacturer, our silicon carbide bear dies will be used in the traction inverter. Finally, we further simplify the evaluation of our automotive microcontrollers for our customers. Together with Amazon Web Services, we have launched a cloud-based platform for virtual MCU evaluation. By removing the dependency on physical hardware, the platform can shorten evaluation cycles from several weeks to minutes, lower evaluation costs significantly and support hundreds of concurrent users globally. The platform already includes our next generation RISC-V architecture, enabling customers to gain hands-on experience with new microcontrollers much earlier in their development cycle and further accelerates innovation for software-defined vehicles. Let's now take a look at green industrial power. GIP's revenues grew by 11% quarter over quarter to €447 million, making the June quarter the second one in a row with double-digit growth. Reflecting the recovery on industrial markets, all application areas developed positively, in particular power infrastructure and HVAC. The higher revenue notwithstanding, the segment result of GIP contracted slightly to 44 million euros equivalent to a segment result margin of 9.8% after 11.7% in the quarter before. The decline was due to temporary operational and inventory related effects and hence not indicative of underlying profitability as will be evidenced by the positive margin evolution in the running quarter. Power infrastructure is seeing strong structural momentum. Investments in grid expansion and modernization continue to grow, driving demand for energy storage systems, transmission and distribution gear, and high-voltage solid-state devices. AI data center growth is fueling demand for uninterruptible power systems, general power supply, as well as cooling. Semiconductors are poised to replace electromechanical parts in various use cases. For example, a semiconductor-based solid-state circuit breaker can protect electrical circuits from damage caused by short circuits or overloads by up to 1000 times faster than conventional systems. This capability is essential for direct current grids and offers a significant increase in system availability in industrial manufacturing and AI data centers. As part of our partnership with Siemens, we will supply 1.2 kV silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density and reliability of Siemens' protection solution. Now to power and sensor systems. On the back of unabated AI power strength, PSS recorded revenues of 1 billion 442 million euros in the June quarter, 14% up sequentially and a staggering 34% more compared to the same quarter one year ago. The margin evolution of PSS shows a bright picture as well. The second result increased to 359 million euros, corresponding to a second result margin of 24.9%. The further increase of 4.5 percentage points compared to the previous quarter is evidence of profitable growth and value creation, strongly driven by our leadership position in AI power solutions. This leadership position is being recognized by industry researchers. In a recent report covering AI data center power semiconductors, Gartner identified Infineon as the company to beat. Portfolio breadth and system level expertise in conjunction with manufacturing capacity are the defining capabilities for data center operators seeking to scale AI. Infineon offers a unique portfolio spanning the entire power delivery chain and manufactures relevant technologies in-house. By seamlessly integrating wide bandgap materials, specifically silicon carbide, For high efficiency, high voltage grid to rack conversions and gallium nitride for ultra dense high frequency intermediate power stages alongside silicon at the processor level, energy losses are minimized at every single conversion step. Demand for our AI power solution continues to outstrip available supply. We are in allocation. Successful execution of capacity ramps and conversions from other areas will help us to achieve more than 1.6 billion euros of dedicated AI power revenues in the current fiscal year, ahead of the so far planned 1.5 billion. In addition, our business with non-AI data center Power Solutions is amounting to around 500 million euros annually, making Infineon clearly the leading force in the overall space. We are represented in almost all platforms across all relevant players in the industry. Enabling further steep growth in the coming years will be a function of ramping and deploying additional manufacturing capacities. Our new smart power fab in Dresden together with available clean room space at our other large front-end sites in Austria and Malaysia puts us in a unique position. to strategically secure access to critical power delivery solutions. Several leading customers across the AI data center ecosystems have signed or are in negotiation on multi-year capacity reservation agreements with us. These agreements encompasses a total cumulative sales volume of a high single digit billion euro amount over multiple years. These agreements also feature certain prepayments, thus further strengthening our customer relationships and sharing investment risks. We will revise our projection of 2.5 billion euros plus AI data center revenues for our 2027 fiscal year upwards as part of the annual guidance to begin to be given in our November earnings call. We expect such update to be material. The next waves of AI growth are already taking shape. Higher density power architectures for running the last frontier models as well as the emergence of agentic and physical AI. The growing inference and task coordination requirements of agentic AI provide a massive tailwind for us. Our undisputed leadership in power solutions for CPUs combined with a highly differentiated best fit product portfolio will represent another significant growth driver as early as next fiscal year. Accordingly, the aforementioned update of our revenue projection for 2027 will also include our power solutions for all different forms of data center configurations. Beyond the data center, our solutions bring physical AI to life. Enabling humanoid robots, collaborative machines, and autonomous systems to perceive, think, and act safely and securely. With expertise from all our divisions spanning microcontrollers, power systems, sensing, connectivity, functional safety, and security, Infineon is the trusted partner across the full spectrum of physical AI platforms. This provides a good transition to complete the divisional review with connected secure systems. CSS recorded revenues of €350 million in our fiscal third quarter, a sequential growth of 10%. All product areas contributed to this positive development, in particular authentication and identification solutions. Thank you very much. To optimally address the expanding opportunity set, we are establishing the Edge Systems or ES division as part of the new organizational setup presented in our last earnings call. The ES segment is formed from today's CSS and the Sensor and RF as well as the USB connectivity portfolio from PSS. The focus of ES will be on the interplay of sensors, microcontrollers, including software, connectivity and security to enable integrated system level solutions at the edge. In this context, I'm happy to report that we have closed the acquisition of the non-optical analog mixed signal sensor portfolio from AMS Osram at the beginning of July, just about five months after announcing it. The transaction is strengthening our position as a leader in sensors for automotive and industrial markets through a complementary portfolio and extending our product range in medical applications. Thank you, Jochen, and good morning, everyone.