Infineon Technologies [ETR:IFX] put out some excellent results last week which may be worth a further look from traders. The company’s automotive and industrial segments continues to grow strongly while consumer related applications remain weak. The segment margin has improved markedly, with improvements in three segments.
Guidance for FY2023 was maintained at the revenue and margin level but reduced at the free cash flow level. Significantly, it was below market expectations. A major expansion of one of Infineon’s fabs was announced to support strong SiC order flow.
“We continue to see Infineon as an attractive investment opportunity for exposure to the significant growth in semiconductor demand from secular growth drivers such as electric vehicles, autonomous driving functionality, renewable energy and energy efficiency,” said Nicholas Ziegelasch, Head of Equity Research at Kililk & Co. “With the stock trading on 12.9x consensus FY2024 earnings, we believe it remains attractively valued for a business that we believe can grow above the market for at least the next five years.”
Taking a closer look at the numbers released by Infineon Technologies, adjusted earnings per share increased 39% to €0.68, beating consensus estimates of €0.63. Revenue increased 13% beating consensus estimates of 12% growth.
Infineon reported an adjusted gross margin increase of 80 bps to 46.2%. The segment margin was 26.1%, up from 23.3% a year ago, driven by operating leverage.
Infineon Technologies automotive revenue up 23%
Automotive (ATV) revenue increased 25% (40% last quarter) up primarily driven by microcontrollers and strong demand in e-mobility. ATV continues to be the global market leader in automotive power and moves up to a second-place position in automotive microcontrollers.
The long-term outlook remains strong given the exposure to structural megatrends of e-mobility, ADAS and new E/E architectures. The segment margin improved to 27.4% from 23.5% a year ago but was down from the 31.1.% last quarter. There was an incremental margin decrease due to non-reoccurrence of premium fees and higher input costs.
More demand for Green Industrial Power
Green Industrial Power (GIP) revenue increased 30% (30% last quarter), with strong demand in the areas of transportation, renewable energies and energy infrastructure offsetting continued weakness in home appliances. Automation and industrial drives business were broadly flat. The segment margin improved to 30.3% from 18.8% a year ago, but down from 32.4% last quarter.
Power & Sensor Systems (PSS) revenue was down 10% (flat last quarter) from a year ago and down 1% from last quarter. Underlying long term trends remain strong, but in the near-term it is anticipated that demand will be depressed due to continued consumer market weakness. The segment margin declined to 20.8% from 27.1% last year and 21.3% last quarter.
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Connected Secure Systems (CSS) revenue increased 4% (23% last quarter) from the last year, driven by ID and payment applications, although there was weakness in Wi Fi components and microcontrollers. No short-term improvement is expected in consumer, IoT and compute applications. The segment margin improved to 25.1% from 18.4% last year supported by structural improvements and efficient management of foundry operations.
The guidance from management for FY2023 was largely maintained with revenue expected to be €16.2bn, with an adjusted gross margin of 47% and a segment margin of 27%. Adjusted free cash flow is now expected to be €1.7bn versus €1.8bn previously.
Expansion of Kulim power fab
Infineon Technologies said it is planning to expand its Kulim power fab to support €5bn of design wins of which it has received €1bn of pre-payments. The expansion will cost up to €5bn, with start of production in summer 2027. This is to support its €7bn of SiC revenue potential by the end of the decade.
Infineon Technologies’ medium-term operating model remains for revenue growth over the cycle expected to be 10% annually, with a segment margin of 25%, and free cash flow to revenue of 10%-15%.
