Infineon Q3 Earnings Beat on Improvement in Segment Results

Zacks

Leading semiconductor and complete systems solutions provider, Infineon Technologies AG (IFNNY) reported third-quarter fiscal 2014 earnings of €0.13, increasing 18% sequentially and 86% year over year. In U.S. dollar terms, earnings came in at 18 cents per share surpassing the Zacks Consensus Estimate by a penny.

The company witnessed robust performance across all its segments, which drove the earnings in the quarter. Infineon has been making persistent efforts to tap the immense market potential, which has led to consistently strong results for the company in the last five quarters.

Revenues

Revenue for the quarter increased 6% sequentially and 9% year over year to €1,110 million ($1,502.7 million). However, the revenues lagged the Zacks Consensus Estimate of $1,550 million.

The company reported segment results of €170 million ($230.2 million), an increase of 45% year over year whereas the segment result margin increased to 15.3% from 11.4% in the third-quarter of 2013.

Revenues by Segments

Automotive segment revenues increased 11% year over year to €510 million ($690.4 million) in the quarter. Growth was driven by strong global demand for vehicles, especially for the premium wins from the German car manufacturers. This apart, the demand for medium-sized vehicles remained strong.

In the reported quarter, Industrial Power Control segment revenues surged 16% year over year to €200 million ($270.8 million). The increase was primarily attributable to the rising demand for the company’s renewable energy solutions coupled with strength in products for home appliances. The industrial drives business witnessed modest growth.

Power Management and Multimarket segment revenues were €271 million ($366.9 million) in the quarter, marking a year-over-year increase of 2%. The growth was driven by the increasing demand for its power supply products and cellular network infrastructure applications. The segment also gained from the high seasonal demand for mobile devices.

Revenues in the Chip Card and Security totaled €123 million ($165.8 million), reflecting a year-over-year increase of 3%. The sales improvement in SIM card as well as authentication products drove the segment results.

Other Financial Details

The company’s cash and cash equivalents declined to €291 million ($394.0 million), compared with €327 million ($442.7 million) as on Mar 31, 2014. Free cash flow from continuing operations increased about 53% sequentially to €78 million ($105.6 million).

Outlook

Following the earnings for the third quarter, the company issued guidance for the fourth quarter of 2014. For the quarter, revenues are expected to increase between 3–7%, whereas the Segment Result Margin is expected to come in between 15% to 17%.

Infineon also provided its outlook for full fiscal-year 2014. The company now anticipates revenues to be a little higher than the previously provided range of 7% to 11% while it expects Segment Result Margin to be slightly greater than the earlier projected band of 11%–14%.  The company plans to invest as much as €650 million ($880.0 million) in this fiscal going forward.

Zacks Rank

Infineon currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Avago Technologies Limited (AVGO), NVE Corp. (NVEC) and Semiconductor Manufacturing International Corp. (SMI). All three stocks sport a Zacks Rank #1 (Strong Buy)

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