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Infineon Q4 Earnings Meet while Revenues Rise Y/Y

Germany-based semiconductor giant Infineon Technologies AG IFNNY reported adjusted earnings per share (“EPS”) of €0.16 (18 cents) for fourth-quarter fiscal 2015, in line with the year-ago tally. While strong revenues, fall in cost of goods and currency fluctuations supported bottom-line growth during the quarter, a rise in selling and administrative expenses and acquisition-related charges acted as headwinds.

For full-year fiscal 2015, the company’s adjusted EPS came in at €0.60, up 25% year over year.

Impressive sales, primarily driven by gains related to the International Rectifier acquisition, largely drove the improvement in bottom line.

Inside the Headlines

In the quarter, revenues jumped 36% year over year to €1,598 million ($1,777.5 million). The rise in revenues came on the back of robust performance across all four segments.

For full-year fiscal 2015, revenues came in at $5,795 million, up 34.1% year over year. Growing demand for semiconductors in automotive and industrial markets acted as catalyst for top-line growth. Also, contribution from the acquisition of International Rectifier proved to be a major driver of revenues.

Automotive (“ATV”) revenues increased 18.5% year over year to €614 million ($683.0 million). Stringent environmental standards continue to trigger demand for electric and hybrid vehicles worldwide, thereby boosting the growth of this segment. Moreover, surge in demand for new vehicles in Europe and America largely aided the growth in segmental sales.

Industrial Power Control (“IPC”) revenues increased 23.7% year over year to €271 million ($301.4 million). Higher demand for electrical drives and applications based on renewable energy supported revenue growth in this segment.

Power Management and Multimarket (“PMM”) revenues increased a remarkable 78% to €534 million ($594.0 million). Growth in sales of mobile devices, coupled with power supplies and DC-DC conversion solutions, led the revenue growth in this segment.

Revenues in the Chip Card and Security (“CSS”) segment grew 27.5% to €181 million ($201.3 million). Stellar performance of payment solutions, government ID and authentication businesses drove the segmental revenues.

Moreover, Infineon’s operating margin improved 270 basis points year over year to 203 million. Also, the segment result margin came in at 17.9% for the fourth quarter of fiscal 2015 compared with 16% a year ago. This improvement was mainly led by gains reaped from acquired businesses, especially that of International Rectifier. Moreover, a favorable product mix, coupled with positive currency fluctuation, supplemented the segmental margin during the quarter.

Liquidity

Infineon’s cash and cash equivalents were €673 million ($754.8 million) as of Sep 30, 2015, down from €700 million as on Jun 30, 2015. As of Sep 30, 2015, the company’s long-term debt was €1,760 million ($1,974 million), down from €1,767 million as on Jun 30, 2015.

As of Sep 30, 2015, the company had net cash from continuing operations of €429 million ($481.2 million), down from €432 million as of Jun 30, 2015.

Dividend Hike Proposed

Supported by the company’s robust financial health, management proposes to increase dividend by 11.1% to €0.22 for fiscal year 2015. Infineon, thus, remains committed toward rewarding its shareholders by allowing them to actively participate in the company’s growth story.

Guidance

For first-quarter fiscal 2016, the company expects revenues to decline by 6% with a possible deviation of plus or minus 2%; whereas the segmental margin is predicted to be 14% at mid-point of the revenue range.

Reduction in revenue expectations is largely due to the fact that Infineon faces strong seasonal fluctuations in product supply and demand as well as adverse seasonal conditions during the first quarter fiscal 2016 revenues, which can weigh on its sales performance.

Infineon also provided estimates for fiscal 2016 revenues, currently expecting it to increase by about 13% (with a possible deviation of plus or minus 2%); while segmental margin is projected at 16% at the mid-point of forecasted revenue range.

Both outlooks are based on an assumed exchange rate of US$1.10.

For fiscal 2016, Infineon expects its PMM segment to emerge as the star performer, scoring higher than the group average. While the IPC segment’s performance is projected to be at par with the group’s average, ATV and CSS are expected to perform lower than the group average. All these projections take into consideration the impact of the International Rectifier acquisition on the company’s full fiscal-year financials.

Our Take

We believe Infineon, as a leading supplier of electrical components and semiconductors, stands to benefit significantly from the increasing use of semiconductors in modern clean, safe and smart automobiles. Also, the company’s leadership position in power semiconductors segment, with top spots in both insulated-gate bipolar transistor and metal–oxide–semiconductor field-effect transistor markets, adds to its strength.

This apart, Infineon’s ardent eye for strategic acquisitions will bolster its growth, going forward. However, the cyclical nature of the semiconductor industry, along with constant and swift technological changes, may prove to be a major headwind. Also, strong competition from existing rivals may bother Infineon’s financials in the future.

Infineon currently holds a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include CEVA Inc. CEVA, Integrated Device Technology, Inc. IDTI and Mellanox Technologies, Ltd. MLNX. All three stocks sport a Zacks Rank #1 (Strong Buy).

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INFINEON TECH (IFNNY): Free Stock Analysis Report
 
MELLANOX TECH (MLNX): Free Stock Analysis Report
 
INTEGR DEVICE (IDTI): Free Stock Analysis Report
 
CEVA INC (CEVA): Free Stock Analysis Report
 
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