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Infineon (IFFNY) Q1 Earnings and Revenues Increase Y/Y

Zacks Equity Research

Infineon Technologies AG IFNNY reported first-quarter fiscal 2019 adjusted earnings of €0.24 per share (or approximately 27 cents per share), up 20% from the year-ago quarter, primarily due to strong segment results.

Revenues increased 11% year over year to €1.970 billion (or almost $2.248 billion) in the reported quarter.

Strength in two of the company’s four business segments, namely, Industrial Power Control (“IPC”) and Power Management & Multimarket (“PMM”) drove year-over-year growth.



Notably, shares of Infineon have shed 12.5% in the past year, against the industry’s rally of 16.7%. However, robust adoption of advanced driver assistance systems (“ADAS”) and new deal wins hold promise and are anticipated to win back investors confidence, going ahead.

Segmental Highlights

Automotive or ATV accounted for 43% of total revenues, advancing 10% year over year to €846 million. Seasonality and sluggishness in vehicle market during the reported quarter impacted segment results.

IPC represented 18% of total revenues, increasing 19% year over year to €352 million. The segment is benefiting from strong demand in photovoltaic appliances and sturdy traction business.

PMM contributed 31% to total revenues, advancing 13% on a year-over-year basis to €617 million. Strong demand in AC/DC was noticeable in the reported quarter. Soft demand for smartphone devices and DC/DC limited growth sequentially.

Chip Card & Security or CCS has been renamed to Digital Security Solutions or DSS, effective from Oct 1, 2018. DSS segment revenues contributed 8% to total revenues, declining 8% from the year-ago quarter to €149 million. While government ID supported the segment, lackluster payment and Authentication domains acted as a headwind.

Infineon Technologies AG Revenue (TTM)

 

Infineon Technologies AG Revenue (TTM) | Infineon Technologies AG Quote

Revenue Break-up by Geography

Region-wise, Europe, Middle East, Africa revenues declined 2.8% on a year-over-year basis to €560 million (28% of total revenues). Specifically, Germany contributed €268 million, down 3.2% from the year-ago quarter.

Revenues from Asia-Pacific (excluding Japan and Greater China) advanced 19.3% on a year-over-year basis to €309 million (16%).

Revenues from Greater China improved 11.5% to €690 million, representing 35% of total revenues. China, in particular contributed €530 million to Greater China revenues, advancing 14.7% from the year-ago quarter.

Revenues from Japan surged 28.2% from the year-ago quarter to €150 million (8% of total revenues).

Revenues from Americas surged 27.9% from the year-ago quarter to €261 million (13% of total revenues). Specifically, the United States contributed €215 million, up 31.9% from the year-ago quarter.

Operating Details

Adjusted gross margin expanded 300 basis points (“bps”) from the year-ago quarter to 40.4%. Segment result surged almost 27% from the year-ago quarter to €359 million. Segment result margin expanded 230 bps on a year-over-year basis to 18.2%.

Segment-wise, ATV, IPC and PMM margins expanded 40 bps, 340 bps and 550 bps, to 13.8%, 19.6% and 25.1%, respectively, on a year-over-year basis. However, DSS segment margins contracted 470 bps from the year-ago quarter to 10.7%.

Research & Development (“R&D”) expenses as a percentage of revenues expanded almost 100 bps to 12%, while Selling, General & Administrative (“SG&A”) expenses contracted 40 bps to 11.1% on a year-over-year basis.

Operating income came in at €327 million, reflecting growth of 31.9% from the year-ago quarter. Operating margin expanded 260 bps in the same period to 16.6%.

Infineon Technologies AG Price, Consensus and EPS Surprise

 

Infineon Technologies AG Price, Consensus and EPS Surprise | Infineon Technologies AG Quote

Balance Sheet & Cash Flow

Infineon ended the fourth quarter with €827million in cash & cash equivalents compared with €732 million reported in the previous quarter.

Total debt (including current portion) as on Dec 31, 2018, was €1.53 billion almost flat compared with the figure reported at the end of the previous quarter.

Infineon generated €309 million as cash from operations compared with the previous quarter’s figure of €643 million.

Free cash flow in the reported quarter came in at (€221 million), down from €227 million, recorded at the end of the previous quarter.

Guidance

For fiscal 2019, management anticipates revenues to grow near the lower end of the previous guidance, primarily due to tough macroeconomic conditions. Notably, per the prior guidance, the company projected revenue growth to come in at almost 11% (+/- 2%), which it now expects at around 9%.

Segment result margin is now projected to be almost 17.5% compared with previously guided figure of 18%.

ATV segment revenues are envisioned to grow above the company’s growth average. IPC revenues are expected to remain flat compared with fiscal 2018. PMM revenues are anticipated to grow below the company’s growth average.

However, DSS revenues are anticipated to decline in “low to mid-single” digits in lieu of difficult market situation.

Management also intends to trim planned investments by €100-€200 million amid a slower growth rate.

However, the company is pursuing its efforts on the new chip production of 300-millimeter (mm) wafer at Villach, Austria. Notably, the investment worth €1.6 billion is spread over a time period of six years.

Second-quarter fiscal 2019 revenues are anticipated to remain stable (+/- 2%) on a sequential basis. Segment margin is anticipated to be around 16%.

Zacks Rank & Stocks to Consider

Infineon carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Computer and Technology sector are MeetMe MEET, Twitter, Inc. TWTR and Benefitfocus, Inc. BNFT each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for MeetMe, Twitter and Benefitfocus is forecasted at 20%, 22.1% and 25%, respectively.

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