Infineon Earnings: Decent Results Overshadowed by Large, Perhaps Risky, Expansion Plans

Narrow-moat Infineon Technologies IFX reported solid fiscal third-quarter results but provided investors with a more modest outlook for the September quarter. Shares are down 10%, perhaps out of concern for the company’s announcement for massive manufacturing expansion to its silicon-carbide, or SiC, power semis business. We’re net neutral on the announcement. We view it as a positive sign for long-term SiC demand and Infineon’s product roadmap, but is the exact type of expansion that adds risk to the business if it were to encounter factory underutilization or a SiC price war. We maintain our EUR 47 fair value estimate and view the selloff as a potential buying opportunity for investors.

Revenue in the June quarter was EUR 4.09 billion, down 1% sequentially but up 13% year over year and ahead of guidance of EUR 4 billion. Automotive revenue remains the bright spot, up 2% sequentially and 25% year over year. Infineon still sees tight supply and strong demand for microcontrollers and high voltage power semis, while chips going into more traditional auto applications are back into supply/demand balance after two-plus years of shortages. Power and Sensor revenue remains weak, down 1% sequentially and 10% year over year, in line with ongoing PC and smartphone weakness. Adjusted operating margin deteriorated 270 basis points sequentially to 26.1%, mostly due to factory underutilization.

For the September quarter, Infineon expects revenue to be down 2% sequentially and 3% year over year to EUR 4 billion, while also expecting revenue in all four segments to be down a similar amount sequentially. In turn, adjusted operating margin is expected to dip slightly sequentially to 25.0%. Infineon maintained its full-year revenue and adjusted operating margin guidance of EUR 16.2 billion and 27.0%, respectively.

Correction: An earlier version of this note had the incorrect currency in the revenue guidance.