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Electronics Production | February 06, 2009

Infineon revenue down by 28% in 1Q

Infineon’s revenues in the first quarter were Euro 830 million, down 28% sequentially and 24% Y-o-Y. The sequential decrease reflects a decline in revenues in all of the company’s operating segments due to significantly lower demand as a result of the global economic slow-down and inventory corrections throughout the electronics supply-chain.
The company’s Automotive and Wireless Solutions segments were most severely affected. Overall, the company’s revenues were slightly better than forecasted, largely due to the stronger U.S. dollar against the Euro. Excluding effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and acquisitions and divestitures, revenues decreased 32 percent sequentially and 26 percent year-over-year. Net loss from continuing operations for the first quarter was Euro 116 million. For the prior quarter, net loss from continuing operations was Euro 297 million.

The loss from discontinued operations, net of tax, was Euro 288 million for the first quarter. This loss consisted of Euro 93 million in connection with the recognition of currency translation effects primarily related to Qimonda’s sale of its interest in Inotera to Micron and of Euro 195 million in provisions and allowances following Qimonda’s filing of an application to open insolvency proceedings. For the first quarter, Infineon reported group net loss of Euro 404 million.

Infineon’s IFX10+ cost-reduction program
In the first quarter of the 2009 fiscal year, Infineon made very good progress with cost reductions under the IFX10+ program, mainly in operating expenses, where the company saved approximately Euro 45 million during the quarter compared to the expense run-rate of the prior quarter. In that context, the company has also made progress with regards to headcount reductions. By the end of December 2008, the company had reached agreements regarding or had already effected separation with respect to approximately 85 percent of the announced workforce reduction.

In response to continuing weak demand worldwide in all of the company’s target markets, Infineon has identified additional savings potential from a combination of measures that have already been implemented or will be implemented shortly. Amongst others, the company has introduced reduced work hours in the company’s German production sites Regensburg and Dresden, has changed its bonus schemes for the 2009 fiscal year and has issued a new and very stringent travel policy. In addition, Infineon exited the employers’ union in November 2008 in order to achieve more flexibility in wage adjustments. Infineon does not expect to incur additional expenses or cash outflows in relation to the additional measures mentioned above. Infineon originally announced expected annualized savings of at least Euro 200 million, and then increased this target in December to at least Euro 250 million. As a result of substantial additional cost reductions and cash savings, including those mentioned above, the company now targets total annual savings of Euro 600 million. These savings include approximately Euro 200 million in operating expenses and Euro 400 million savings related to manufacturing operations. Of the savings in manufacturing operations, Euro 300 million have been designed to offset at least in part the cost impact of lower loading of the manufacturing sites caused by the downturn.

Infineon’s outlook for the second quarter of the 2009 fiscal year
The drastic slow-down in world economic demand that started in the first quarter of the 2009 fiscal year is expected to continue to have a severe impact on overall demand levels in the second quarter. In addition, the company anticipates that inventory reductions throughout the entire electronics supply chain will continue. As such, the company has relatively limited visibility with respect to the revenue development, even in the second quarter. Within the limits of that low visibility, the company currently expects revenues from continuing operations for the second quarter to decrease by approximately 10 percent compared to the first quarter. After the significant decrease in demand in the Automotive and Wireless Solutions segments in the first quarter, the company expects these segments to be more resilient in the second quarter compared to the first quarter. By contrast, the three other segments, Industrial & Multimarket, Chip Card & Security and Wireline Communications, are expected to be more severely affected by the continuing slow-down in the second quarter.

Additional savings measures implemented under the IFX10+ program are expected to result in substantial additional cost and cash savings over and above the savings levels realized in the prior quarter. As a consequence of continued sales declines and an aggressive reduction in factory loading in order to reduce inventory, Infineon expects combined Segment Result margin in the second quarter to be within the range of a negative mid-to-high teens percentage. Without the additional measures described above, the impact of lower sales and factory loading on the bottom-line would have been significantly more severe.

Following Qimonda’s insolvency filing, Infineon expects to deconsolidate Qimonda in the second quarter. In this context, the company anticipates that it will recognize accumulated losses related to unrecognized currency translation effects related to Qimonda. As of December 31, 2008, the amount of such accumulated losses totalled approximately Euro 100 million. The recognition of such accumulated losses will not have any impact on Infineon’s shareholders’ equity.

Qimonda
Infineon’s beneficial ownership interest in Qimonda is 77.5 percent. Following Qimonda’s insolvency filing, Infineon may be exposed to a number of significant liabilities relating to the Qimonda business, including pending antitrust and securities law claims, potential claims for repayment of governmental subsidies received, and employee-related contingencies. In the first quarter of the 2009 fiscal year, Infineon has increased its provisions and allowances by Euro 195 million. This amount covers those contingencies that management believes are likely to occur and can be estimated with reasonable accuracy at this time. There can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. Infineon anticipates that the majority of any potential cash obligations the company may have in connection with these matters would be payable, if at all, in periods after the 2009 fiscal year.

Segments’ performance for the first quarter of the 2009 fiscal year
In the first quarter, revenues in the Automotive segment decreased significantly compared to the prior quarter due to the worsening global recession, significant production cuts in the automotive markets worldwide and resulting inventory corrections at customers.

Industrial & Multimarket segment’s revenues in the first quarter also decreased significantly sequentially due to the worsening global recession, a significant slow-down in worldwide demand in the consumer, computing and telecom markets and resulting inventory corrections in the supply-chain.

Revenues of the Chip Card & Security segment decreased quarter-over-quarter, mostly due to inventory corrections at major customers and seasonal weakness amidst an overall weak demand environment.

In the first quarter, revenues in the Wireless Solutions segment decreased significantly on a sequential basis, mainly due to the drastic market slow-down and inventory corrections at customers. In particular, one HSDPA customer reduced demand after its high level of demand in the fourth quarter of the 2008 fiscal year.

The Wireline Communications segment’s revenues in the first quarter decreased compared to the prior quarter, mostly due to the decrease in demand reflecting the economic slow-down and inventory corrections in the supply chain.

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