Infineon (IFNNY) Q2 Earnings Miss, Revenues Beat Estimates

Infineon Technologies AGIFNNY reported third-quarter fiscal 2018 adjusted earnings of 29 cents per share (or €0.24 per share), almost flat with the year-ago quarter. However, the figure missed the Zacks Consensus Estimate by a penny.

Revenues increased 6% year over year to $2.31 billion (or €1.94 billion) in the reported quarter. Revenues grew 10% year over year on a constant U.S. dollar exchange rate basis. Strength in two of the company's four business segments, namely, Automotive ("ATV") and Industrial Power Control ("IPC") drove year-over-year growth. Revenues fared better than the Zacks Consensus Estimate of $2.25 billion.

Notably, shares of Infineon have returned 15.4% in the past year, against the industry 's loss of 0.1%. This outperformance can be attributed to the robust adoption of advanced driver assistance systems ("ADAS") and new deal wins.

Segmental Highlights

ATV accounted for 43% of total revenues, advancing 9.1% year over year (17% at constant exchange rate) to €836million. The segment witnessed persistently strong demand for ADAS, all-electric vehicles (xEV) and electric drive train during the quarter.

IPC represented 18% of total revenues, increasing 8.7% year over year (11% at constant exchange rate) to €349 million. The segment is benefiting from strong demand in home and industrial automation appliances. Products utilized in wind power plants and other energy saving applications witnessed traction. However, sales of photovoltaic applications were flat year over year. Management is optimistic regarding new business wins, particularly from Japan.

Power Management & Multimarket or PMM contributed 30% to total revenues which increased 4.1% on a year-over-year basis (11% at constant exchange rate) to €580 million.

Increasing popularity of low-speed vehicles and e-scooters across Southeast Asia and China was a key catalyst. Further, increasing production capacity benefited the segment. Growth was also aided by the trend of wireless charging of smartphones and cordless electric tools becoming a business standard. New wins for company's silicon microphones and Class D audio amplifiers in the quarter was a positive.

However, the divestment of a major part of RF power amplifier business to Cree negatively impacted the segment.

Chip Card & Security or CCS which represented 9% of total revenues, declined 5.4% (decreased 2% at constant exchange rate) from the year-ago quarter to €175 million. Authentication supported the segment, while a lackluster payment market limited growth. However, management is hopeful regarding the new deal wins by Infineon's IoT security solution.

Revenue Break-up by Geography

Region-wise, Europe, Middle East, Africa revenues grew 4% on a year-over-year basis to €620 million (32% of total revenues). Specifically, Germany contributed €294 million, inching up 0.7% from the year-ago quarter.

Revenues from Asia-Pacific (excluding Japan) advanced 7.4% on a year-over-year basis to €947 million (49% of total revenues), out of which China contributed €487 million. This marked a rise of 9.4% from the year-ago quarter.

Revenues from Japan surged 18.9% from the year-ago quarter to €145 million (7% of total revenues).

Revenues from Americas came in at €229 million (12% of total revenues), declining almost 1% from the year-ago quarter.


Adjusted gross margin contracted 20 basis points ("bps") to 39.2%. Segment result grew 5.3% from the year-ago quarter to €356 million. Segment result margin contracted 20 bps on a year over year basis to 18.3%.

Research & Development ("R&D") as a percentage of revenues expanded 50 bps to 11.2%, while Selling, General & Administrative ("SG&A") expenses contracted 60 bps to 10.8%.

Operating income during the quarter came in at €319 million, representing 7% growth from the year-ago quarter. Operating margin expanded 10 bps on a year-over-year basis to 16.4%.

Balance Sheet & Cash Flow

Infineon ended the third quarter with €771 million in cash & cash equivalents and short-term investments up from €726 million reported in the previous quarter.

Total debt (including current portion) was €1.83 billion up from €1.79 billion in the previous quarter.

Infineon generated €461 million as cash from operations compared with the previous quarter's figure of €308 million.

Free cash flow in the quarter came in at €192 million, down from €334 million, recorded at the end of the previous quarter.

Infineon Technologies AG Price, Consensus and EPS Surprise

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


Infineon raised fiscal 2018 outlook expecting the momentum in ATV revenues to continue. For fiscal 2018, revenues are revised to grow between 6.4% and 7.4%, compared with the earlier guidance of 4-7% year-over-year growth. Segment margins are now projected to come in at 17.5% of the mid-point of revenue guidance range (previous guidance of 17%).

Both ATV & IPC segment revenues are now anticipated to grow above the group's average revenue growth rate.

PMM revenues are projected to grow marginally below the company's growth average. However, growth in this segment is anticipated to offset the decline due to the divestment of major portion of RF power business.

However, CCS revenues are expected to decline in lieu of difficult market situation and depreciation of US Dollar.

Fourth-quarter fiscal 2018 revenues are expected to increase 3% (+/- 2%) year over year. At the mid-point of revenue guidance, the segment result margin is envisioned to be around 19%.

Zacks Rank & Stocks to Consider

Infineon carries a Zacks Rank #3 (Hold).

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Long-term earnings growth rate for Mellanox, Microsoft and Intel are pegged at 15%, 12.3% and 8.4%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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