Infineon's decision to exit the wireless business to focus on chips for cars and energy efficiency has paid off, helping the German group produce strong second-quarter results and raise its full-year outlook. Infineon, spun off from engineering group Siemens more than a decade ago, last year chose to exit the mobile chip business by selling its wireless chip unit to Intel for $1.4 billion.
Infineon decided to focus on its three core businesses - automotive, industrial & multimarket and chip card security - and is now reaping the benefits of a recovery in the car sector. "Thanks to our concentration on future oriented areas such energy efficiency, mobility and security... we stand on solid footing," Chief Executive Peter Bauer said during a conference call on Tuesday.
"We stand to profit from the advent of electromobility and the aggressive push for renewable energy," Bauer said. Infineon chips are found in two out of three cars world-wide, used for anything from fuel injection to power management for electric cars. The autos segment generates almost 40 percent of group sales and was up 24 percent from a year earlier.
Carmakers such as Volkswagen have reported stellar results thanks to rising demand in emerging markets. Infineon reiterated that revenue and operating margin in the current quarter will be on par with the second quarter. In the first three months of 2011, Infineon's second quarter, operating profit was 202 million euros, up 14 percent compared with the previous quarter. Sales were up 8 percent.
"Another impressive set of figures," DZ Bank analyst Harald Schnitzer said. He expects Infineon to gain more market share. Infineon raised its outlook for the current fiscal year and was upbeat on next year. For the 12 months through September it now sees sales growing 20 percent, with an operating margin of about 20 percent. Previously, it said it saw sales up 15 percent, with an operating margin in the high teens percentage range.
"If there is no further impact from a macroeconomic incident, we could see more growth than current consensus in 2011/2012," Bauer said. Consensus for Infineon's growth next year is at 4-5 percent. Unlike some of its rivals such as Texas Instruments>, Infineon's production has so far not been hit by Japan's earthquake.
Nevertheless, it did not rule out an impact on its production in the current quarter, when it said problems with supplies and deliveries of raw materials could arise. Infineon generates around 6 percent of its revenue in Japan and is mostly active in the south of the country, which has not been hit as hard as the northern part of Japan.
The company - left with a pile of cash thanks to the sale of its mobile chip unit - continues to seek acquisitions, but finance chief Dominik Asam said it was challenging to find attractive targets. Asam also said Infineon would give details on its planned share buyback shortly. Infineon stock trades at 14 times 12-month forward earnings, according to Thomson Reuters StarMine, which weights analysts' forecasts according to their track record. By comparison, rival STMicroelectronics trades at 11.8 times 12-month forward earnings and Texas Instruments at 13.7 times.
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