Infineon's Solid Fourth Quarter - Analyst Blog

Infineon Technologies AG (IFNNY) reported fourth quarter fiscal 2010 earnings per share from continuing operations of €0.16 (20 cents) compared with €0.09 in the sequentially preceding quarter and €0.01 in fourth quarter fiscal 2009. The earnings reported by the company were in line with the Zacks Consensus Estimate of 20 cents.

Total Revenue

Total revenue was €1,400 million ($1,806 million), reflecting an increase of 10% compared with the prior quarter, and a substantial rise of 64% year over year. Infineon's strong results in the quarter were led by revenue growth across all its segments. Excluding the Wireless Solution (WLS) business, revenue from continuing operations amounted to €942 million ($1,215.2 million).

The company generated as much as 38% of its revenue from the Asia-Pacific region. About 45% of revenue was from Europe and 55% from outside Europe.

Segment Information

In the fourth quarter, revenues in the Automotive (ATV) segment increased 2% sequentially to €340 million, led by continued strong demand in all areas and product categories. Production capacity increased during the quarter. Segment margin was 17.1%.

Revenues in the Industrial & Multimarket (IMM) segment increased 11% sequentially to €413 million, led by strong seasonal demand for both power and non-power products. Top-line growth boosted the segment margin to 23.7%.

Revenues in the Chip Card & Security (CCS) segment increased 5% sequentially to €115 million, mainly driven by higher demand in certain government ID projects. Increased proceeds and positive product mix shift toward high-margin businesses raised the segment margin to 10.4%.

In August 2010, Infineon entered into an agreement with Intel Corporation (INTC) to sell its WLS business for a cash value of approximately $1.4 billion. The transaction is expected to close in the first quarter of 2011. The company's WLS business will continue to operate as a separate business with its existing customer base. In the reported quarter, revenue from WLS was €489 million, an increase of 85% year over year. The segment margin was 22.3%.

Income and Expenses

Gross profit in the quarter amounted to €679 million, after cost of goods sold of €563 million. Selling, general & administrative expense was €103 million and research & development expense was €14 million. The company earned an operating income of €154 million, up from €119 million in the prior quarter, on the back of top-line growth and effective cost containment.

Balance Sheet and Cash Flow

Cash and cash equivalents amounted to €1,667 million compared with €1,452 million at the end of third quarter fiscal 2010, with long-term debt of €263 million and shareholders' equity of €2,625 million.

Free cash flow from continuing operations for the quarter was €236 million compared with €173 million for the sequentially preceding quarter. Free cash flow increased despite investments in capital spending.

Guidance

For first quarter fiscal 2011, the company expects total revenue to be flat to down slightly in comparison with the year-ago period. Total segment margin is expected to remain flat sequentially. The company expects total revenue in fiscal 2011 to increase at a 10% year-over-year clip and segment margin to come in mid-to-high teens, as a percentage of sales.

The company continues to focus on less volatile and more profitable businesses and on markets with long-term and above-average growth opportunity. Infineon expects to make an investment of €550 million in fiscal 2011.

However, the company's business in particular and the semiconductor industry in general are highly cyclical and characterized by constant and rapid technological change, as well as rapid product obsolescence and price erosion, evolving standards, short product life-cycles and wide fluctuations in product supply and demand.

Infineon Technologies AG designs, develops, manufactures, and markets semiconductors and complete systems solutions that are used in a variety of microelectronic applications, including computer systems, telecommunications systems, consumer goods, automotive products, industrial automation, control systems, and chip card applications. The company's products include standard commodity components, full- and semi-custom devices and application-specific components for memory, analog, digital, and mixed-signal applications.

We currently maintain our Neutral recommendation on Infineon Technologies, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

 
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