Infineon Exceeds Estimates - Analyst Blog

Infineon Technologies AG (IFNNY) reported income from continuing operations of €81 million ($112.05 million) in second quarter 2010. Revenues for the second quarter came in at €1,035 million ($1431.8 million), a significant increase of 10% compared with the prior quarter, and 55% year over year. Segment result, which excludes stock-based compensation, amortization, impairment and restructuring charges, were $110 million, up 25% compared with the first quarter. The company reported an earnings surprise of 2 cents compared with the Zacks Consensus Estimate of 8 cents per share for the quarter.

Segment Information

In the second quarter, revenues in the Automotive (ATV) segment increased 13% compared with the first quarter, driven by continued high demand in all regions and some additional inventory replenishment in the supply chain. ATV Segment Result increased significantly on a sequential basis, driven by the growth in revenues and partially offset by higher research & development expenditure in connection with 65-nanometer microcontrollers and integrated power-logic-products.
 
Revenues in the Industrial & Multimarket (IMM) segment increased 15% sequentially, reflecting strong end customer demand for consumer, computing, and industrial products, mostly in Asia. IMM segment result increased strongly compared with the previous quarter, driven by the increase in sales volumes and a slight improvement in the segment’s product mix.
 
Revenues in the Chip Card & Security (CCS) segment increased 19% compared with the prior quarter, mainly driven by payment and to lesser extent by mobile communications. CCS segment result also increased sequentially.

In the second quarter, revenues in the Wireless Solutions (WLS) segment were much better than expected, counter to the normal seasonal pattern. They remained almost flat quarter over quarter, mainly driven by ongoing strong demand from major mobile phone customers, related ramp up of new mobile phone platforms, and the strength of the U.S. dollar against the Euro. Wireless Solutions segment result decreased compared with the prior quarter, reflecting the impact of the slight revenue decrease, a shift in product mix, and installment costs for the ramp ups. The stronger U.S. dollar, which had a positive impact on revenues, had a minor effect on segment result as dollar-denominated costs increased, as well as due to hedging.

Balance Sheet and Cash Flow

Free cash flow from continuing operations for the second quarter was €141 million. This compares with free cash flow from continuing operations of €14 million for the first quarter, which included a reduction in cash of €88 million resulting from the deconsolidation of ALTIS. Capital expenditures, including capitalized intangible assets, were €63 million in the second quarter, up from €48 million in the prior quarter, reflecting both increased investment in the company’s production facilities and capitalization of intangible assets. Depreciation and amortization was €97 million, compared with €106 million in the prior quarter.

At the end of the second quarter, Infineon’s gross cash position was €1,667 million. The slight decrease compared with €1,678 million at the end of the first quarter, despite strong free cash flow from continuing operations, was driven mainly by voluntary repurchases of a portion of the company’s subordinated convertible notes due in June 2010, totaling €139 million at book value. Overall, Infineon’s net cash position increased to €995 million as of March 31, 2010, compared with €874 million as of December 31, 2009.

Guidance