Infineon Reports Record Fiscal Year 2000 and Fourth Quarter Results

• A record fiscal year 2000: revenues up by 72 percent from last year to Euro 7.28 billion; EBIT up to Euro 1.67 billion; gross margin improved from 29 percent to 44 percent of revenues; net income up to Euro 1.13 billion
• Fourth quarter results the strongest of the fiscal year: revenues up 82 percent from fourth quarter of last year to Euro 2.38 billion and up 30 percent from the third quarter; EBIT increases to Euro 807 million
• Strengthening performance in the communications segment
• Exceeding expectations set out at the IPO

Munich, Germany - November 7, 2000 - Infineon Technologies AG (FSE/NYSE: IFX), one of the world's leading semiconductor manufacturers, today announced record results for fiscal year 2000 (ending in September) with revenues rising to Euro 7.28 billion, an increase of 72 percent from Euro 4.24 billion in the previous fiscal year. Revenue growth was driven by strong demand in all of Infineon's business groups, especially in communications and memory products, supported by increased manufacturing capacity.

EBIT (earnings before interest and tax) increased to Euro 1.67 billion. Infineon's strong earnings were based on significant productivity gains and margin improvements in all segments.

Infineon achieved a record net income of Euro 1.13 billion, an increase of more than Euro 1 billion over last year's Euro 61 million. Earnings per share (basic and diluted) for the fiscal year improved to Euro 1.83 as compared with Euro 0.10 last year.

"Infineon's intensified focus on higher margin businesses such as communications has led to strong improvements in both gross margin and EBIT. We have also exceeded expectations set out at the IPO by further optimizing our communications portfolio and significantly increasing capacity and productivity", said Dr. Ulrich Schumacher, President and CEO of Infineon Technologies AG.

Infineon's gross margin improved from 29 percent to 44 percent year over year. Infineon’s EBIT margin rose significantly to 23 percent due to productivity gains in communications and memory products and the company’s increased focus on high growth markets.

SG&A expenses were 9 percent of total revenues, down from 13 percent from the previous fiscal year. This improvement reflects the strong increase in sales and was mainly accomplished by streamlining sales channels and focusing on key strategic accounts throughout all business groups.

R&D expenditures increased to over Euro 1 billion, up 39 percent in absolute terms from last fiscal year but down as a percentage of total revenues from 17 percent to 14 percent. Infineon has strengthened its intellectual property (IP) portfolio in communications by expanding its global research and development network and through strategic acquistions, such as Savan and Comneon. Infineon has added seven new major R&D locations since the IPO, bringing the group total to 26 major R&D sites.

Through successful execution of its globalization strategy, Infineon has increased its revenues outside Europe to 55 percent of total revenues from 42 percent last year. Regional growth was particularly strong in America/NAFTA, where revenues were up 119 percent over last year, as well as in Asia Pacific (including Japan), which increased 133 percent. Revenues in Japan increased 208 percent. Revenues in Europe (other than Germany) increased by 37 percent. Total worldwide revenues were split 25 percent for America/NAFTA, 30 percent for Asia Pacific and Japan, and 45 percent for Europe (including Germany). Revenues in Germany contributed 22 percent of total revenues.

As of September 30, 2000, Infineon had more than 29,000 employees worldwide, with research and development staff accounting for approximately 4,800 of this total.

Fourth Quarter Results

The fourth quarter was Infineon's strongest in the 2000 fiscal year, driven mainly by strong demand for memory products and continued growth in broadband and wireless communications. Revenues in fourth quarter rose to Euro 2.38 billion, a 30 percent increase over the previous quarter and an 82 percent increase compared with the fourth quarter of 1999.

EBIT for the fourth quarter was Euro 807 million, an increase of 120 percent compared with the third quarter and up Euro 788 million from 19 million over last year's fourth quarter. Net income rose significantly to Euro 581 million, up 118 percent from the third quarter of fiscal 2000 and up Euro 545 million from the fourth quarter of fiscal 1999. Earnings per share (basic and diluted) improved to Euro 0.93, compared with Euro 0.06 for the fourth quarter of fiscal 1999 and Euro 0.43 for the third quarter 2000.

Gross margin increased to 53 percent of total revenues, up 12 percent from the third quarter and 23 percent from last year's fourth quarter. As a percentage of total revenues, SG&A expenses were down to 9 percent from 13 percent in the fourth quarter of 1999.

Research and development expenditures in the quarter were Euro 348 million, up 59 percent in absolute terms from last year's fourth quarter but down as a percentage of revenues, from 17 percent to 15 percent.

Business Group Performance

In the fourth quarter of fiscal year 2000, Infineon reorganized some of its businesses by allocating them to other groups. In the following discussions and the attached tables figures for all periods have been restated to conform to the current organizational structure and to allow comparability with the post-reorganization figures.

Infineon's Wireline Communications group's revenues increased to Euro 941 million in fiscal year 2000, up 31 percent from last year. EBIT improved to Euro 138 million, excluding the effect of in-process research and development, deferred compensation expense and amortization of Euro 60 million related to the acquisition of Savan Communications. Reported EBIT including these charges was Euro 78 million.

Infineon has streamlined its wireline communications business portfolio to address the fast growing Internet Infrastructure marketplace. The group is focused on Access, WAN and LAN, with superior competencies in High Speed and Optical Networking components. Agreement has been reached to divest the Image and Video business with closing expected in the first quarter of fiscal 2001. Additionally, the Computer Peripherals segment, mainly consisting of Infineon's Hard Disc Drive business, has been transferred to the memory products division. The streamlined focus of the wireline communications group is intended to enable Infineon to further build leadership in such explosively growing Internet infrastructure markets as those for broadband communications, internet access and advanced optical networking solutions.

Major Developments in the Wireline Communications group in the year include:

• Growing significantly in emerging broadband technologies to serve the ever-increasing demand for more bandwidth
• Rapidly growing the Internet infrastructure business by focusing on Access, WAN and LAN applications
• Acquiring Savan Communications to address the emerging VDSL/10BaseS market
• Growing in Optical Networking with Gigabit Ethernet transceivers to gain leadership with 40 percent market share

Revenues in the fourth quarter increased to Euro 277 million, up 12 percent compared with the third quarter of fiscal 2000 and 38 percent compared with the fourth quarter of fiscal 1999. EBIT, excluding the effect of in-process research and development, deferred compensation expense and amortization of Euro 53 million related to the acquisition of Savan Communications, reached Euro 48 million. Reported EBIT including these charges was negative Euro 5 million.

Infineon's Wireless Communications group's annual revenues grew to Euro 1.2 billion, up 41 percent compared with last year. EBIT improved 43 percent, to Euro 261 million, due mainly to the steady dynamic market growth of GSM/GPRS mobile communications and of DECT cordless system solutions.

Major developments in the wireless communications group for the year include:

• Strengthening world leadership in RF ICs and baseband ASSP (Application Specific Standard Product) solutions
• Introducing "Bluemoon I", the first Baseband and RF chipset for Bluetooth applications
• Extending leadership in 3G mobile communications with the introduction of the world’s first dual mode GSM/UMTS single chip solution
• Major design wins at leading cellular and cordless terminal manufacturers in Europe and Asia

During the fourth quarter, the wireless group's revenues increased to Euro 351 million, up 17 percent compared with the third quarter of fiscal 2000 and up 30 percent from the fourth quarter of fiscal 1999. EBIT reached 72 million, up 13 percent from the third quarter.

In the Other Operating Segments, which include the Security and Chip Card ICs group and the Opto Joint Venture with Osram, annual revenues rose 33 percent from last year to Euro 669 million. EBIT improved to Euro 54 million in fiscal 2000. Revenues of the Security and Chip Card ICs group grew even more strongly, showing an increase of 36 percent to Euro 375 million from Euro 276 million in fiscal 1999. The EBIT for this group increased significantly to Euro 49 million, up from Euro 24 million in fiscal 1999.

Major developments for the Security and Chip Card ICs group in the year include:

• Increasing shipments for security controllers in high-end banking applications
• Engaging in GSM projects at all key accounts
• Maintaining world leadership in the competitive chip card IC market
• Extending technology leadership in 16-Bit and 32-Bit high-end security controllers for next-generation GSM/UMTS SIM cards including WAP and m-commerce functions

In the fourth quarter, revenues of the other operating segments increased to Euro 200 million, up 25 percent from both the previous quarter and the fourth quarter of fiscal 1999. EBIT increased by 31 percent over the third quarter of fiscal 2000 to Euro 15 million. Revenues of the Security and Chip Card ICs group increased to Euro 118 million, up 36 percent from the previous quarter and up 22 percent from the fourth quarter fiscal year 1999. EBIT of this group increased by 50 percent over the third quarter of fiscal 2000 to Euro 18 million.

The Memory Products group's revenues in fiscal year 2000 rose to a record Euro 3.47 billion, up 147 percent from 1999. EBIT increased to Euro 1.34 billion from a loss of Euro 238 million last year. The growth in profitability was based on Infineon's increased productivity, its focus on high margin products and its competitive cost-structure due to its aggressive shrink roadmap.

Major Developments in the memory products segment for the year include:

• Improving EBIT margin to 38 percent
• Outgrowing the market with a strong increase of megabit shipments due to increases in productivity and a steep ramp of new products like 128 and 256 Megabit DRAM
• Strengthening Infineon's market position in the fast-growing Internet infrastructure and networking segments and becoming the market leader in 256 Mbit DRAM
• Leading in 300mm wafer production with the start of construction of the world’s first 300mm volume production site, located in Dresden, Germany

Fourth quarter results in the memory products segment show the strongest quarterly revenue increase of all groups. Revenues rose to Euro 1.27 billion, up 47 percent compared with the third quarter and up 168 percent compared with the fourth quarter of fiscal 1999. Quarterly EBIT increased by 160 percent over the third quarter to Euro 727 million. Both quarterly revenues and EBIT include the recognition of previously deferred license revenue of Euro 156 million, which was realized following the completed transfer of licensed technology.

The Automotive and Industrial group's annual revenues rose to Euro 880 million, up 32 percent from last year due mainly to the strong performance of the group's power business. EBIT increased by 204 percent, to Euro 70 million, in fiscal year 2000.

Major developments in the Automotive and Industrial Segment in the year include:

• Increasing shipments of electronic devices for automotive applications, e.g. safety and power train
• Market entrance into the strategic automotive region of Japan and aggressive growth in NAFTA
• Technology leader and strategic supplier for 42-volt power products
• Strong demand for industrial power transistors in power management and supply applications like PCs/motherboards

Revenues in the fourth quarter increased to Euro 253 million, up 9 percent compared with the third quarter fiscal 2000 and up 38 percent from the fourth quarter of fiscal 1999. Quarterly EBIT increased by 83 percent over last quarter to Euro 33 million.

Strategic Highlights

To strengthen its leadership in the communications market, Infineon invested more than Euro 345 million in IP through acquisitions in fiscal year 2000. The company also invested Euro 38 million of venture capital in start-up companies. The venture group added 11 new companies in its portfolio and intends to further strengthen the company's future intellectual property potential.

Capacity expansion and flexibility in production for communication ICs was also achieved through higher usage of silicon foundries, as well as by accelerating the conversion from 6 to 8-inch wafer production. Infineon increased the production capacity by more than 30 percent during the fiscal year. Further increases in output were achieved through the aggressive implementation of Infineon’s memory and logic shrink-roadmap.

Infineon further demonstrated technological leadership during fiscal year 2000 by converting to smaller geometries, such as 0.18 micron for copper in the logic production lines, and by converting all memory production lines to 0.17 micron. Infineon also strengthened its leadership in 300 mm production. Volume production at the worldwide first module, located in Dresden, Germany, is scheduled to begin at the end of 2001, giving Infineon a significant competitive advantage.

Outlook 2001

The worldwide semiconductor market is expected to grow 27 percent in the 2001 calendar year according to Dataquest. Infineon expects to grow significantly above the industry average.

For the fiscal year 2001, the company expects to further improve its EBIT margin throughout its communications businesses through the continued strengthening of its product mix and through the booking of first revenues from new solutions such as Bluetooth, VDSL, Gigabit Ethernet and Optical Networking.

Due to the current uncertainties in the worldwide PC markets, Infineon expects weaker demand and consequently lower prices in its memory business in the first quarter of fiscal year 2001, which is the last quarter of the calendar year 2000. The full year outlook remains positive for the memory products group; it is anticipated that the market will recover at the latest in the second half of fiscal year 2001, which corresponds to the second and third quarter of the calendar year, based on the industry's limited capacity expansion not being able to satisfy demand. Infineon already has a strong technology leadership position in the 128 and 256 Megabit DRAM segments and will further accelerate its transition to the less volatile and faster growing markets for server and networking applications.

Under current market conditions, capital expenditures in 2001 are expected to be around 30 percent of revenues. This level of capital expenditure will help address expected capacity constraints.

"We expect the market outlook to remain strong into 2003. Infineon is in an excellent position to take advantage of this huge potential by gaining market share in our fast-growing high-margin businesses", concluded Dr. Schumacher.

D I S C L A I M E R

This discussion includes forward-looking statements about our future business. These forward-looking statements include statements relating to future developments of the world semiconductor market, the relative market position and technology ability of Infineon and its business groups, Infineon's future growth, the anticipated production activities at Dresden and other facilities, the benefits of research and development alliances and activities, our planned levels of future investment in the expansion and modernization of our production capacity, the introduction of new technology at our Dresden facility, the transitioning of our production processes to smaller structures, cost savings related to such transitioning and other initiatives, our successful development of technology based on industry standards, our ability to offer commercially viable products based on our technology, our ability to achieve our growth targets, and the continuation of current developments in our financial results in the 2001 financial year. These forward-looking statements are subject to a number of uncertainties, including trends in demand and prices for semiconductors generally and for our products in particular, the success of our development efforts, both alone and with our partners, the success of our efforts to introduce new production processes at our facilities and the actions of our competitors, the availability of funds for planned expansion efforts, as well as the other factors mentioned herein. As a result, our actual results could differ materially from those contained in the forward-looking statements.

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