Infineon reports results for the fourth quarter and the 2008 fiscal year
For the full version of this news release (incl. financial data and business highlights), please download the PDF version (see on the right)
Neubiberg, Germany – December 3, 2008 – Infineon Technologies AG (FSE/NYSE:IFX) today reported results for the fourth quarter, ended September 30, and for the full 2008 fiscal year. Infineon presents its results for the 2008 fiscal year and prior periods in accordance with U.S. GAAP, and will begin reporting its financial results in accordance with International Financial Reporting Standards for periods beginning October 1, 2008.
Results for the fourth quarter
Infineon’s revenues in the fourth quarter of the 2008 fiscal year were Euro 1,153 million, up 12 percent sequentially and two percent year-over-year. The sequential increase reflects an increase of revenues in both the Communication Solutions and Automotive, Industrial & Multimarket segments. Excluding effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and acquisitions and divestitures, revenues increased ten percent sequentially and four percent year-over-year.
Infineon EBIT was negative Euro 220 million in the fourth quarter, down from positive Euro 71 million in the prior quarter. Infineon EBIT in the fourth quarter included net charges of Euro 253 million, mainly in connection with the company‘s IFX10+ cost-reduction program. Infineon EBIT in the fourth quarter also included Euro 6 million for the amortization of acquisition-related intangible assets related mainly to the business acquired from LSI Corporation (LSI). Infineon EBIT in the prior quarter included a net gain of Euro 41 million, mainly in connection with the sale of the Hard Disk Drive (HDD) business to LSI, and Euro 7 million in amortization of such acquired intangible assets. For additional detail on net gains and charges included in Infineon EBIT, please see the table on page 13 of this release.
Infineon’s total Segment Profit was Euro 59 million under IFRS in the fourth quarter. For further details and a reconciliation of Segment Profit to “operating income (loss)” in the condensed consolidated statements of operations, please see the table on page 17 of this release.
Net loss from continuing operations for the fourth quarter was Euro 244 million, resulting in basic and diluted loss per share from continuing operations of Euro 0.33. For the third quarter, net income from continuing operations was Euro 45 million, and basic and diluted earnings per share from continuing operations were Euro 0.06.
The net loss from discontinued operations was Euro 519 million for the fourth quarter. Basic and diluted loss per share from discontinued operations was Euro 0.69.
For the fourth quarter, Infineon reported group net loss of Euro 763 million, and basic and diluted loss per share of Euro 1.02.
Results for the 2008 fiscal year
Infineon’s revenues in the full 2008 fiscal year were Euro 4,321 million compared to Euro 4,074 million in the prior year. Infineon EBIT was negative Euro 48 million in the 2008 fiscal year, compared to positive Euro 37 million in the 2007 fiscal year. Infineon EBIT in the 2008 fiscal year included net charges of Euro 209 million compared to net charges of Euro 42 million in the prior year. Infineon EBIT in the 2008 fiscal year also included Euro 41 million, mostly for the amortization of acquisition-related intangible assets related mainly to the business acquired from LSI.
Net loss from continuing operations for the full 2008 fiscal year was Euro 135 million, resulting in basic and diluted loss per share from continuing operations of Euro 0.18. For the 2007 fiscal year, net loss from continuing operations was Euro 37 million, and basic and diluted loss per share from continuing operations was Euro 0.05.
The net loss from discontinued operations, net of tax, was Euro 2,987 million for the 2008 fiscal year. This loss included Infineon’s share in Qimonda’s net loss, as well as Euro 1,303 million from the write-down of Qimonda to its net realizable value less costs to sell. Basic and diluted loss per share from discontinued operations was Euro 3.98.
For the 2008 fiscal year, Infineon reported group net loss of Euro 3,122 million, and basic and diluted loss per share of Euro 4.16, compared to group net loss of Euro 368 million for the 2007 fiscal year, and basic and diluted loss per share of Euro 0.49.
From March 31, 2008, the financial reports of Infineon focus on the continuing operations of the company. As a result of management’s commitment to a plan of disposal of the company’s interest in Qimonda, the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheets, and the individual line items in the condensed consolidated statements of operations reflect the results of Infineon’s segments excluding Qimonda. The results of operations of Qimonda are reported in one line item titled “Income (loss) from discontinued operations, net of tax”. In addition, earnings per share as well as the statements of cash flows differentiate between “continuing” and “discontinued” operations.
Infineon’s outlook for the first quarter of the 2009 fiscal year
Infineon introduced International Financial Reporting Standards (IFRS) as accounting standards for Infineon effective October 1, 2008. While the company is reporting fourth quarter results under United States Generally Accepted Accounting Standards (U.S. GAAP), the guidance for the first quarter of the 2009 fiscal year and the overall 2009 fiscal year included in this news release is in accordance with IFRS. With the publication of the results for the first quarter of the 2009 fiscal year onwards, Infineon will apply IFRS only. For ease of comparison, 2009 forecasts under IFRS presented in this release are compared to 2008 fiscal year results as reported under IFRS, rather than U.S. GAAP.
In line with the company’s goal of increased efficiency, Infineon has re-organized the company along its target markets effective October 1, 2008. As a result, Infineon now operates through five operating segments: Automotive, Industrial & Multimarket, Chip Card & Security, Wireless Solutions, and Wireline Communications.
From October 1, 2008, Infineon’s Management Board uses Segment Profit to assess the operating performance of the company’s reportable segments and as a basis for allocating resources among the segments. For further details and a reconciliation of Segment Profit to “operating income (loss)” in the condensed consolidated statements of operations, please see the table on page 17 of this release.
The global financial crisis and general slow-down in the world economy are having a severe impact on demand in all of Infineon’s target markets, leading to a decrease in revenues in its five operating segments in the first quarter of the 2009 fiscal year. The company expects revenues from its continuing operations in the first quarter of the 2009 fiscal year to decrease by approximately 30 percent compared to the prior quarter, mainly driven by revenue decreases in the Automotive, Wireless Solutions, and Industrial & Multimarket segments. Revenues in the Automotive and Industrial & Multimarket segments are expected to decrease compared to the fourth quarter of the 2008 fiscal year, reflecting a worsening global recession, significant production cuts in the automotive markets worldwide, inventory reductions throughout the supply chain, and a general global weakening in demand. Revenues in the Wireless Solutions segment are anticipated to be strongly negatively impacted by the weakening of global demand and, in addition, by a reduction in demand at one specific customer.
Infineon anticipates that total Segment Profit under IFRS in the first quarter of the 2009 fiscal year will decrease significantly compared to the total Segment Profit of Euro 59 million under IFRS in the fourth quarter of the 2008 fiscal year, mainly due to the sharp revenue decrease, low capacity utilization and a final quarter of temporarily higher costs, as shipments of DRAM wafers out of Infineon’s 200-millimeter wafer facility in Dresden, Germany, to Qimonda have come to an end in the third quarter. Total Segment Profit margin is expected to be a negative mid-to-high teens percentage.
Infineon’s outlook for the 2009 fiscal year
For the 2009 fiscal year, visibility is very limited. Infineon believes that a significant decline in global semiconductor revenues from 2008 levels cannot be ruled out. Based on the current forecast, the company expects total revenues for Infineon in the 2009 fiscal year to decrease by at least 15 percent compared to the 2008 fiscal year. The year-over-year decrease is expected to be driven in particular by the Automotive segment. In addition, significant revenue decreases are also anticipated in the Industrial & Multimarket, Chip Card & Security, and Wireline Communications segments due to the general global weakening in demand. The year-over year decrease is expected to be least severe in the Wireless Solutions segment, mainly due to ongoing gains in market share. In the Industrial & Multimarket segment, revenues are anticipated to be impacted by the disposal of the HDD business in the 2008 fiscal year.
The sharp decreases in revenue in combination with idle capacity costs caused by low capacity utilization are expected to lead to a significant decrease in Infineon’s total Segment Profit in the 2009 fiscal year compared to total Segment Profit of Euro 258 million for the 2008 fiscal year. The company expects total Segment Profit for the 2009 fiscal year to be negative.
In August 2007, Infineon and International Business Machines Corporation signed an agreement to divest their respective shares in the joint venture ALTIS, a manufacturing facility in Essonnes, France, via a sale to Advanced Electronic Systems AG (AES). As of September 30, 2008, negotiations with AES have not progressed as previously anticipated and could not be completed. Despite the fact that negotiations are ongoing with an additional party, the outcome of these negotiations is uncertain. As a result, Infineon reclassified related assets and liabilities previously classified as held-for-sale into held-and-used in the consolidated balance sheet as of September 30, 2008, resulting in net charges of Euro 59 million.
In order to address the ongoing adverse market conditions in the memory products industry and to better enable it to meet its current obligations in the short term, Qimonda has intensively explored operational and strategic alternatives to raise and conserve cash. In furtherance of these goals, in October 2008 Qimonda announced a global restructuring and cost-reduction program that is intended to reposition Qimonda in the market and substantially increase its efficiencies through a wide-ranging realignment of its business. As a part of this program, in the first quarter of the 2009 fiscal year Qimonda sold its 35.6 percent interest in Inotera Memories Inc. to Micron Technology, Inc. for U.S. dollar 400 million in cash. This transaction closed in November 2008. Qimonda has announced that it intends to use the proceeds from this sale to fund its operations in the short-term.
The net book value of the Qimonda disposal group in Infineon’s condensed consolidated balance sheet as of September 30, 2008 has been recorded at the estimated fair value less costs to sell of Qimonda. Under IFRS, upon disposal of its interest in Qimonda, the company would also realize losses related to unrecognized currency translation effects for the Qimonda disposal group which are recorded in equity. As of September 30, 2008, the amount of such losses recorded in shareholders’ equity under IFRS totalled Euro 187 million.
Infineon continues to seek to dispose of its remaining interest in Qimonda. There can be no assurance that Infineon will be successful in this regard, or that Qimonda’s ongoing operational and strategic efforts will be successful in generating adequate cash or result in desired operational efficiencies and cash savings. In the event that Qimonda were to be unable to meet its obligation, Infineon may be exposed to certain significant liabilities related to the Qimonda business, including pending antitrust and securities law claims, the potential repayment of governmental subsidies received, and employee-related contingencies.
With the Qimonda shares trading at current price levels, Infineon believes that the distribution of Qimonda shares by way of a dividend in kind to Infineon shareholders is no longer practicable while, at the same time, bearing administrative costs disproportionate to the value of the shares. The company therefore is no longer considering a dividend in kind and continues to focus its efforts on a transaction with a partner. There can be no assurance that Infineon’s plan to further reduce its interest in Qimonda will be successful or that Infineon will arrive at a minority shareholding in Qimonda by about the time of the 2009 Annual General Meeting.
Infineon’s IFX10+ cost-reduction program
To address rising risks in the market environment and adverse currency trends, Infineon implemented its IFX10+ cost-reduction program in the third quarter of the 2008 fiscal year. In the fourth quarter, the company made good progress in the areas defined under IFX10+. Over the course of the fourth quarter, Infineon sold its Bulk Acoustic Wave (“BAW”) filters business to Avago and realized significant reductions in cost of materials as well as improved processes in the manufacturing arena. In addition, the company has reached agreements regarding or has already effected the separation with respect to approximately three-quarters of the announced workforce reduction by the end of October 2008. Under U.S. GAAP, a total of Euro 166 million in expenses related to IFX10+ was incurred in the fourth quarter of the 2008 fiscal year. In response to the dramatic weakening of the global market since August 2008, the company has identified very substantial additional savings, primarily in operating expenses, beyond the originally announced annualized savings of at least Euro 200 million by the end of the 2009 fiscal year. These additional savings, however, are likely to be more than completely offset by the simultaneous decline in Infineon’s revenue expectations versus original plans. The increase in idle cost caused by the drop in capacity utilization of Infineon’s manufacturing sites also contributes negatively. Infineon cannot rule out the possibility of incurring additional expenses or recording additional charges in the future in connection with IFX10+ or similar measures.
“Our achievements in the fourth quarter were satisfactory in light of the extraordinary developments in the world economy and in our markets. We are, however, concerned about the prospects for the quarters to come. The financial crisis and economic slow-down have already impacted the worldwide semiconductor market, which is reflected in significantly weakened demand in all of our target markets”, said Peter Bauer, CEO of Infineon Technologies AG. “With our IFX10+ program in place, we had begun to optimize our business operations before the economic slow-down started. During the downturn, we will focus on maintaining our excellent customer relationships and product portfolio and on managing our cash flows smartly. This will help to position us for improved competitiveness and rising profitability when economic growth resumes.”
Segments’ fourth quarter performance
Automotive, Industrial & Multimarket (AIM)
In the fourth quarter of the 2008 fiscal year, the Automotive, Industrial & Multimarket segment reported revenues of Euro 767 million, up eight percent sequentially and down six percent year-over-year. The sequential increase was mainly due to the seasonal pattern in the company’s industrial business. Excluding the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and acquisitions and divestitures, segment revenues increased five percent sequentially and decreased one percent year-over-year. Segment EBIT was Euro 47 million compared to Euro 106 million in the third quarter. Included in the segment’s EBIT for the fourth quarter were net charges of Euro 25 million, primarily from impairments of assets. Segment EBIT in the prior quarter included a net gain of Euro 43 million, primarily resulting from the sale of the HDD business to LSI.
Results in the Automotive business were stable compared to the prior quarter, as solid demand in the Asian automotive market offset further declines at U.S. car manufacturers and the start of a weakening of the car business in Europe. In the Industrial & Multimarket business, results increased strongly compared to the prior quarter, mainly due to seasonally strong demand for both low- and high-voltage MOSFETs in consumer, computing, and telecom products. Demand for high-power products remained strong. Revenues in the Security & ASICs business increased strongly compared to the third quarter, due to seasonality in the ASIC business and stable demand for Chip Card applications.
Communication Solutions (COM)
In the fourth quarter of the 2008 fiscal year, revenues in the Communication Solutions segment were Euro 389 million, up 24 percent compared to the prior quarter and up 22 percent year-over-year. The stronger than expected sequential revenue increase was due to seasonal strength and better than anticipated demand from an HSDPA customer. Excluding the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and the contributions from the mobile phone business acquired from LSI and the DSL CPE activities acquired from Texas Instruments, segment revenues increased 25 percent sequentially and 15 percent year-over-year. Segment EBIT for the fourth quarter improved to negative Euro 3 million, up from negative Euro 30 million in the prior quarter. Included in the fourth quarter segment EBIT was a net gain of Euro 5 million, mainly in connection with the sale of the BAW filter business to Avago in August 2008. Third quarter segment EBIT did not include any significant net gains or charges. Included in the segment EBIT for the fourth quarter was amortization of acquired intangible assets of Euro 5 million relating mainly to the mobile phone business acquired from LSI, compared to Euro 7 million for the third quarter.
Revenues in the wireless business increased significantly compared to the third quarter, mainly due to continued ramp-ups of the HSDPA mobile phone platform. Results in the broadband business decreased slightly, driven by the weakening market environment.
Other Operating Segments / Corporate and Eliminations
EBIT in Other Operating Segments and Corporate and Eliminations in the fourth quarter included net charges of Euro 233 million, including Euro 166 million in connection with the company’ s IFX10+ cost-reduction program and Euro 59 million in connection with the reclassification of ALTIS. In the third quarter, EBIT in these segments did not include any significant net gains or charges.
In preparation for the ultimate disposal of Qimonda AG, Infineon has reclassified the assets and liabilities of Qimonda as held for disposal in its condensed consolidated balance sheets effective as of March 31, 2008. With this decision, the individual line items in the condensed consolidated statements of operations on page 11 of this release reflect Infineon’s continuing operations without Qimonda. All results relating to Qimonda are reported in the line item “Income (loss) from discontinued operations, net of tax”.
For the fourth quarter, the net loss from discontinued operations was Euro 519 million. Basic and diluted loss per share from discontinued operations was Euro 0.69 for the fourth quarter. Infineon’s beneficial ownership interest in Qimonda as of September 30, 2008 was 77.5 percent.
Major business highlights of Infineon’s segments in the fourth quarter of the 2008 fiscal year can be found in this document after the financial tables.
All figures are preliminary and unaudited.
Analyst telephone and press conferences
Infineon Technologies AG will conduct a telephone conference (in English only) with analysts and investors on December 3, 2008, at 10:00 a.m. Central European Time (CET), 4:00 a.m. Eastern Standard Time (U.S. EST), to discuss operating performance during the fourth quarter of the 2008 fiscal year. In addition, the Infineon Management Board will host a press conference with the media at 11:30 a.m. (CET), 5:30 a.m. (U.S. EST). It can be followed in German and English over the Internet. Both conferences will be available live and for download on the Infineon web site at http://corporate.infineon.com.
IFX financial and trade fair calendar (*preliminary date)
Feb 6, 2009* Earnings Release for the First Quarter of the 2009 Fiscal Year
Feb 12, 2009* 2009 Annual General Meeting of Shareholders
Feb 17, 2009* Analyst Presentation at the Mobile World Congress in Barcelona
Apr 30, 2009* Earnings Release for the Second Quarter of the 2009 Fiscal Year
Jul 29, 2009* Earnings Release for the Third Quarter of the 2009 Fiscal Year
Nov 19, 2009* Earnings Release for the Fourth Quarter and Full 2009 Fiscal Year
New in the IFX pod cast section at www.infineon.com/podcast
Environmental Protection at Infineon
Safe batteries thanks to intelligent encryption
Increased safety by active Seatbelts
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 in the world semiconductor market, including the market for memory products, Infineon’s future growth, 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 facilities, the continuing transitioning of our production processes to smaller structure sizes, 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 cost savings and growth targets, the ability of Qimonda to achieve cost savings and the success of any strategic initiatives it may undertake, and any potential disposal of our interest in Qimonda. 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, the outcome of antitrust investigations and litigation matters, the success of any corporate activities we may undertake with respect to our interest in Qimonda, as well as the other factors mentioned herein and those described in the “Risk Factors” section of the annual report of Infineon on Form 20-F filed with the U.S. Securities and Exchange Commission on December 7, 2007. As a result, our actual results could differ materially from those contained in the forward-looking statements. Infineon does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.
Infineon Technologies AG, Neubiberg, Germany, offers semiconductor and system solutions addressing three central challenges to modern society: energy efficiency, communications, and security. In the 2008 fiscal year (ending September), the company reported sales of Euro 4.3 billion with approximately 29,100 employees worldwide. With a global presence, Infineon operates through its subsidiaries in the U.S. from Milpitas, CA, in the Asia-Pacific region from Singapore, and in Japan from Tokyo. Infineon is listed on the Frankfurt Stock Exchange and on the New York Stock Exchange (ticker symbol: IFX). Infineon currently holds a 77.5 percent equity interest in Qimonda AG, a leading supplier of DRAM memory products. Qimonda is separately listed on the New York Stock Exchange under the ticker symbol “QI”.