Germany-based semiconductor giant Infineon Technologies AG’s IFNNY shares cumulatively declined by about 1%, since its earnings release, to close at $11.30 on Jul 31. However, the company’s adjusted earnings for third-quarter fiscal 2015 rose 38% year over year to €0.18 (20 cents).
Excellent growth in sales, driven by major gains associated with International Rectifier acquisition, aided the year-over-year improvement in bottom line. Strong seasonality in demand pattern of Infenion’s offerings supported its revenue growth which, in turn, drove earnings.
Inside the Headlines
In the quarter, revenues jumped 43% year over year to €1,586 million ($1,754 million). Moreover, growing demand for semiconductors in automotive and industrial markets acted as catalyst for top-line growth. Strong sales growth in the Power Management and Multimarket segment also supported improvement in top line during third-quarter fiscal 2015.
Automotive (“ATV”) revenues increased 22% year over year to €621 million ($687 million). Stringent environmental standards are triggering demand for electric and hybrid vehicles worldwide. Infineon, being a major supplier of various components used in these vehicles, benefitted from this rising demand. Also, seasonal demand pattern contributed positively to the segmental growth.
Industrial Power Control (“IPC”) revenues increased 35% year over year to €269 million ($297 million). Higher demand for electrical drives, applications based on renewable energy as well as home appliances, led by seasonality in market, drove revenue growth for this segment.
Power Management and Multimarket (“PMM”) revenues increased an astounding 91% to €517 million ($572 million). Seasonally higher demand for mobile devices and servers, in turn, increased the requirement for power-supply products, which supported the impressive growth.
Revenues in the Chip Card and Security (“CSS”) segment grew 40% to €172 million ($190 million). Though the segment recorded overall growth in revenues, seasonal fluctuations in demand proved to be a drag on the same.
Liquidity
Infineon’s cash and cash equivalents were €700 million ($777 million) as of Jun 30, 2015, down from €7,38 million as on Mar 31, 2015. As of Jun 30, 2015 the company’s long-term debt stood at €1,767 million ($1960 million), higher than €1,793 million as on Mar 31, 2015.
As of Jun 30, 2015 net cash provided by operating activities from continuing operations were €432 million ($479 million), up from €135 million at then end of Mar 31, 2015.
Based on its liquidity position, Infineon aims to achieve three primary capital management objectives, namely, a gross cash level of 30–40% of revenues, positive net cash position and relatively lower level of debt.
Guidance
For fourth-quarter fiscal 2015, the company expects revenue growth of 1% with a possible deviation of plus or minus 2%, whereas the segmental margin is predicted to be about 16% at mid-point of the growth range.
Infineon has also revised estimates for fiscal 2015 revenues, currently expecting it to increase by about 34% (as against 36% expected previously); while segmental margin is projected at 15%. Moreover, the company expects all business segments to contribute positively toward its top-line performance.
Both outlooks are based on an assumed exchange rate of US$1.10.
To Conclude
We believe Infineon has significantly improved its competitive position in the market by integrating its existing Automotive, Industrial Power Control and Power Management segments with International Rectifier. This bodes well for the long-run growth of the company. Also, the company’s state-of-art technology and its strong customer support are likely to improve the business prospects of the company going forward.
However, the highly cyclical nature of the Infineon’s business coupled with the strong competition it faces from existing rivals may prove to be a drag on the company’s financial performance going forward.
Infineon currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Ambarella, Inc. AMBA, Applied Optoelectronics, Inc. AAOI and Mellanox Technologies, Ltd. MLNX. All three stocks sport a Zacks Rank #1 (Strong Buy).
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