IFNNF - Infineon Technologies AG (IFNNY) Q1 2024 Earnings Call Transcript

2024-02-06 14:05:23 ET

Infineon Technologies AG (IFNNY)

Q1 2024 Earnings Conference Call

February 06, 2024 3:30 AM ET

Company Participants

Daniel Györy – Senior Director, Investor Relations

Jochen Hanebeck – Chief Executive Officer

Sven Schneider – Chief Financial Officer

Andreas Urschitz – Chief Marketing Officer

Conference Call Participants

Francois Bouvignies – UBS

Sandeep Deshpande – JPMorgan

Alexander Peterc – Societe Generale

Johannes Schaller – Deutsche Bank

Didier Scemama – Bank of America

Stephane Houri – ODDO BHF

Joshua Buchalter – TD Cowen

Alexander Duval – Goldman Sachs

Sebastien Sztabowicz – Kepler Cheuvreux

Jerome Ramel – BNB Paribas

Presentation

Operator

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2024 Fiscal First Quarter Results. Today's call will be hosted by Daniel Györy, Senior Director, Investor Relations, who is stepping in for Alexander Foltin today. As a reminder, this call is being recorded. The conference call contains forward-looking statements and/or assessments about the business, financial conditions, performance and strategy of the Infineon Group. These statements and/or assessments are based on the assumption and management expectations resting upon currently available information and present estimates. They are subject to multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance and strategy may therefore differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements.

At this time, I would like to turn the call over to Infineon. Please go ahead.

Daniel Györy

Good morning, ladies and gentlemen. Thank you for joining our first earnings call in 2024. On this call, you have our CEO, Jochen Hanebeck; our CFO, Sven Schneider; and our CMO, Andreas Urschitz. Jochen and Sven will provide a comprehensive overview on the market situation and divisional performance, key financials and our revised outlook. The illustrating slide show, which is synchronized with the telephone audio signal, is available at infineon.com/slides. After the introduction, we will be happy to take your questions kindly asking you to restrict yourself to one question and one follow up. A recording of this conference, our earnings press release and our investor presentation are also available on our website at infineon.com.

And now, Jochen, over to you.

Jochen Hanebeck

Thank you, Daniel, and good morning, everyone. At the start of 2024, we are confronted with continuing headwinds from geopolitics and macro from cyclical market dynamics and from negative currency developments. Against the lackluster economic environment and generally high inventory levels, the demand picture across applications remains mixed. We see continued strength in key parts of automotive and, on the other hand, inventory digestion in industrial as well as extended sluggishness in consumer computing, communication and IoT. This, together with the weakening of the U.S. dollar against the euro, leads us to a revision of our expectations for the current fiscal year. I will comment more on our adjusted outlook at the end of my introductory remarks.

But broadly speaking, we are seeing a prolonged inventory digestion period and in a couple of our end markets a recovery only in the second half of the calendar year, one quarter later than assumed back in November. At the same time, the strength and the resilience of the Infineon business becomes particularly evident in periods like these. As a case in point, we concluded a robust first quarter of our 2024 fiscal year. Group revenues in the December quarter came in at EUR3.702 billion with minus 11%, the sequential step down was a bit more pronounced than expected, driven primarily by an adverse currency development amounting to a high double-digit million revenue reduction.

As you will remember, we had used a U.S. dollar-euro exchange rate of $1.05 for our guidance, whereas the actual rate for the December quarter was $1.08. The segment result for the quarter was EUR831 million, reflecting the sequential contraction of our top-line, leading to a segment result margin of 22.4%, slightly ahead of our expectations. Margin development differs considerably by segment, in line with very different business dynamics. As expected, our backlog of confirmed and unconfirmed orders keeps normalizing and stood at EUR24 billion at the end of December, after EUR29 billion three months ago. In a situation of general supply availability, high inventory levels in several end markets and shortening lead times, customers typically clean up their orders, in particular, towards calendar year end.

Now let's take a closer look at our divisions, with automotive in the pole position. In the first quarter of the 2024 fiscal year, the automotive segment's revenue came in at EUR2.85 billion. The decrease of 4% compared to the previous record quarter was driven as predicted by short-term inventory management by customers towards calendar year-end. The segment results stood at EUR564 million, leading to a segment result margin of 27.1% compared to 28.5% in the previous quarter and mirroring the negative revenue development. At this point in time, the key investor debate in our part of the sector appears to be on the near-term cyclical perspective for automotive semiconductors....

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