Bloomberg News

Infineon’s Bauer to Keep Cash for Acquisition Opportunities

June 01, 2011

June 1 (Bloomberg) -- Infineon Technologies AG, Europe’s second largest maker of semiconductors, will keep some of its more than 2 billion euros ($2.9 billion) in net cash for opportunistic acquisitions in its three main businesses.

“I would like to keep some strategic cash as well for not only expansion but also for M&A,” Chief Executive Officer Peter Bauer said in an interview in Singapore today. “We will stay within the focus of our three areas: mobility, energy efficiency and security.”

The Neubiberg, Germany-based company’s most likely areas for deals are power, power conversion and power management, and the least probable is the automotive market because most companies are too large, he said.

Chipmakers are benefitting from the economic recovery and increased technology spending. On May 3, Infineon raised its full-year forecast for the fifth time since the beginning of 2010, while Intel Corp., the world’s biggest semiconductor producer, announced its second dividend increase in six months on May 11. The recovery has also spurred deals, such as Texas Instruments Inc.’s purchase of National Semiconductor Corp.

“If possible, I don’t want to buy when stocks are peaking, when there’s a lot of premium,” Bauer said. “As we are not under pressure to buy someone, we would like to watch the market a little bit and see when there is a better timing. And secondly, it’s more the match from a strategic fit.”

Bauer pointed out the “quite significant” premium Texas Instruments will pay to buy National Semiconductor Corp. for $6.5 billion, which was 78 percent more than the closing price before the April 4 announcement.

Turnaround Story

Infineon’s share reached an all-time low of 35 cents in Frankfurt trading on March 9, 2009, amid the bankruptcy of memory-chip maker Qimonda, which it carved out of the main business in 2006. Since then it has cut costs, restructured finances and sold its wireline and mobile-chip divisions, the latter to Intel Corp.

The stock rose 0.1 percent to 8.05 euros at 12:46 p.m. in Frankfurt, valuing Infineon at 8.7 billion euros.

At the end of March, Infineon reported it had net cash of 2.34 billion euros.

Bauer confirmed the company’s forecasts for the current quarter and for the full year ending Sept. 30. This quarter, the company sees little changed margins and revenue. For the full year, Infineon predicts a 20 percent increase in sales.

“Given the history, I would rather be a little bit too conservative than too aggressive,” Bauer said. “My sense of what people expect from us is continuously delivering, rather than making promises and not deliver.”

Returning Cash

Infineon paid a dividend for the fiscal year 2010, its first in a decade, and is buying back stock to return some of the cash from improved earnings and the sale of its wireless chip unit to Intel for $1.4 billion.

“We want to be relatively predictable regarding dividend payments,” Bauer said. “We are now in a business model where we can afford a regular dividend, and we also announced more returns through buybacks over the course of the next years.”

Infineon is focusing on Asia for its expansion, aiming to get 50 percent of total revenue from the region, including Japan, in three to five years, up from 42 percent last fiscal year.

On May 10, Infineon raised its target for investments this fiscal year to 850 million euros from 700 million euros.

Singapore Investment

Infineon will spend 50 million euros in Singapore this year, and another 200 million euros over the next three to five years. It has also announced a 114 million-euro investment in Malacca, Malaysia, to increase capacity and research and development, a 156 million-euro investment in Kulim, Malaysia, and spending of 198 million euros on production capacity in Austria in fiscal 2011.

Last month, Infineon said there were still “operational risks” related to getting raw materials in Japan after the earthquake, though it hadn’t experienced any shortage of materials or changes in the behavior of customers.

“The Japanese impact has been so far less than I thought to be honest,” Bauer said. “I was also a bit conservative there.”

The company makes chips that replace mechanical parts in cars, manage power in home appliances and windmills, and makes passports and contactless payment cards secure. Its customers include carmaker Bayerische Motoren Werke AG, Chinese automaker Chery Inc., consumer electronics maker Royal Philips Electronics NV, engineering firm Siemens AG and card maker Gemalto NV.

--Editors: Kenneth Wong, Simon Thiel.

To contact the reporters on this story: Lars Klemming in Singapore at lklemming@bloomberg.net; Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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