Infineon Technologies AG (IFX) dropped as much as 3.5 percent in Frankfurt as Europe’s second-largest semiconductor maker said research investments will make it difficult to improve profitability for years.
Infineon’s upgrade of factories and investments in research for technologies such as 300-millimeter wafers won’t start to pay off until 2015 or 2016, Chief Executive Officer Peter Bauer said on a conference call today. Increasing gross margins will be difficult, Chief Financial Officer Dominik Asam said.
Infineon, whose customers include carmaker Bayerische Motoren Werke AG and consumer electronics company Royal Philips Electronics NV (PHIA), is betting on chips that replace mechanical parts in cars, manage power in home appliances and windmills, and make passports and contactless payment cards secure. The Neubiberg, Germany-based company needs to invest in research to stay competitive, Bauer said.
‘We want to and must maintain these investments to secure the future of Infineon,” he said. “We’re consciously making investments that don’t benefit earnings on a quarterly basis, but rather over three to five years.”
Infineon dropped as much as 26.2 cents to 7.26 euros and was down 2.7 percent as of 12:37 p.m. Before today, the stock had rallied 29 this year, making Infineon the fourth-best performer on the 27-company STOXX Europe 600 Technology Index. (SX8P)
The company today also said revenue will decline less in the fiscal year ending Sept. 30. than initially forecast and profitability will be higher. Operating profit rose 2.1 percent to 144 million euros ($189 million) from 141 million euros in the fiscal second quarter, beating the 131.1 million-euro average estimate in a Bloomberg survey among analysts.
“They’re clearly turning around the chip-card and power management divisions,” said Janardan Menon, an analyst at Liberum Capital in London, who recommends buying the shares.
Growth in global revenue from semiconductors will accelerate to between 6 percent and 7 percent this year, after a 3.7 percent increase to $301 billion in 2011, research company IDC said this week.
Infineon boosted its market share in the automotive-chip segment by one percentage point to 9.8 percent over the past year.
The company said it will spend more on research and marketing to add additional market share for its divisions. The industrial power control unit posted a second-quarter revenue drop.
Net income in the quarter rose 16 percent from the previous three months to 111 million euros.
“Business was better in the second quarter than expected,” Bauer said in the statement. “Three out of four segments increased revenue.”
Infineon now predicts revenue will decline by a “low single-digit” percentage in the fiscal year ending Sept. 30., compared with a previous forecast for a “mid single-digit” percentage drop. The operating profit margin will reach a “mid- teens” percentage, compared with a previous forecast for a “low to mid-teens” percentage, it said.
Before today, the average estimate in a Bloomberg survey among analysts was for a full-year sales decline of 2.8 percent euros and an operating margin of 14.4 percent.
The company said today it predicts sales and operating profit to be “broadly flat” in the third quarter.
STMicroelectronics NV (STM), Europe’s largest chipmaker, on April 24 forecast rising sales in the current quarter.
Intel Corp. (INTC:US), the world’s largest semiconductor maker, on April 17 forecast a second-quarter gross margin that was lower than some analysts estimated as spending on a new production technique erodes profitability. It said demand from companies and emerging markets remained relatively strong.
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