Infineon Technologies AG (IFX), Europe’s second-biggest semiconductor maker, will reduce spending to cope with slowing chip demand that’s pulling down its sales and profit. The shares rose the most in almost a year.
The company will cut investment in the year starting Oct. 1 to about 500 million euros ($615 million), Reinhard Ploss, Infineon’s designated chief executive officer, said today on a conference call. Neubiberg, Germany-based Infineon is investing about 900 million euros this fiscal year. The company said in a statement it also suspended staff increases as of this month.
Infineon has more than enough capacity to meet current demand, said Niels de Zwart, an analyst at ING Groep NV in Amsterdam. That gives some leeway for Ploss, who is set to take over from Peter Bauer on Oct. 1, to try to improve margins even as customers scale back orders amid a slowing global economy.
“It’s positive that they’re adapting their model to the current growth environment,” said De Zwart, who recommends investors buy the stock. “They have enough capacity to cater to their needs in 2013 and still have enough flexibility to raise investments if demand turns out to be stronger than expected.”
Infineon advanced as much as 8.7 percent to 6.04 euros, the biggest intraday gain since Aug. 11. The shares gained 7.9 percent at 1:16 p.m. Frankfurt time. They had lost 20 percent in the past year through yesterday.
The spending cuts will mean trimming capacity expansion rather than delaying development of technologies such as 300- millimeter wafers, Ploss said. Investments in development and production allow Infineon to bring out new types of chips that replace mechanical parts in cars, manage power in home appliances and wind turbines, and secure passports and contactless payment cards.
The investment reduction will be partly offset by expected larger depreciation and amortization on assets, Infineon said.
Sales this quarter will be “flat to down slightly” from the period ended June 30, the company said. Operating profit in the third quarter fell to 126 million euros, Infineon said. Revenue fell 5 percent from the year-earlier period to 990 million euros. The company may consider additional cost- reduction measures if the economy worsens, Bauer said on the conference call.
For the fiscal year through September, the operating margin will narrow to between 13 percent and 14 percent from 20 percent last year, while sales will drop about 3 percent from last year’s 4 billion euros, Infineon said.
Fourth-quarter operating profit will be “around 12 percent” of sales, compared with 12.7 percent in the third quarter, Infineon said. Last month, Infineon said sales and operating margin in the fourth quarter would be “broadly flat” compared with the previous period. Analysts project fourth- quarter sales of 963.7 million euros, according to the average of estimates compiled by Bloomberg.
“Infineon is sailing OK through this uncertain time and will continue to do so next quarter,” Bauer said. “We’re in a good position.”
Larger European competitor STMicroelectronics last week predicted quarterly revenue growth that trailed analysts’ estimates, citing a weakening demand in recent weeks. Intel Corp. (INTC:US), the world’s biggest chipmaker, this month scaled back its annual sales forecast as personal-computer demand fails to rebound among consumers in the U.S. and Europe.
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