Infineon Reports Record Earnings and Record Sales for Q2
27 April 2000
Infineon Reports Record Earnings and Record Sales for the Second Quarter and First Six Months of Its 2000 Financial Year
MUNICH, Germany--April 27, 2000--Infineon Technologies AG, Munich, Germany, (NYSE:IFX) (FSE:IFX).
-- Sales in the second quarter increased by 57 percent to (Deutsche
mark) 1.53 billion compared with the same quarter of 1999
-- Quarterly EBIT totaled (Deutsche mark) 253 million compared with
(Deutsche mark) 8 million during the same period last year
-- Net income reached (Deutsche mark) 146 million in the quarter, so
that quarterly earnings per share rose to (Deutsche mark) 0.24
compared with (Deutsche mark) 0.04 in the second quarter of the
1999 financial year
-- Gross margin improved from 30 percent to 39 percent in comparison
with the same quarter of last year
-- All operating segments reported considerably higher sales and EBIT
for the quarter
Infineon Technologies AG, Munich, Germany, (FSE/NYSE: IFX), listed on the Frankfurt and New York stock exchanges since March 13, announced its key business figures for its second quarter, ended March 31, and the first six months of its 2000 financial year.
Infineon's sales increased by 57 percent to (Deutsche mark) 1.53 billion in the three months ended March 31 compared with (Deutsche mark) 977 million for that period last year. EBIT (Earnings Before Interest, Minority Interest and Taxes) grew significantly from (Deutsche mark) 8 million in the second quarter of 1999 to (Deutsche mark) 253 million in the second quarter of 2000. For the first six months of the 2000 financial year, Infineon recorded a sales increase of 68 percent to (Deutsche mark) 3.07 billion compared with (Deutsche mark) 1.83 billion for the same period last year. EBIT for the first six months of the 2000 financial year amounted to (Deutsche mark) +497 million compared to (Deutsche mark) -46 million for the first six months of the 1999 financial year.
"With these record earnings, we deliver convincing proof that we are consistently implementing our strategy of profitable growth in the logic and DRAM business," commented Dr. Ulrich Schumacher, chairman of the Infineon Technologies AG Executive Board. "Our stronger focus on the rapidly expanding market segments of communications and the Internet as well as our partnership with approximately 40 key account clients throughout the world have led to a considerable improvement in the profit margin," explained Schumacher.
Business Development in the Second Quarter
In the second quarter of the 2000 financial year, incoming orders amounted to (Deutsche mark) 2.06 billion, or 87 percent higher than last year's comparable figure. Sales increased in the second quarter to (Deutsche mark) 1.53 billion, compared with (Deutsche mark) 977 million in the prior year's comparable period. In the second quarter, the consolidated net income came to (Deutsche mark) 146 million, compared with (Deutsche mark) 23 million in the same period in the previous year. Based on the weighted average of outstanding shares, the quarterly earnings per share amounted to (Deutsche mark) 0.24, compared with (Deutsche mark) 0.04 for the same period last year. Thanks to improved cost structures, Infineon was able to increase its gross margin in the second quarter from 30 percent to 39 percent, for a total of (Deutsche mark) 594 million.
As announced, Infineon has continued to reduce its costs on a percentage basis of sales and spent (Deutsche mark) 243 million in Research and Development during the second quarter. The company's R&D remains above the industry average at a total of 16 percent of sales, compared with an 18-percent share in the comparable period of the previous financial year. Marketing costs and general administrative expenses fell from 13 to 10 percent of quarterly sales.
Strategic "Highlights" in the Second Quarter
The highlight of the quarter was without a doubt the Infineon IPO on March 13 in Frankfurt and New York. The company received more than (Deutsche mark) 550 million in net proceeds from the IPO. At the same time, Intel subscribed for approximately one percent of the Infineon shares through a private placement of US$ 250 million ((Deutsche mark) 258.8 million) in a deal that is currently being finalized. This provides Infineon with over (Deutsche mark) 800 million. According to the cooperation agreement made at the same time, these two companies plan to collaborate in the production of DRAMs and exchange roadmaps in product development.
In March, Infineon exercised an option to buy Motorola's limited partnership interest in the production facilities at White Oak Semiconductor in Richmond (Virginia, USA). In connection with the exercise of the option, Motorola and Infineon signed a purchase agreement regarding the purchase of Motorola's interest in White Oak. Closing of the purchase is subject to the receipt of necessary approvals of U.S. antitrust authorities. As a result of closing of the transaction following receipt of such approvals, ownership of the DRAMs production facility would be passed completely to Infineon. At the end of last year, Infineon had already assumed operational responsibility. These steps were the logical consequence of Motorola's withdrawal from the DRAM business. By its takeover of White Oak, Infineon will secure its production site on the important American market in the long term and reinforce its leading position in a growing semiconductor market.
Important new development collaborations were established during the second quarter: In the Advanced DRAM Technology Alliance, Infineon is developing a new, powerful DRAM technology in cooperation with Hyundai Electronics, Micron Technology, NEC, Samsung Electronics and Intel. According to the development consortium, this advanced DRAM generation is expected to make possible the use of significantly cost-efficient computer platforms, thus allowing the more rapid implementation of modern multimedia and graphics applications.
In addition, Infineon and IBM have expanded the development cooperation they have been involved in since 1997 to include UMC, a Taiwanese company. Together, the three companies plan to develop the process technology required for the production of logic chips with structural dimensions of 0.13 to 0.10 micrometers.
In mid-March, Infineon also signed a number of agreements with Mosel Vitelic Inc. and their joint subsidiary, ProMOS Technologies Inc. According to these agreements, ProMOS will receive licenses from Infineon for the production of DRAMs using the 0.17, 0.14 and 0.12 micrometer technology generations.
Expansion of Production Capacities
In response to the strong market developments in all its operating segments, Infineon began expanding its production capacity in the last fiscal year. In the years 2000 and 2001, significantly larger sums will be invested in the expansion and modernization of production facilities. The following measures have already been initiated or are currently planned:
-- Go-ahead for the construction of the world's first 300-mm
production module in Dresden: Infineon plans to take full
advantage of its decisive technological lead with the rapid
implementation of 300-mm technology in a complete production line.
-- Increased chip exploitation per silicon wafer: Infineon plans to
convert production processes to still smaller chip structures as
quickly as possible. For logic products, structural widths measure
0.18-micrometer copper technology and for memory products 0.17
micrometers in a first step.
-- Conversion to production based on 200-mm technology: production
facilities in Villach (Austria) and Regensburg (Germany) will be
expanded, including some conversion to 200-mm technology to better
serve the growing demands of manufacturers of mobile phones,
communications equipment and automotive and industrial
electronics.
-- Increased use of foundry manufacturers: plans have been made to
further increase external wafer production. The outside share of
assembly and testing will also be increased. This will serve to
meet high capacity demands in the short term and, in the medium
and long term, to increase the flexibility of production.
Situation in the Operating Segments in the Second Quarter
In the annual comparison, the Wireless Communications segment increased its sales by 39 percent to (Deutsche mark) 274 million in the second quarter and was able to augment its quarterly EBIT by an impressive 90 percent to (Deutsche mark) 57 million. With its system-on-chip solutions, Infineon reached important design wins with Acer, Matsushita and Siemens. Thanks to the integration of the new subsidiaries, DWD A/S (hardware configuration) and Comneon (GSM software), Infineon has also been able to arrange for OEM system solutions for base band chip sets in mobile telephones.
As a result of the strong increase in international data traffic on the Internet, the Communications and Peripherals segment was able to expand its quarterly sales of system-on-chip solutions, framers and controllers in particular by 85 percent to (Deutsche mark) 298 million in the annual comparison. Quarterly EBIT amounted to more than (Deutsche mark) +30 million compared with (Deutsche mark) -17 million in last year's comparable quarter. In the growth market for Internet infrastructure equipping (routers and switches) sales to Cisco Systems doubled in a quarterly comparison. In the second strong growth market, Fiber Optics, there was also a design win at SUN Microsystems for a high-power transceiver.
The Automotive and Industrial segment reported a sales increase of 27 percent to (Deutsche mark) 213 million in the second quarter. During the same period, the quarterly EBIT rose from (Deutsche mark) 3 to 11 million. Infineon also made outstanding progress on the Italian market with the design-in of a powerful IC for ABS and airbag control for Magneti Marelli. Furthermore, the company secured a large order for the CoolMOS power switch, promising high-volume, long-term business in the field of industrial electronics. The re-engineering of the high-powered semiconductor segment at the Eupec subsidiary is proceeding on schedule.
Despite the price decline expected in the second quarter, business increased in the Memory Products segment by 77 percent to (Deutsche mark) 570 million. For the three months ended March 31, EBIT amounted to (Deutsche mark) +182 million, compared with (Deutsche mark) -12 million during the same period last year. The main reason for the increase in sales and earnings in the second quarter 2000 was the high demand for 64-megabit DRAMs. Other reasons include favorable currency exchange rates as a result of the weak Euro, improved cost structures resulting in part from the successful conversion to 0.19-micrometer production technology, and the excellent earnings reported by ProMOS during the Christmas quarter. ProMOS quarterly figures are included in Infineon's results with a three-months delay. In the second quarter of 2000, Infineon continued to expand its position as international market leader for 256-megabit memory chips with new design-ins and OEM supplies to Compaq, Dell, HP and Intel.
The unabated demand for GSM-SIM cards and a market share of approximately 60 percent of the chips used in cash cards in Germany led to a 38-percent rise in sales, to (Deutsche mark) 150 million for the combined Security and Chip Card ICs and other operating segments in the second quarter of 2000. Compared with 1999, the quarterly EBIT improved from zero to (Deutsche mark) +15 million. With the availability of the new 66Plus family of 16-bit security controllers, Infineon has confirmed its leadership position in technology in the chip card controllers product segment for high-security applications. In addition, the 66Plus-Controllers provide the largest EEPROM memory capacities available for wireless communications applications.
Business Development in the First Six Months
Sales increased by 68 percent to (Deutsche mark) 3.07 billion in the first half of the 2000 financial year, while EBIT totaled (Deutsche mark) 497 million, compared with (Deutsche mark) -46 million for the year-ago period. As a result, Infineon increased its gross margin from 29 to 38 percent. R&D costs increased in absolute numbers to (Deutsche mark) 441 million, which translates as 14 percent of the six-month sales compared with 19 percent in the same period last year. Marketing and general administrative expenses were cut to ten percent of the income in the first six months of the 2000 financial year.
During the first six months of the fiscal year, the number of employees at Infineon increased to more than 27,000 in total. Further hiring will be necessary, particularly as the expansion of production and development facilities continues throughout the world.
Regional Sales Development in the First Half-Year 2000
In Europe, sales increased by 28 percent to (Deutsche mark) 1.48 billion, with (Deutsche mark) 734 million going to Germany; sales in America/NAFTA were very positive, rising by 148 percent to (Deutsche mark) 758 million; with a growth of 118 percent, Asia-Pacific also commanded a leading position with (Deutsche mark) 786 million in sales. With sales totaling (Deutsche mark) 100 million, Japan went to record a sales increase of 293 percent.
Infineon's above-average growth outside of Europe is also reflected in the market share increases in Asia and the USA, as confirmed by Dataquest. According to Dataquest, Infineon ranked number 10 in the Asia Pacific markets from 15 in the previous year. In the U.S. Infineon moved from a number 16 position to number 13. On a worldwide basis, the company now ranks eighth among the semiconductor manufacturers and is the largest European chip supplier.
Future Outlook
According to the estimations of the World Semiconductor Trade Statistics (WSTS), which were increased in March, the international semiconductor market is expected to grow by approximately 22 percent during calendar year 2000. As in previous years, Infineon expects to report sales exceeding average market growth figures in the current fiscal year as well, primarily as a result of the expansion of its production capacities.
As the situation looks today, Infineon believes that the development of earnings will remain positive in fiscal 2000 with the continued expansion of the semiconductor market.
"On the basis of our strong position in terms of technology and cost effectiveness, we expect to benefit from the outstanding situation on the semiconductor market overproportionally. Our flexibility as an enterprise listed on the stock exchange also provides us with additional business options to increase our success, through acquisitions or cooperations, for example," explained Schumacher.
Overview of results: 2nd quarter and 1st half-year 2000
(According to US GAAP - through March 31)
(a) unaudited
----------------------------------------------------------------------
NET SALES (a) Q2 Q2 1st 1st
half half
(in million (Deutsche mark)) 1999 +/- 2000 1999 +/- 2000
----------------------------------------------------------------------
Wireless Communications 197 +39 % 274 380 +55 % 589
----------------------------------------------------------------------
Communications & Peripherals 161 +85 % 298 312 +83 % 571
----------------------------------------------------------------------
Automotive & Industrial 168 +27 % 213 321 +23 % 395
----------------------------------------------------------------------
Memory Products 322 +77 % 570 565 +105 % 1,160
----------------------------------------------------------------------
Security & Chip Card ICs
and other 109 +38 % 150 211 +46 % 309
----------------------------------------------------------------------
Corporate and reconciliation 20 +40 % 28 39 +26 % 49
----------------------------------------------------------------------
Infineon consolidated 977 +57 % 1,533 1,828 +68 % 3,073
======================================================================
----------------------------------------------------------------------
EBIT (a) Q2 Q2 1st 1st
half half
(in million (Deutsche mark)) 1999 +/- 2000 1999 +/- 2000
----------------------------------------------------------------------
Wireless Communications 30 +90 % 57 80 +65 % 132
----------------------------------------------------------------------
Communications & Peripherals (17) +++ 30 (13) +++ 56
----------------------------------------------------------------------
Automotive & Industrial 3 +267 % 11 8 +138 % 19
----------------------------------------------------------------------
Memory Products (12) +++ 182 (134) +++ 308
----------------------------------------------------------------------
Security & Chip Card ICs
and other -- +++ 15 15 +87 % 28
----------------------------------------------------------------------
Corporate and reconciliation 4 -- (42) (2) -- (46)
----------------------------------------------------------------------
Infineon consolidated 8 +3,063 % 253 (46) +++ 497
======================================================================
Condensed consolidated statements of operations (a)
----------------------------------------------------------------------
(in million (Deutsche mark)) Q2 Q2 1st half 1st half
1999 2000 1999 2000
----------------------------------------------------------------------
Net sales 977 1,533 1,828 3,073
----------------------------------------------------------------------
Costs of goods sold (687) (939) (1,300) (1,903)
----------------------------------------------------------------------
Gross profit 290 594 528 1,170
----------------------------------------------------------------------
Research and development
expenses (174) (243) (346) (441)
----------------------------------------------------------------------
Selling, general and
administrative expenses (124) (153) (239) (303)
----------------------------------------------------------------------
Other operating (income)
expense, net (2) 2 (1) 0
----------------------------------------------------------------------
Operating income (10) 200 (58) 426
----------------------------------------------------------------------
Interest income, net 6 6 5 10
----------------------------------------------------------------------
Equity in earnings of
associated companies 19 47 13 60
----------------------------------------------------------------------
Other operating (income)
expense, net (1) 6 (1) 11
----------------------------------------------------------------------
Minority interests 1 (4) -- (6)
----------------------------------------------------------------------
Net income before taxes 15 255 (41) 501
----------------------------------------------------------------------
Income tax 8 (109) 35 (222)
----------------------------------------------------------------------
Net income (loss) 23 146 (6) 279
======================================================================
Earnings (loss) per share 0.04 0.24 (0.01) 0.46
======================================================================
Weighted average
shares outstanding 600 604.8 600 602.4
mil. mil. mil. mil.
----------------------------------------------------------------------
Condensed consolidated balance sheets (a)
--------------------------------------------------------
Assets 30.09. 31.03.
(in million (Deutsche mark)) 1999 2000
--------------------------------------------------------
Cash and marketable securities 30 990
--------------------------------------------------------
Accounts receivable, net 802 1,003
--------------------------------------------------------
Related party receivables 949 306
--------------------------------------------------------
Inventories 677 724
--------------------------------------------------------
Deferred income taxes 54 77
--------------------------------------------------------
Other current assets 11 29
--------------------------------------------------------
Total current assets 2,523 3,129
--------------------------------------------------------
Property, plant and
equipment, net 3,014 3,129
--------------------------------------------------------
Long-term investments, net 130 248
--------------------------------------------------------
Restricted cash 64 59
--------------------------------------------------------
Deferred income taxes 314 213
--------------------------------------------------------
Other assets 400 414
--------------------------------------------------------
Total assets 6,445 7,192
========================================================
--------------------------------------------------------
Liabilities and
shareholders' equity 30.09. 31.03.
(in million (Deutsche mark)) 1999 2000
--------------------------------------------------------
Short-term debt and
current maturities 495 147
--------------------------------------------------------
Accounts payable 435 459
--------------------------------------------------------
Related party payables 528 262
--------------------------------------------------------
Accrued liabilities 243 469
--------------------------------------------------------
Deferred income taxes 80 40
--------------------------------------------------------
Other current liabilities 269 172
--------------------------------------------------------
Total current liabilities 2,050 1,549
--------------------------------------------------------
Long-term debt 135 140
--------------------------------------------------------
Deferred income taxes 191 247
--------------------------------------------------------
Other liabilities 389 370
--------------------------------------------------------
Minority interests 25 31
--------------------------------------------------------
Total liabilities 2,790 2,337
--------------------------------------------------------
Total shareholders' equity 3,655 4,855
--------------------------------------------------------
Total liabilities and
shareholders' equity 6,445 7,192
========================================================
Condensed consolidated cash flow information (a)
----------------------------------------------------------------------
(in million (Deutsche mark)) Q2 Q2 1st half 1st half
1999 2000 1999 2000
----------------------------------------------------------------------
Net cash provided by
operating activities 95 462 162 680
----------------------------------------------------------------------
Net cash used in
investing activities (147) (233) (262) (482)
----------------------------------------------------------------------
Free Cash Flow (52) 229 (100) 198
----------------------------------------------------------------------
Net cash provided by
financing activities 46 382 98 762
----------------------------------------------------------------------
Increase (decrease) in cash
and marketable securities (6) 611 (2) 960
======================================================================
Note to Editors: For the financial and business press: INFXX200004.063e