Infineon: Cooling Off for 2012

It's a similar story — just another company telling it.

Infineon Technologies AG told industry watchers this week that the global economic jitters are causing a general slowdown, and that customers are pushing back on orders. The semiconductor maker had a profitable but flat fourth fiscal quarter, and it's predicting that sales will drop by a “mid-single-digit percentage” in fiscal 2012, said CEO Peter Bauer.

“It's extremely difficult to make any good forecasts for 2012 at this time,” Bauer conceded during a call with journalists. “We ask customers today about their orders, and tomorrow it's different. It's very hard to assess right now.”

Despite the uncertainty, Bauer said Infineon is not expecting — or planning for — a crash of the magnitude seen in 2009. It anticipates a “slight recessionary cycle” instead.

“What we are seeing are more postponements for future quarters. In the current quarter, there were a few cancellations, but there have been more pushouts” on orders, Bauer said. “This is related to the psychological effect of the economic situation. People aren't saying they don't need the parts, but everyone is being more cautious” about saying when they need them.

This isn't much different from what we've been hearing from other companies, and it seems to be in line with the general economic reports coming out. (See: Siemens Reports Growth but Expects Slower 2012 and ST’s Q3 Results Signal Broader Market Problems.)

For the quarter that ended Sept. 30, Infineon booked sales of €1.04 billion ($1.4 billion), up 10% from a year earlier but almost flat from the third fiscal quarter. The company posted a quarterly net profit of €125 million ($169 million), down 68 percent from a year earlier and 34 percent from the third fiscal quarter.

For the full fiscal year, sales rose 21 percent to slightly under €4 billion ($5.4 billion), and income from continuing operations more than doubled to €744 million ($1 billion). Including gains from the sale of its wireless mobile phone business, net income exceeded €1 billion ($1.3 billion).

For the current quarter, the company expects a 10 percent sales decline. For this fiscal year, it expects its revenue decline to level off at a mid-single-digit level, Bauer said.

Two area executives said a plus for Infineon, particularly in the longer term, is its continued focus on R&D and ongoing investment in 300mm wafer production.

Bauer said that since his company provides more tailored, less commodity-oriented semiconductors, demand from R&D innovations remains robust, and spending will be relatively on par with previous years' levels. “In semiconductor design, standing still is a step backwards. Most of our development work is closely linked to our customers' projects, and there is no decline in interest there.”

Infineon is also evaluating how it will develop its 300mm capacity — which Bauer said brings about a “quantum leap” in semiconductor manufacturing and will secure higher-volume production of power semiconductors — while balancing the need for less expensive 200mm wafer output in other regions. This year the company purchased manufacturing facilities and property in Dresden, Germany, and it is committed to expanding this know-how out of its European base. Its Malaysian plant will remain the company's 200mm sweet spot.

21 comments on “Infineon: Cooling Off for 2012

  1. Nemos
    November 16, 2011

    That cooling off, I do not like it, there are a lot of severe signals for the coming next year, that will be a bad fiscal year, and if you see a smoke somewhere near will be the fire. I have read a lot of articles that anticipating a bad fiscal year for most of the companies in the supply chain I hope will be only a small curve.

  2. Houngbo_Hospice
    November 16, 2011

    If we should expect the worse to come for the next fiscal year, my question is what actions are being taken to reduce the effects of the economy? When you see problems come, you better look for a preventive cure.

  3. bolaji ojo
    November 16, 2011

    Hospice, Companies are cutting spendings and instead pouring money into R&D to get the new product introduction machinery cranked up for when demand shoots up again. This is typical for any downturn. It's certainly difficult determining when economic conditions will improve enough to start reinvesting for growth. The tightening happens in waves: first, there's the belt tightening, then comes the hiring freeze followed by job cuts and hopefully these actions would help the company ride out the storm.

  4. Jennifer Baljko
    November 17, 2011

    Adding to Bolaji's note, during the call yesterday, Infineon executives mentioned the value of investing more in R&D during a down economy. It's a strategy many savvy companies employ because the lead times between the investment and outcome usually are long enough (nine to 18 months in the case of getting factories up or chips designed into end products) to “distract” away from macroeconomic conditions companies can't control or change while giving companies more perspective about how they want to advance and create long-term sustainability.

    As Infineon Bauer cautioned, though, shifting attention to R&D makes the most sense only when you have a clear idea of where you want that R&D to lead, a focus worth pursuing.

    Hospice – On the prevention question, I'm not sure if there is a preventative tactic when global economies are in flux. Cycles  involve both ups and downs.. that's why they're cycles and not a linear progression. Companies that can figure out to simultaneously stay the course without panicking and find innovative ways of recreating themselves so they stay relevant to the customer are likely the ones with the best practices on this.

  5. Himanshugupta
    November 17, 2011

    @Jennifer, the globle economic condition that we are talking about is mainly European and USA. The emerging markets are performing quite well. But the fate of the ecomonic condition is tied to the major spenders. Will we see a sudden or gradual improvement if the European crisis is over? I think there is no credit freeze as far as the loans are concerned so are the companies spending their own money are taking long term loans?

  6. Jay_Bond
    November 17, 2011

    I'm not surprised by the news, but at least Infineon isn't talking about huge losses and possible shutdowns. With the current global economic mess, it appears that Infineon is staying optimistic and is in the same boat as other manufacturers. It looks like they have some serious potential if they can get the 300mm process up and running.

  7. DataCrunch
    November 17, 2011

    It is very interesting that their tailor-made semiconductor part of the business continues to be robust as there seems to be more specialized projects their customers are working on.  This seems that R&D and innovation continues on all fronts.

  8. bolaji ojo
    November 17, 2011

    Jennifer, I attended an investor conference yesterday in New York and thought it interesting that the focus of most of the discussions was about the next five years rather than about now or even the year ahead. The attendees were more interested in what could be, five years or so from now (that's the farthest they were prepared to look) rather than the 12 months of 2012. They seem to have figured out what their investment strategies for 2012 will be. In other words, a company that is not readying products far into the future won't be on the radar of these shareholders and other investors.

  9. Barbara Jorgensen
    November 17, 2011

    “Not as bad as 2009” seems to be the rallying cry for the next couple of quarters. I wish that were more reassuring, but companies are trying to avoid any comments that will send morale in a more downward spiral. I've heard the same from the conference calls I've attended. It would be tough  to tolerate another 2009.

  10. Jennifer Baljko
    November 17, 2011

    Bolaji – Imagine that? Companies being asked for a five-year plan and something they can be accountable for!! Throwing my arms up in praise 🙂

    Kidding aside, it does seem that most people/companies are going to chalk up 2012 (or at least the first couple quarters) as a decline through which they can manage with some amount of finesse or corporate savvy. Of course, it can spin in any number of directions between now and then, so we'll see how grounded the idea of progressive-minded sanity is within businesses and on Wall Street.

    I'm curious about the five-year outlook. Five years feel a little too long to me, and where we would get in some more dicey estimations based on total uncertainty. Three years sound more realistic, true if you will. Given the R&D spending timelines and how boom-bust waves tend to cycle through, three year plans might be a more realistic… three years are just far enough away where you use here-and-now perspective to define and rationalize a workable and sustainable forward-looking game plan.

    What do you think? What's the high-tech industry going to look like in 2014-15? What's going into the pipeline now with that near-term future in mind?

  11. Jennifer Baljko
    November 17, 2011

    Barbara – Looks like we have our official motto for 2012: “Not as bad as 2009!” Shall we starting taking bets on how many times we hear this between now and next Christmas? I'm in for $20 that this phrase will be muttered at least 75 times these next few quarters. 🙂

  12. Barbara Jorgensen
    November 17, 2011

    Jenn: I'll take that action! 🙂 It reminds of a bingo-type game we used to play during conference calls, where the grid was made up of terms such as “synergy” “bandwidth” “coopetition” “robust solution” and other buzzwords of the day. Let's touch base at the end of the day to total up the mentions so we can get back to the key players with a value proposition.:-)

  13. bolaji ojo
    November 17, 2011

    Jenn, You'll be amazed what people are thinking about the next few years and what they are cooking up in mom and dad's basements/garages. You are an old hand in this business so you know when things go quiet and sales decline, the best hands in the industry burrow into the soil and hustle up some fantastic stuff. (Is that where the iPad was made (2008 recession) or the iPhone (2000-2002 downturn))? I don't know but I reported on something similar to this in my latest blog (The Next Five Years).

    Five years ago, we didn't have the iPad or Android. Groupon wasn't founded until 2008, right in the middle of the recession, and Facebook in 2004, just as the industry was emerging from a nasty recession. The high-tech industry is going to have a different feel five years from now. What that will be is unknown to me but I look forward to it.

  14. Mr. Roques
    November 17, 2011

    I'm curious as to why the decline in sales, is it because consumers are seeing lower demands so they need less components or because Infineon had to raise prices due to higher costs, etc.? More competition? China?

  15. t.alex
    November 18, 2011

    I think every company is having similar perception about 2012 so they hold back their orders. It overall leads to decline in sales of components.

  16. Anand
    November 19, 2011

    Infineon Technologies AG told industry watchers this week that the global economic jitters are causing a general slowdown, and that customers are pushing back on orders. 

    @Jennifer, No body can predict the end to this slowdown and recession. Market's are so volatile and choppy its very hard to plan the next moves. After US/Europe, slowly developing nations like India/China  are entering the slowdown phase because of inflation concerns. I think this problem will go beyond 2012.   

  17. Anand
    November 20, 2011

    I think every company is having similar perception about 2012 so they hold back their orders. It overall leads to decline in sales of components.

    @t.alex, this quarters results are very crucial, if we dont see rise in the holiday spending then it means that this problem is going to drag longer.

  18. Anand
    November 20, 2011

    You are an old hand in this business so you know when things go quiet and sales decline, the best hands in the industry burrow into the soil and hustle up some fantastic stuff.

    @Bolaji, I totally agree with you. I feel recession and high unemployment is blessing in disguise for some companies because they can hire highly skilled people at reasonable cost.  I feel recession is also good for M&A activity because valuations reach rock bottom.

  19. t.alex
    November 20, 2011

    Yes, this coming month is very crucial. I believe a lot of companies do not build a lot for the year-end season.

  20. electronics862
    November 28, 2011

    This slowdown does not predict any recession, its may be a market strategy they are following. They may come up with the huge market in the next year. It really unpredictable. 

  21. Mr. Roques
    December 23, 2011

    That's the spirit ! hehehe

    The market is unpredictable but normally for worse, not for better (Thailand disaster, etc.) but its harder for it to grow as fast.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.