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Executives

Ulrich Pelzer - Corporate VP IR

Wolfgang Ziebart - Chairman President and CEO

Peter Fischl - CFO

Peter Bauer - EVP and Chief Sales and Marketing Officer

Hermann Eul - Deputy Management Board Member

Reinhard Ploss - Management Board Member

Analysts

Nicolas Gaudois - UBS

Janardan Menon - Dresdner Kleinwort

Sandeep Deshpande - JPMorgan

Simon Schafer - Goldman Sachs

Francois Meunier - Cazenove

Didier Scemama - ABN Amro

Jerome Ramel - Exane BNP Paribas

Jonathan Crossfield - Merrill Lynch

Adrian Bommelaer - Credit Suisse

Stephane Houri - Natixis Securities

Gunther Hollfelder - UniCredit

Infineon Technologies AG (IFX) F4Q07 (Qtr End 9/30/07) Earnings Call November 14, 2007 4:00 AM ET

Operator

Morning everyone! Welcome to the Infineon Technologies Financial Fourth Quarter And Financial Year 2007 Conference Call for analysts and investors. Today's call will be hosted by Mr. Ulrich Pelzer, Corporate Vice President, Investor Relations of Infineon Technologies.

As a reminder, today's call is being recorded. Statements made on this conference call may contain forward-looking statements based on current expectations or belief, as well as a number of assumptions about future events.

We caution you that this statement and other statements are not historical facts subject to factors and uncertainties, any of which are outside Infineon's control, that could cause actual result to differ materially from those described in the forward-looking statements.

Investors are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these forward-looking statements. You should not put undue reliance on them.

For detailed discussion of important factors that could cause actual results to differ materially from the statement made on this conference call, please refer to Infineon's most recent Annual Report on Form 20-F available on our website and that of Securities & Exchange Commission under the heading Forward-Looking Statements on page three and Risk Factors beginning on page 42.

At this time I would like to turn the conference over to Infineon. Please go ahead.

Ulrich Pelzer

Yes, thank you. Hi, good morning, ladies and gentlemen. Welcome on behalf of Infineon to our fiscal Q4 and full year 2007 conference call. We have published the release with our results for the last quarter and our outlook for the current quarter, some two and a half hours ago. Hopefully, you were able to have a look. It is available for download off of our website just in case you don't have it handy.

Here today for this call, as usual, is the entire Infineon Management Board. That's Dr. Wolfgang Ziebart, our CEO; Mr. Peter Fischl, our CFO; Mr. Peter Bauer, responsible for AIM; Professor Hermann Eul, responsible for Communications and Dr. Reinhard Ploss, responsible for Operations.

We have, as usual, prepared some introductory remarks, which Dr. Ziebart is going to go through in a minute. And then we're happy to take your questions and answer them. With that, over to you.

Wolfgang Ziebart

Yeah, Ulrich, thank you very much. Good morning ladies and gentlemen. Welcome to all of you to our conference call for the results of the fourth quarter and '07 fiscal year. Let me first make some general comments on our performance and our longer-term outlook.

I will then move on to our results and the guidance for the next quarter before my colleagues and I will be happy to answer your questions.

Well, overall, we have made good progress in the Infineon core business last year. Firstly, we were able to maintain revenues for Infineon excluding Qimonda in fiscal year '07, almost flat versus fiscal 2006 at EUR4.07 billion. This was achieved despite a sales decline of approximately EUR150 million resulting from the weakening of the U.S. dollar against the Euro, and despite sales loss of approximately EUR250 million resulting from the insolvency of our main basement customer at the very end of fiscal year '06.

Secondly, we have made progress on the EBIT for Infineon excluding Qimonda as well. Coming from an EBIT loss of EUR207 million in fiscal year '06, we narrowed this to a negative EUR49 million in fiscal '07. Included in the fiscal '07 EBIT, were net charges of EUR120 million of which EUR84 million related to the book losses from the Qimonda placement in September '07. EBIT in the '06 fiscal year included net charges of EUR199 million. Excluding these charges, EBIT was positive EUR79 million in fiscal '07, up from a negative EUR18 million in fiscal '06. As you may recall, we had guided for a breakeven EBIT excluding charges.

Thirdly, a positive trend is also apparent in the development of sales and EBIT in the individual quarters of the fiscal year '07. We started the year with revenues of EUR959 million and EBIT excluding charges of negative EUR8 million in the first quarter. We then improved steadily on both metrics throughout the year and booked sales of EUR1.13 billion with EBIT excluding charges of positive EUR69 million in the fourth quarter.

Both AIM and COM reported improved segment EBIT in every quarter of the last fiscal year. AIM ended the fiscal year with record sales in the fourth quarter and 12% segment EBIT margin. COM saw solid design win momentum in wireless, executed on the turn around and the segment EBIT improved each quarter as well.

We are now looking towards reaching breakeven EBIT excluding charges for COM and wireless in the current quarter. Going forward, we want to continue on this track. The very drastic fall of the U.S. dollar against the Euro with its negative EBIT impact is outside our control and we have to deal with it.

Despite this challenge, we expect for Infineon excluding Qimonda, that each quarter of the '08 fiscal year will see us post clearly positive EBIT excluding charges with year-on-year improvements. Overall, we expect EBIT excluding charges in the '08 fiscal year to be clearly positive with a significant increase relative to the fiscal '07 level. When, in other words, EBIT excluding charges in the '08 fiscal year should make good progress towards our goal of 10% EBIT margin for the '09 fiscal year.

Now let me come to the last quarter's results and our outlook for the next quarter or, actually, the current quarter, I must say. In the fourth quarter '07 fiscal year, EBIT for Infineon excluding Qimonda was negative EUR25 million versus positive EUR13 million in the prior quarter. EBIT included net charges of EUR94 million, of which, approximately, EUR84 million related to the sale of Qimonda share compared to net charges of only EUR3 million in the previous quarter.

Excluding these charges, EBIT for the fourth quarter was EUR69 million, up from EUR16 million in the quarter before. Revenues for Infineon excluding Qimonda increased, driven both by the Automotive, Industrial & Multimarket and the Communication Solutions segments. They rose from EUR1.01 billion in the third quarter to EUR1.13 billion in the fourth quarter.

Let me now turn to our segments. In the Automotive, Industrial & Multimarket, sales came in at a record high of EUR814 million, up 8% from the EUR752 million reported on the previous quarter. The segment EBIT also set a new record at EUR98 million with EBIT margin standing at 12%. Automotive results were about flat with the June quarter as we have expected.

This was achieved despite ongoing weakness in demand for automotive components in the U.S. In our Industrial & Multimarket business, our financials improved significantly versus the previous quarter.

We were able to fix capacity constraints in our high power business and so continued growth and demand strength there. In the low power business, we saw seasonally strong demand across consumer computing and telecom applications.

Our security and ASIC activities saw an exceptional strong quarter both in terms of revenue and EBIT. This development was led by our chip card activities. We saw strong demand for SIM cards during the quarter, but also beginning to see the benefits of our strategy of focusing more on higher value-added non-SIM applications, especially in identification where our passport business also had a very strong quarter.

Overall, EBIT for our chip card business was clearly positive. This business also booked positive EBIT for the full '07 fiscal year.

In our Communication Solutions segment, revenues rose to EUR318 million from EUR259 million last quarter. Following the sales trend, segment EBIT improved significantly to negative EUR16 million versus negative EUR34 million in the previous quarter. Within those figures, the DSL CPE activities that we acquired from Texas Instruments had added a high-teens million euros sales amount. Excluding those activities, the results in our wired communication business increased slightly compared to the previous quarter.

Results in our wireless business improved again, quarter-over-quarter, as we continued to execute on the turn around here. As planned, we saw a strong increase in sales and the business remains on-track to achieve its breakeven EBIT target in the fourth calendar quarter. Baseband shipments were up more than 50%, quarter-on-quarter, with both our single-chip devices for the GSM/GPRS markets, as well as our EDGE platforms making solid contributions.

In the fourth quarter, we expanded our customer base in the RF transceiver business with a development contract for our SMARTi UE EDGE RF transceiver for Motorola. With this order, we now include the five largest mobile phone makers among our customers.

EBIT for other operating segments and Corporate and Eliminations combined in the fourth quarter was negative EUR107 million. EBIT in Corporate and Eliminations included net charges of EUR93 million of which approximately EUR84 million related to the placement of Qimonda shares in the month of September.

Now, let me turn to the outlook for the first quarter of the '08 fiscal year. For Infineon excluding Qimonda and including the wireless phone business acquired recently from LSI, we expect sales to be about flat compared to the previous quarter.

EBIT excluding charges for Infineon and excluding Qimonda is anticipated to decline when compared to the last quarter's level. Nonetheless, we expect that it will remain very clearly in positive territory and will improve considerably versus a year ago.

We expect to book a low double-digit million-euro gain from the sale of the stake in the high power bipolar activities in our AIM segment antitrust approval for this transaction is still pending.

In our COM segment, we expect to take a low double-digit million Euro charge for the write-down of in-process R&D in connection with the initial consolidation of the former LSI mobile product business.

So for the Automotive, Industrial & Multimarket, we expect a high single digit revenue decline quarter-over-quarter. Firstly, due to the sale of the stake in our high power bipolar business, we will no longer consolidate the associated revenues in the current quarter resulting in a low single-digit percentage revenue decline.

Secondly, we expect seasonally lower sales in businesses exposed to the consumer computing and telecom end markets to lead also to a low single digit percentage sales decline.

Thirdly, we expect that the weakening U.S. dollar relative to the euro will also lead to a low single digit sales decline. And finally, we expect a small impact from annual price reductions in our auto business.

Segment EBIT is expected to decline in line with the revenue development before inclusion of a low double-digit million euro on one-time gain from the sale of our stake in the high power bipolar business. Including this gain, the segment EBIT margin in AIM would be broadly flat with the previous quarter.

Results in our automotive business should be about flat quarter-on-quarter despite annual price reductions and the negative currency impact. In our Industrial & Multimarket business, results should be down from the previous quarter. Here the seasonal effects in the consumer, computing and telecom businesses, as well as the deconsolidation of the high power bipolar activities will be felt in this addition to the currency impact.

Finally, figures in our Security and ASIC business should come down from last quarter's exceptionally high level. The chip card IC market remains healthy, but we cannot rule out a normalization in-demand for SIM card ICs in our passport solutions.

In the first quarter of the '08 fiscal year, we expect revenues in the Communication Solutions to grow significantly versus last quarter. We expect growth to be driven by first full quarter inclusion of the DSL CPE business acquired from TI.

Secondly, by the consolidation of the mobile phone business acquired from LSI and by continued growth in shipments of mobile phone platform solutions.

Segment EBIT as well as the EBIT for the wireless business are anticipated to be about breakeven prior to inclusion of a low double-digit million euro charge from the write-down of in-process research and development in connection with the acquisition of the mobile phone business of LSI, which we expected to book in the first quarter of '08 fiscal year.

When thinking beyond the current quarter, we would like to stress that we estimate EBIT for the activities acquired from LSI to be about breakeven. But that this EBIT figure is expected to include amortization of acquisition related intangible assets of around EUR10 million per quarter.

In our wireless business, we continue to execute on our shipment ramp to mobile platform customers. We again anticipate shipments of our single chip devices and our EDGE platform to be up nicely compared to the September quarter. Results in our access activities should increase in the current quarter relative to the fourth quarter of fiscal '07, driven mainly by the full quarter's contribution from the DSL CPE activities acquired from Texas Instruments.

Like the LSI activities, the business acquired from TI is expected to post EBIT of about zero, which includes the amortization of acquisition related intangibles. The remainder of the business continues to experience a stable environment.

In Corporate and Eliminations and other operating segments, we expect sales and EBIT excluding charges to remain broadly flat from the last quarter.

Well, ladies and gentlemen, this concludes my introductory remarks and I open up the call now for your questions.

Question-and-Answer Session

Ulrich Pelzer

Operator, could you please call for the questions.

Operator

(Operator Instructions). We will take our first question from Nicolas Gaudois from UBS. Please go ahead.

Nicolas Gaudois - UBS

The first question on Automotive (inaudible) when you're talking about, including the low double-digit gain in the next quarter, EBIT being broadly flat Q-over-Q, you are talking about EBIT value or EBIT margin, firstly?

Wolfgang Ziebart

Let me hand this question over to Mr. Peter Bauer.

Peter Bauer

EBIT value. So the -- we will go down in EBIT accordingly through sales and compensate for it by this low double-digit extraordinary gain. That's the message, that's what's behind this.

Nicolas Gaudois - UBS

Okay, okay. Great, thank you. And just a quick follow-up on COM. Could you maybe help us clarify the incremental revenue increase you expect from consolidating the LSI business in the quarter versus what the underlying business would actually do? And within that, maybe if you could help us understand: how we should look at the acquired LSI business going forward versus your own solution that the key customer that LSI had in so far?

Wolfgang Ziebart

Hermann Eul will answer that question.

Hermann Eul

Thank you for the question. So, we expect LSI revenue to come in with two of a three quarter portion after the closing and this should be in the mid-range of the teens of revenue and this additional business gives us quite a good strong foothold in the customer, here we are now a significant incumbent.

Nicolas Gaudois - UBS

You said mid-range of the teens, million of incremental revenues or: did I misunderstand you?

Hermann Eul

Hi, its -- actually I do not want to give precise numbers on this as this is still a forward-looking figure, but I would assume that it is around, let's say, EUR30 million to EUR50 million, some in this ballpark.

Nicolas Gaudois - UBS

EUR30 million to EUR50 million. Okay, okay. Thank you very much.

Operator

The next question will come from Janardan Menon from Dresdner Kleinwort. Please go ahead.

Janardan Menon - Dresdner Kleinwort

Yes, I have two questions. One is, Dr. Ziebart you said that your EBIT will rise significantly in the current fiscal year, and that it will be on course to meeting a target of 10% EBIT margin in 2009. At the same time, you also talked about the impact of currency. So can you just give us some of your views on: how Infineon can achieve these targets, both in terms of a significant rise in EBIT in the current year, as well as, a 10% margin in 2009, if you continue to face an adverse currency environment as you are today?

Wolfgang Ziebart

Yes, well, at the moment when we first communicated the targets mentioned of course, the dollar was in a much stronger position than the dollar is currently. So, far we have been able to compensate the negative effect and going forward we intend also to do so. Of course we cannot rule out extreme developments of the dollar.

Janardan Menon - Dresdner Kleinwort

So: would you regard the current EUR1.46 or so on the dollar as an extreme development or this is a manageable development?

Wolfgang Ziebart

I think this is already beyond the normal development. So, I think we are already on the extreme side.

Janardan Menon - Dresdner Kleinwort

But, even with the current level, you are saying that your targets could be met in the next two years?

Wolfgang Ziebart

It will be tough, but they will be met.

Janardan Menon - Dresdner Kleinwort

Okay. And a question from Dr. Eul: In 2007 you had companies like Apple and LG Electronics, who were the main drivers of your revenue after the weak state of affairs at the end of last year. If you look into 2008: where do you see the maximum revenue upside coming from? Is it from a continuing development of these customers as well as existing customers like Bird and Panasonic? Or: is it from some of the new customers, which will start making a meaningful contribution in the current year like Samsung, Nokia, as well as, the new RF transceiver customers, EMP and Motorola?

Hermann Eul

So, I think the basis will be the customers, which you mentioned before with our running business we expect this to stabilize and develop nicely upwards, while on the other hand, of course, we expect new customers to jump in. Jumping in new customers always means also a bit of unpredictability, how fast that comes and how steep that goes. We saw some customers going not as fast as they promised, while on the other hand we saw the ultra low cost platform ramping as steep as we haven't ever seen before something ramping.

Janardan Menon - Dresdner Kleinwort

And, given your excellent track record of getting new design wins on wireless in the last 12 months, 15 months or so: Do you think that you will keep getting new design wins in the next 12, 15 months as well or is it that you have now got as many wins as you can get in the near term and its digestion time?

Hermann Eul

We will not lean back so, we will of course continue for further design wins while on the other hand seeing that we already have for example in RF all the top five as our customers, what else do you expect more?

Wolfgang Ziebart

I think we can clearly point out that we have now booked all- all big five mobile phone makers, which really make up about 80% to 85% of the market. We have booked them as our customers and the major challenge now will be to expand within those customers rather than gaining new customers.

Janardan Menon - Dresdner Kleinwort

Okay. Thank you very much.

Operator

We'll now take our next question from Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande - JPMorgan

Yeah, hi Dr. Ziebart, a couple of questions: Firstly, on the COM business itself: Can you talk about development in the Wideband CDMA, HSDPA arena? How you're seeing -- I mean: have you seen any further traction in that arena and when you expect revenues in that segment to start ramping up for Infineon? Secondly, in terms of currency and fab: how do you see the development of your manufacturing into 2008 and transfer of COM manufacturing to foundries?

Wolfgang Ziebart

Okay, may I pass the first question definitely to you, Hermann, HSDPA?

Hermann Eul

So we have shipped well above north of a million of UMTS chips into our customer Panasonic, which you know we are now in the Japanese market. This is a very stable and still very nicely running product, the next generation is HSDPA. I expect this to ramp into the market for sure in the first half of 2008. Development is going on very nicely and all the IOTs are completed here. Towards the future I think this is a very stable perspective. The second it was --?

Sandeep Deshpande - JPMorgan

Do you have any significant design wins in HSDPA?

Hermann Eul

We do have design wins for HSDPA. Yes, and we are executing on the customers roadmaps.

Wolfgang Ziebart

Yeah, the second question was related to currency effect in manufacturing, and direction in terms of advanced logic going to foundries and regarding front-end manufacturing we have the majority of our fabs in the euro region. And so that is both, addressing Regensburg and Villach. And growth takes place, however, in our fab in Malaysia. And, so that is fact, so we are lowering the effect of the euro in our value creation ratio, where is that fab in front-end back-end anyway has always been in Asia. So the traction towards foundries of course continues, all the new designs with 65-nanometer and below are done in foundries or to be more precise currently in Chartered. So this trend is going to continue, so we are well on track here.

Sandeep Deshpande - JPMorgan

Okay, thanks. And one more quick question for Professor Eul if I may? Regarding the acquisition of the LSI business and Samsung as a customer: are you going to continue selling the LSI parts to Samsung are have you gained design wins with your own parts at Samsung as well going forward? And: how do you see your interactions with this customer at this point?

Hermann Eul

The quick answer would be a yes. Yes, of course, we will continue selling the LSI parts to the customer. This is of utmost importance for the customer to have an uninterrupted and smooth transition towards its production and also towards his future while on the other hand this also supports us in getting new design wins for future products, now we are a significant incumbent in that customer.

Sandeep Deshpande - JPMorgan

Thank you.

Operator

We'll now take your next question from Simon Schafer from Goldman Sachs. Please go ahead.

Simon Schafer - Goldman Sachs

Hi, good morning. Thanks very much. I want to ask a follow-up question on the run rate of the security and chip card business. What percentage of AIM was that in the quarter? And how are the margins double-digits now on a quarterly basis?

Wolfgang Ziebart

Peter?

Peter Bauer

Well, first of all as you perfectly know we don't disclose the numbers below the business group level. So rough percentage wise is the sector is about 20% to 25% of the overall revenue. And margin wise, well, the last quarter was really good on the chip card side due to two effects. Number one, the SIM card business had a good peak upwards as well as the government ID business where we really made some enormous progress and also had very high orders and delivered also against a very high order especially from overseas. So therefore we are in the vicinity of that but not sustainable yet.

Simon Schafer - Goldman Sachs

Okay, thanks. And then in terms of the wireline business, excluding what you've just integrated from TI is that business profitable now again?

Wolfgang Ziebart

That business used to be profitable for many quarters already now. And currently, we faced little bit of a difficulty in the infrastructure market as all the other market participants. So also here we go through some, let's say, challenging times from there.

Simon Schafer - Goldman Sachs

Thanks. And my last question would be a bigger picture question. I believe Infineon becomes unlocked again in what you could conceivably do with your Qimonda stake as of next week. As you look into 2008 or more specifically the first half of 2008: how are you looking at opportunities in order to reduce that stake further? Just some more clarity as to: what your latest thinking there is? it would be very helpful. Thanks.

Wolfgang Ziebart

I hand this question over to Peter Fischl.

Peter Fischl

Hi, Simon. I mean you know the goals which we have publicly stated that in Spring 2009 we will go into a minority. We have applied or we will apply, I should say more precisely, at the AGM also to be able to get the approval then to distribute shares as one option. As you know, we have successfully made a transaction in September in a very difficult environment, but, of course, I will not get more precise going forward in the next few quarters.

Simon Schafer - Goldman Sachs

Fair enough. Thank you very much.

Peter Fischl

You're welcome.

Operator

Next question will come from Francois Meunier from Cazenove. Please go ahead.

Francois Meunier - Cazenove

Morning. Thanks for taking my question. Two questions about your EBIT guidance. If we look at AIM, shall we expect the margin, the EBIT margins to be down in the December quarter excluding the two one-offs?

Wolfgang Ziebart

The margins will be down compared with the previous quarter but will be considerably up compared with the same quarter last year.

Francois Meunier - Cazenove

Okay. So still close to 10%?

Peter Bauer

Let me explain this more in detail. We have here two effects. We have a declining top line, due to seasonality especially in the industrial business. And also, as I just mentioned, we can't keep up with the high quarter and chip card had last quarter. And then we have an adverse currency effect, which is pretty severe on the AIM side, as well as the deconsolidation of, the assumed deconsolidation of our bipolar joint venture. So, all those effects show up on the top line, as well as, in the bottom line, therefore, value and margin from an EBIT perspective. So, absolute value will be down as well as margin will be down. And, as I said before, we can compensate for it with the extraordinary gain so that you'll see the same percentage, in the vicinity of the same percentage, but we can't keep up from an operational perspective. But, I would regard this as a normal process as the Q4 in AIM typically is that kind.

Francois Meunier - Cazenove

Okay. Now in terms of EBIT items for the logic business as a whole for 2008, I understand you only give a guidance for 2009, but: shall we expect it to be close to 5% or closer to 10%? Or: given the headwind on the dollar?

Peter Bauer

We have sent that, we want to be well on the way and we haven't been more precise yet and we don't intend to be more precise. So you can -- I'll leave that up to your interpretation.

Francois Meunier - Cazenove

Okay. Thank you very much.

Peter Bauer

Yeah.

Operator

We'll now take our next question from Didier Scemama from ABN Amro. Please go ahead.

Didier Scemama - ABN Amro

Yes. Good morning gentlemen, thanks for taking my question. I just would like to clarify one point on the COMs EBIT in the December quarter. You're guiding breakeven before charges. I was just wondering: if you could give us an idea of sort of a clean EBITDA contribution in December '07 quarter actually?

Hermann Eul

This is actually already answered in your question. We expect a one-time hit out of the acquisition and excluding then we have an impact from the TI acquisition in terms of amortization quarterly, and then you are at the EBITDA and you know these figures anyway already.

Wolfgang Ziebart

So when we communicated the target of breaking even in the wireless business in the current quarter, both of those acquisitions were not on the horizon, and so of course we have to exclude those.

Didier Scemama - ABN Amro

So does that mean: you are profitable at the EBITDA level in the December '07 quarter? If I add back basically, not the one-off --

Hermann Eul

Correct.

Didier Scemama - ABN Amro

I mean: you're more in the EUR10 million, or EUR10 million to EUR20 million, in fact, if I take into account also TI EBITDA.

Hermann Eul

I confirm that this is profitable. I do not confirm the precise numbers you have given.

Didier Scemama - ABN Amro

But: will you agree that there is a one-off R&D charge and then there is on top of that every quarter another charge intangible of acquired assets?

Hermann Eul

Exactly, we have this in the December quarter already running for the TI acquisition and from December quarter on this will also be on the LSI acquisition.

Didier Scemama - ABN Amro

Okay. So now, I guess, the question is: how much should we expect per quarter in terms of the amortization of intangible assets?

Hermann Eul

It was formerly guided that we expect this to be in the EUR10 million ballpark for the LSI acquisition. And the guiding number for the TI acquisition I think, Ulrich Pelzer has already given before.

Didier Scemama - ABN Amro

Okay, perfect. So that's a low double-digit EBITDA in December?

Hermann Eul

However, you should know that the numbers for the LSI acquisition are not yet through the auditors. So we cannot really give the precise numbers here. We have to wait for the judgment of the auditors.

Didier Scemama - ABN Amro

Perfect. Now if I may, a quick follow-up. If you look at AIM beyond basically, the December '07 quarter with the ramp of clean and also obviously taking into account the negative headwinds from the euro/dollar: do you think we could exit '08, fiscal year '08 with a, let's say, 10% margin?

Peter Bauer

Well it's a bit early to make such a judgment for the whole year. Definitely it very much depends on the currency and on the exchange rates and I wouldn't really want to say more at this point in time.

Didier Scemama - ABN Amro

Okay, I understand. And maybe for Professor Eul to square off, obviously you have made strong progress as you mentioned, you know the top five handsets OEMs of customers, now for both baseband or either baseband or RF or both. I gave the key question and now it's going to be on the 3G baseband or 3G platform fronts where so far we haven't seen much apart from Panasonic. You've said you've got design wins, but: do you think the 3G-baseband or 3G-platform business could be substantial in fiscal year '08 or is it more further in the fiscal year '09 timeframe?

Hermann Eul

You will see significant shipments in 2008 on the HSDPA platform.

Didier Scemama - ABN Amro

Okay. Thanks very much.

Operator

We'll now take our next question from Jerome Ramel from Exane BNP Paribas. Please go ahead.

Jerome Ramel - Exane BNP Paribas

Two questions. First of all, what is going to be the CapEx for '08? I think I missed it.

Peter Bauer

The CapEx for '08 was between EUR400m and EUR500m.

Jerome Ramel - Exane BNP Paribas

And, I know you don't give any EBIT margin details, but, just to understand, excluding the security chip business: is there any significant reason why your Industrial business has lower margins than your European peers?

Peter Bauer

Could you repeat the question again?

Jerome Ramel - Exane BNP Paribas

Yes. If I look at AIM, and I exclude the security and ASICs division, I'm just trying to understand: why your EBIT margin is lower than your European peers in this particular division? Because your peers are, something like, anywhere between, 15% and 20% of your margins; just looking at the industrial business. So I was just wondering: why you are not at this level yet?

Peter Bauer

Well, you can never compare apples with apples here because everybody has a different mix in his business groups. If you look at the power business on our side, I feel very much on par with our European peers, if not even better, but the mixes then really of the businesses and of the respective products is what drives the margin. That would be my answer now.

Jerome Ramel - Exane BNP Paribas

Okay. But could we assume that your mix will change or will improve and thus eventually you can have a kind of EBIT margin like your peers or it will stay like it is today?

Peter Bauer

Yes of course, we are constantly optimizing our portfolio, as you saw in the past with some activities like the sale of POF, Plastic Optical Fiber, and some others to come. And also going into the future we have some growth business on the sensor side, which we've financed throughout sometime and now, definitely, over-time we'll get some return. So, we are in a constant process of optimizing the portfolio, as well as manufacturing landscape. I'm repeating myself, however we have a bit of an adverse effect right now from the dollar as our European peers have as well.

Jerome Ramel - Exane BNP Paribas

Okay. And maybe just a final question for the automotive business. It seems that the Japanese are very aggressive in the micro-controller field. What's your view there? Because I've got a feeling that, in terms of pricing, they are very, very aggressive.

Peter Bauer

The Japanese?

Jerome Ramel - Exane BNP Paribas

Yes.

Peter Bauer

Well this can't be confirmed, because they have the benefit from the exchange rate right now, as the yen is very weak. So, definitely, they show up very aggressively with some lower end. But, on the higher end side, where actually Infineon is, which is a 32-bit, the power drain, we feel very strong still.

Jerome Ramel - Exane BNP Paribas

Okay. And is it fair to assume that every single sub-division of the automotive is profitable?

Peter Bauer

Every single what, sorry?

Jerome Ramel - Exane BNP Paribas

Sub-division of the automotive.

Peter Bauer

We don't comment, but if you look at the overall margin that must be the case probably.

Jerome Ramel - Exane BNP Paribas

Okay, thank you.

Operator

Next question will come from Jonathan Crossfield from Merrill Lynch. Please go ahead.

Jonathan Crossfield - Merrill Lynch

Yes good morning. First question would be on revenue progression in COM. Given you have your various new customers ramping up through the course of next year: do you think that will mitigate against the normal seasonal decline in the March quarter and then we'll see a stronger ramp after that?

Hermann Eul

Of course, we will see a seasonality in the March quarter. We expect that platform ramp continues, however, the impact from the seasonality I expect to be much stronger than the increase.

Jonathan Crossfield - Merrill Lynch

Okay. And then --

Hermann Eul

This is for the March quarter, we expect. And the underlying trend of ramping the platforms will continue over all the quarters in the next year.

Jonathan Crossfield - Merrill Lynch

Okay. And then, just a follow-up in COM: A couple of your competitors have now announced for the single chip 3G solutions in the last month. Is that something that Infineon is also working towards? Or: do you think that 3G solutions will stay multi-chip for the time being?

Hermann Eul

You may have noticed that without making big announcements we were the first having a single chip in the market and already have a second generation of that device now shipping. We had the first single chip for EDGE available, so, I think: you can trust that we have the capabilities for doing the single chips right in the point in time. But, I think: you should rely on execution rather than on announcements.

Jonathan Crossfield - Merrill Lynch

Great! And just finally, and -- I know, you've probably talked about this a lot, but there still seems to be this niggling worry in the market about Infineon maybe funding Qimonda in the future? Could you just confirm, once and for all, that you won't inject any more capital into Qimonda?

Wolfgang Ziebart

Peter Fischl will answer that.

Peter Fischl

I think Qimonda has presented in their results, just a few days ago, a very convincing and strong cash position of net cash of EUR700 million. And, when you look at the financial structure of Qimonda, realizing that they have only EUR300m of debt positioned in their balance sheet, I think, even if it would be required, they have a lot of flexibility, but looking at the net cash, and taking into account that they will have inflow of course from the operating cash flow, I think, there is absolutely no danger that something like that would happen.

Jonathan Crossfield - Merrill Lynch

Excellent! Thank you very much.

Operator

We'll now take our next question from Adrian Bommelaer from Credit Suisse. Please go ahead.

Adrian Bommelaer - Credit Suisse

Hi, good morning. Could you give us a little bit more color on how the single chip solution with Nokia and EMP will be ramping up in 2008? At this point have you received any specific orders or are you still waiting for them? You've seen the design wins, but that's it?

Wolfgang Ziebart

It's stated publicly, we won the design with Nokia for the single chip solution. We see the customer working, very diligently, to commercialize this product. Of course, you know that we do not comment on detailed customer schedules, but, from that what we see, I would think that a summer market introduction is within reach, based on how the progress looks at the moment.

Adrian Bommelaer - Credit Suisse

Okay, thank you.

Operator

Our next question will come from Stephane Houri from Natixis Securities. Please go ahead.

Stephane Houri - Natixis Securities

Yes good morning. I actually have got two questions. The first one is just the position on you EBIT margin target for 2009. You mean: that you'll reach 10% on average on the full year? Or: do you mean that you will reach it at some point, for instance, Q3, Q2 or whatever? And the second question is about the smart card market: Yesterday, at the Card Fair in Paris, smart card manufacturers said that the chip card market in 2008 will be driven by: “identity and security government programs”. Do you share this view? And: can you give us just an update on which program you are involved?

Wolfgang Ziebart

Yes. Stephane first the '09 target is not to be reached in a limited amount of time or I would say, to make a joke, within a day. So '09, the target is for the full year '09.

Stephane Houri - Natixis Securities

Okay.

Wolfgang Ziebart

For the second question I hand over to Peter Bauer.

Peter Bauer

I think I could give you a very long answer here. It's not a very simple question to be honest. Yes, growth and value in the chip card market definitely is driven by the government ID business, not so much by the low end ID business, but certainly by the security ID business, but that was already the case during this year and will continue to be the case next year. Infineon has had a very, very steep success progress here in this market as we are, as is publicly known, shipping the ASICs for the U.S. passport, which is currently the biggest program in the world market for government ID. And we are also present in all the major programs today, whether it's Germany, all the Scandinavian countries, Italy, Spain. So on a worldwide basis very well deployed with our contactless ASICs. Having said this, and what I heard, I was yesterday at Card listening to the customers. They also do see an upswing of the SIM card market in the future and the higher value end as mobile payment will come and will drive another wave of value in the SIM market. That might not be for the total SIM worldwide, but it will be a possibility to get some value into this commoditized market. And as Infineon is also playing there and bringing out new platforms and a higher end SIM, we think we can participate in this as well. Would that be a sufficient enough answer?

Stephane Houri - Natixis Securities

Yes, yes, yes. Thank you very much.

Peter Bauer

Okay.

Operator

We have a follow-up question from Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande - JPMorgan

Yeah hi, I actually had a follow-up question on your chip card business. Did you say that you had double-digit margins in your chip card business in the just ended quarter? And, I mean: historically you have talked about this business being close to breakeven, so, I mean: do you expect this business to be in positive EBIT territory in 2008?

Peter Bauer

I did not say that it was: “double-digit”, to be clear. In fact, I said: “it was profitable”. We are only talking about the sector and give indication sector includes chip card and ADS. But I said: “it's profitable” and I also can confirm that it will be profitable in 2008, yes.

Sandeep Deshpande - JPMorgan

Is this profitability because of a change in mix? Or: is that the SIM card business itself is likely to showing better profitability at this point?

Peter Bauer

Well, it's a change we did in our mix, in our portfolio mix towards the higher end products and towards the -- just I mentioned Government ID and payment and products. And we did some very strong measures on the manufacturing and in R&D side to basically make the whole business more profitable. We then had the effect on the more commoditized business on SIM as well.

Wolfgang Ziebart

Yes, we have strongly reduced costs in this areas, for instance we closed down our facility here close to Laingsburg, and also streamlined R&D. So both areas contributed: a change in mix plus strong restructuring measures.

Sandeep Deshpande - JPMorgan

So does this change in the profitability of chip cards change what you think longer term margins in the AIM business can be?

Peter Bauer

Well, as I said, there are a lot of effects not only the chip cards, and ultimately our goal certainly mid-term is to get all the business units in the double-digit margins. And I think that's also a very feasible option, but I wouldn't like to comment further on this.

Sandeep Deshpande - JPMorgan

Thanks. And one quick question for Professor Eul. China, I mean: are you seeing any interaction with Chinese customers? And: do you think you are gaining any share with your E-GOLD single chip solution within China or even with your EDGE solutions?

Hermann Eul

Definitely, we see quite a lot of track. You may know that CTE is shipping millions of our fuelled product. Also Bird is shipping into China as well as into the international market with our products and we have North of 10 Chinese customers all queuing up to take our solution for their production. So, we have a very, very good track record in the mean time. And we see also already some headwind coming from competition seeing losing ground.

Sandeep Deshpande - JPMorgan

Sorry can you repeat?

Hermann Eul

I said we also see some significant headwind coming from competition because they see that they lose ground in China against us.

Sandeep Deshpande - JPMorgan

Okay. So you are seeing incremental market share gains within China?

Hermann Eul

Yes.

Sandeep Deshpande - JPMorgan

Okay. Thank you.

Operator

We now take our next question from Nicolas Gaudois from UBS. Please go ahead.

Nicolas Gaudois - UBS

Yeah, hi there! Just actually a follow-up question on that point on China first of all. We heard Media Tech recently guiding reasonably cautiously into the December quarter and referring to power amplifier shortages as a reason: why they have been somewhat held back in their growth pattern. I mean: are you suggesting you're actually benefiting from that with customers and taking shares in that manner?

Hermann Eul

Actually I'm not so sure whether I really understood your question precisely. Could you please repeat?

Nicolas Gaudois - UBS

Well, effectively what Media Tech said, when they reported, is that in the December quarter they were seeing the negative impact: of them seeing shortages of power amplifiers in the Chinese business for cell phones. And I was wondering: if that was one of the reasons why you potentially are getting incremental circuits that Chinese OEMs obviously to continue ramping?

Hermann Eul

I would say: the visibility of the power amplifier shortage out of China is obvious. Yes, this is obviously happening. We do not see any slowdown in our sales into China due to that fact. So, we sell as well as we can and we do not see ourselves impacted by this currently. The design wins we had in China were, much earlier, already on track and are not as recent as the power amplifier shortage in this quarter.

Nicolas Gaudois - UBS

Okay, understood. And just a very quick follow-up: In your guidance for Automotive Industrial down seasonally in the December quarter, I mean: are you seeing anything there which is beyond seasonality? Obviously, I'm referring to any potential impact of US GDP slowdown and how it features for you business?

Peter Bauer

Seasonality, well, not really. This year could be the exception of the currency exchange rate, no. We have the seasonality in the computing consumer segment of every where ship our power products. I mentioned the chip card effect and ADS also see some seasonality, because the HDD business goes down shortly before Christmas as well. I wouldn't say it's abnormal, no.

Nicolas Gaudois - UBS

Okay. Thank you.

Ulrich Pelzer

Operator I think we'll take our final question please, and then we'll have to call it quits. Thank you.

Operator

Our last question will come from Gunther Hollfelder from UniCredit. Please go ahead.

Gunther Hollfelder - UniCredit

Hello. I just had one question, first regarding the joint venture in the high-power bipolar business with Siemens. In your press release today you mentioned that there is a deconsolidation of this business going forward. So sales are excluded going forward, but you will still have our earnings part in your EBIT at AIMs, is this correct?

Peter Bauer

That is correct. Sales will be deconsolidated so we will not show it and the EBIT is consolidated at equity.

Gunther Hollfelder - UniCredit

Okay. So, but the 60% stake is still correct, what you were aiming for at the beginning in this joint venture?

Peter Bauer

Yes.

Gunther Hollfelder - UniCredit

Okay. And second question, just a short brief follow-up for the Nokia single chip business. So are you still expecting the revenues in the March quarter or is this more now like in the June quarter, first revenues here?

Wolfgang Ziebart

So, actually if I would answer that precisely I would reveal customer planning on product ramps to the market. This is what I definitely cannot do. What I can tell you is, what we think from the progress of the project what would be feasible. And feasible in terms of project progress would be somehow ramp in summer time.

Gunther Hollfelder - UniCredit

Okay. Maybe a last question, I don't know whether you would like to comment on this one. But is it still possible to have a breakeven EBIT result at the communication 2008? Is this your target or?

Wolfgang Ziebart

Certainly!

Gunther Hollfelder - UniCredit

Including, I mean EBIT, also given the amortization you will have?

Wolfgang Ziebart

Yes, certainly! That is what we are planning for and that's what we are aiming for, despite you know that we have significant adverse effect from the currency, but this does not withhold us from aiming towards this target.

Gunther Hollfelder - UniCredit

Okay that's great. Thank you very much.

Ulrich Pelzer

Great! Thanks everyone for your interest and taking the time for asking so many questions. I do realize that some questions did remain unanswered. Please feel free to contact the IR team here in Munich over the course of the day. And I look forward to speaking to all of you again in February when we have the next quarter's results. Thanks everyone. Bye bye.

Operator

That does conclude today's conference call. Thank you everyone for joining us. You may now disconnect.

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