Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Executives

Ulrich Pelzer - Corporate VP, IR

Dr. Wolfgang Ziebart - Member of the Management Board, President and CEO

Prof. Dr. Hermann Eul - Member of the Management Board, EVP Head of Communication Solutions Business Group

Peter Bauer - Member of the Management Board, EVP Head of Automotive, Industrial and Multimarket Business Group

Peter J. Fischl - Member of the Management Board, EVP and CFO

Analysts

François Meunier - Cazenove

Nicolas Gaudois - UBS

Janardan Menon - Dresdner Kleinwort

Simon Schafer - Goldman Sachs

Sandeep Deshpande - JP Morgan

Adrien Bommelaer - Crédit Suisse

Andrew Gardiner - Lehman Brothers

Jonathan Crossfield - Merrill Lynch

Jérôme Ramel - Exane BNP Paribas

Didier Scemama - ABN Amro

Infineon Technologies AG (IFX) Q1 FY08 Earnings Call February 7, 2008 4:00 AM ET

Operator

The Infineon Technologies Fiscal First Quarter 2008 Conference Call for Analyst and Investor. This 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 up on the current expectation or beliefs as well as a number of assumptions about future events. We caution you, as these statements and other statements that are not historical facts are subject to the factors and uncertainties, many of which are outside the Infineon control that could cause actual results to differ materially from those described in the forward-looking statements. Listeners are cautioned that Infineon's actual results could differ materially from the result anticipated or projected in any of these forward-looking statements and that should not be under reliance of them. For a detailed discussion of important factor that could cause actual results to differ materially from those statements made on this conference call, please refer to the Infineon's most recent annual reports on the Form-20F available on our websites, and on the Securities and Exchange Commission under heading forward-looking statements on page III [ph] and the risk factor beginning on page 42.

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

Ulrich Pelzer - Corporate Vice President, Investor Relations

Yes, thank you very much. Welcome to all listeners to our fiscal Q1, 2008 conference call. We have published our results for the last quarter and our outlook for the current quarter and the 2008 fiscal year this morning along with a press release on two new products in our wireless group. I trust that everyone had a chance to look at these things; if not, they are available on our website. As per usual, we have present on this call today the entire Infineon management Board, Dr. Wolfgang Ziebart, our CEO; Mr. Peter Fischl, our CFO; Peter Bauer, responsible for AIM; Hermann Eul, responsible for COM, and Reinhard Ploss, responsible for Operations. And as for usual, we are going to through some introductory remarks by Dr. Ziebart before taking Q&A. With that, over to your, sir.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

Yes; thank you, Uli. Good morning ladies and gentlemen, welcome to our fiscal Q1 results conference call. As usual, I would like to comment on our performance and our outlook before my colleagues and I will be happy to answer your questions. Let me begin with some remarks on the performance of Infineon excluding Qimonda during the first quarter of the 2008 fiscal year. We have begun to make progress versus the same period last year, and have reached the goals that we set for our wireless business five quarters ago.

EBIT for Infineon, excluding Qimonda, came in at positive 65 million euros for the first quarter of the 08 fiscal year, up nicely from the EBIT of negative of 9 million euros a year ago. Included in this EBIT are a gain of 28 million euros from the sale of part of our interest in the high-power bipolar business and charges of 17 million euros largely for the write-off of in-process R&D as a result of the acquisition of LSI's mobile products business.

In addition to those net gains and charges, EBIT included to the amortization of acquisition related intangible assets of 9 million from the two businesses we acquired from TI and LSI. Net gains and charges included in the EBIT for the same period of the prior year were negligible. For additional detail on the amount and nature of the charges included in our EBIT, please see the additional table that we have included in our results released beginning this quarter. Revenues for Infineon excluding Qimonda came in at 1.09 billion euros. This presents a 14% growth versus revenues of 958 million reported for the same quarter a year ago. Within this close figure, we have digested a significant weakening of the U.S. dollar against the euro from 1.29 in the first quarter of 07 to 1.45 in the first quarter of 08 fiscal year.

In addition, we have added more revenue through acquisitions then we lost through divestitures. Adjusting for currency as well as effects of acquisitions and divestitures, our revenue goals was 15% year-on-year, illustrating our organic goals. You can find data on our like-for-like cause on a constant currency basis also in the results released we published to-date.

Now let me turn to our segments beginning with AIM. Reported AIM revenue for the fiscal first quarter 08 came in at 743 million, down 9% quarter-over-quarter and up 5% year-over-year. Adjusting for the effects of divestitures and the weakening of the U.S. dollar against the euro, our year-over-year growth rate was 13% while seasonality led to 4% quarter-on-quarter decline.

Segment EBIT for AIM was 93 million. Included in this quarter segment EBIT was a again from the sale of part of our interest in the high-power bipolar business of 28 million while EBIT for the same quarter last year included no net gains and charges. Results in our automotive business rose year-over-year, but declined versus last quarter. The sequential decline was due to seasonality, continued weakening in demand for the U.S. car OEMs and annual price reductions.

Results in our industrial business were up slightly from the same quarter last year, but down versus last quarter. sales declined due to seasonality, the deconsolidation of the high-power bipolar business, and due to currency weakness. Seasonal declines affected both low and high voltage MOSFETs for consumer electronics, communications and computing applications. By contrast demand for high power components for electrical infrastructure traction and industrial drives remained strong.

Results in our security and ASIC businesses were stronger than expected, and they were up year-over-year and remained almost flat relative to the previous quarter. As you may recall, we thought SIM card and passport demand would normalize after an exceptional strong September 07, this normalization now has not materialized impacting our performance positively. Income revenue for the first quarter of the 08 fiscal year came in at 356 million euros lower than we expected going in to the quarter.

This weakness was caused on one hand by some further weakening of the U.S. dollar against the euro. On the other hand, we have seen unexpected weakness in our excess business, which we originally expected to remain flat. Combined those two effects cross us approximately 20 million to 25 million of revenue. Excluding the effect of currency fluctuations and acquisitions, revenue growth was 31% year-over-year and 1% quarter-on-quarter. Segment EBIT income was negative $11 million included in this segment EBIT figure is a charge for the write-off of imposes R&D related to the acquisition of the LSI's as mobile put ups business of $14 million.

In addition, the reported segment EBIT for the first quarter of 08 fiscal year includes expenses for the amortization of acquisition related intangible assets of $9 million relating to the businesses acquired from TI and LSI. As mentioned before, results in our excess business to deteriorated quarter-on-quarter due to weak demand in DSL central office, wireless infrastructure, and to a lesser extent, DSL CPE. By contrast, revenues in our wireless business improved considerably versus last quarter driven both by organic growth and our mobile platform...in our mobile platform business and by the consolidation of the business acquired from LSI.

When we look at our mobile platform business, excluding LSI, we are pleased to report solid progress. Our overall basement unit shipments increased by more than 20% versus last quarter. Shipments of our second generation GSM, GPRS single-chip solution, the XMM 1010 that we formerly called ULC2, so the e-Gold voice [ph] rose much faster than that. In total, we have now shipped about 50 million single-chip phones in less than two years.

As a results of the shipment performance, the wireless business reached its anticipated earning goals before the 14 million in-process R&D write-off I mentioned earlier. This is worth noting that our Communication Solutions segment achieved this only five quarters after the bankruptcy of its largest customer. It is also worth noting that the U.S. dollar to euro exchange rate was in the mid $1.20s when we set the goal and now that we reached the goal we find the exchange rate in the mid $1.40s.

Incorporate and eliminations in other operating segments combined segment EBIT was minus 17 million included in this segment EBIT figure our charges of 3 million for various small restructuring measures in our manufacturing facilities.

Now, let me turn to the outlook. While we are pleased with the last quarter, in light of the difficult environment, we have seen somewhat mixed trends towards the quarter and into the current quarter. Let me begin with COM. Demand for our access products is now showing signs of stabilization, but at a level that is quite a bit lower than we anticipated last quarter.

In wireless, we are seeing normal seasonal declines, and we continue to execute on customer projects. Nonetheless, some of these projects today are turning out to be somewhat lower volume than expected. In combination with normal seasonality, this translates into an expected mid-teens percentage of revenue decline for COM in the gone quarter. In light of this revenue decline, we expect segment EBIT for COM to come in at around negative 30 million. This segment EBIT estimate includes amortization of acquired intangible assets of 6 million.

Now, let me turn to the AIM outlook. A mixed trends overall, we expect second quarter revenue to be about flat quarter-over-quarter whereas the segment EBIT margin of 8% to 9%. In our Automotive business, we see continued weakness in demand from U.S. auto OEMs and annual price breaks for some of our auto customers, but expect to more than offset those negatives by seasonality driven improvements.

In total, we expect results to increase quarter-over-quarter. Our industrial business by contrast should decline quarter-over-quarter largely due to seasonality. Within that order trends, high and low voltage MOSFETs clearly show seasonal weakness and perhaps even some weakness beyond seasonality. Demand and order intake for high-power products for applications in power generation, power transmission, and industrial drives has moderated somewhat, but remains at a high level.

Results in our security and ASIC business should not change much. Within that, our chip card business continues to show strengths. Nonetheless, we note once again that the passport business is project driven and can therefore be lumpy and that we managed the SIM card business for margin with high volumes as long as pricing and margins are good. In other operating segments and corporate and elimination, combined we expect segment EBIT of negative 10 million to 15 million before any net gains or charges. For Infineon excluding Qimonda, we anticipate a revenue decline of about 5% quarter-over-quarter and a positive low single digit EBIT margin before net gains or charges in the second quarter of the 08 fiscal year.

Now let me make a couple of remarks on our outlook for the full fiscal year 08. We have now adjusted our assumption for the U.S. dollar to euro exchange rate used in our forecast to 1.45. In addition, we have closed hedging transactions that locked in this exchange rate throughout the entire 08 fiscal year. As such, we have greatly reduced earnings risks coming from the fluctuations in the U.S. dollar to euro exchange rate for the remainder of this fiscal year.

For our business group COM, I already touched upon the lower than expected sales levels in excess and in some mobile phone platform projects in our current quarter. Beyond the current quarter, we expect a return to growth in our mobile platform business and at least a stabilization in excess, but on a lower lever than originally planned. As such, we now expect our segment communications solutions to post fiscal year 08 revenue growth of 25 to 30% year-over-year with a low to mid single-digit negative EBIT margin before net gains or charges. Included in this expected negative EBIT will be an amortization of acquired intangible assets of about 25 million. Despite this focused reduction, we remain optimistic regarding the prospectus of our COM business into the next fiscal year based on our customer and product pipeline.

I can announce today that we will begin shipments of our X-GOLD 208 90 nanometer base band formally called the s-Gold 3 to LG in the first half of 2008. In addition, we will begin shipments of our single-chip EDGE platform XMM 2060 into LG and also in the first half of 08. We are also looking forward to ramp...to the ramp of our HSDPA chipset in the coming months and we expect to start shipments of our GSM, GPRS single-chip to Nokia in the summer.

I would also like to take the opportunity to highlight our new XMM 2130 EDGE single-chip telephone. Looking silicon of this 65 nanometer product is available now. The chip integrates EDGE functionality and ARM 11 core as well as MP3, FM radio and 2 mega pixel camera support on one piece of silicon. Customer feed back is very good, and we anticipate moving in to volume in 2009. We are looking forward to sharing more news with you next week at the upcoming Mobile World Congress in Barcelona.

Our outlook AIM for the 08 fiscal remains unchanged. We still expect revenue and EBIT excluding gains or charges to decline slightly relative to the 07 fiscal year. Within this impact, we are digesting a high double digit million euro revenue impact from our...deconsolidation of our high-power bipolar business and the triple digit million euro sales decline resulting from the dollar to euro development. We currently expect revenues for Infineon excluding Qimonda to increase by a high single digit percentage year-on-year.

EBIT margin for Infineon excluding Qimonda and before any net gains or charges should there fore be a low-to-mid single digits percentage in the current fiscal year. To summarize, we expect reasonably steady performance for our automotive investment in multi market segment and significant improvements for the communication solution segment in the 2008 fiscal year. We continue to target 10% EBIT margin for the 09 fiscal year despite uncertain perspectives for the global economy, despite the address currency development and the revised outlook, but are aware of those events will make reaching this goal more challenging.

Before turning to Q&A, let me now make some final remarks on Qimonda. Our strategy has not changed. We are looking to arrive in a minority position around the time of the 2009 AGM. And we have no intention to fund Qimonda.

Ladies and gentleman, this brings me to the end of my introductory remarks. My colleagues and I will be happy to answer your questions.

Question And Answer

Operator

Thank you sir. Question-and-answer session will be conducted electronically. [Operator Instructions]. Our first question comes from Frank Meunier with Cazenove. Please go ahead.

François Meunier - Cazenove

Hello, good morning. Thank you for taking my question. I don't really understand the guidance on COM. I mean I think before you were saying that margins would be midway between the margins you achieved in 2007 maybe around 9% to 10% in 09, so something around 5%. Also on the top-line, I don't understand why revenues should be down in the March quarter while LG, which is one of your biggest customers is guiding for a volume increase.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

May I pass this question to Hermann Eul?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Yes, thank you very much. The first part I understood that you asking for 2009 forecast. We didn't say anything about that.

François Meunier - Cazenove

2008, because before, you were saying maybe 8% to 10% income, people were I think on average implying 5% margins in 08. So why would it be negative? I don't understand the calculation there.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

We don't actually, not recall that we have given that guidance, so I cannot comment on this really.

Ulrich Pelzer - Corporate Vice President, Investor Relations

What we put in the outlook section of the 20-F is that for COM and fiscal 08 despite currency headwind, we are hoping to achieve positive EBIT; that was the guidance.

François Meunier - Cazenove

So what's the difference between positive EBIT, negative now?

Ulrich Pelzer - Corporate Vice President, Investor Relations

So that is what we guided on now, so we are seeing of course the currency headwind currently, and also with this seasonality now in the second quarter situation is bit weaker. Also as already stated on the broadband access business, we are facing now a lower market situation than we expected before. That was a hit, which we already now took into December quarter. And our expectations of rebound in this business currently is fairly low. So we are more cautious here and expect that this business continues to be more flattish. So, that is the implication. And what the wireless is concerned after this seasonal weak quarter of March, we expect to coming back to growth rates in the June quarter and onwards. So here we do see more positive outlook.

François Meunier - Cazenove

But exactly why I don't understand, because normally with LG shipping, I mean as more volume in the multi quarter and assuming will be customer, so what's weakest into their guidance for wireless?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

So, we do have in wireless several customers and we see in the guidance of all the customers some weakness for this quarter. I can not comment on the guidance from a customer of us, but what our order entry is concerned, we do see a stronger weakness than the typical seasonal behavior that this situation as it is today. And I hope that your guidance, you've got from somebody else comes true.

François Meunier - Cazenove

Okay. Thank you very much.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Thank you.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

Yeah, let me point out and add that we posted a loss in the communication segment in the 07 fiscal year of how much 160 million. So I think there is a remarkable improvement anyway in this segment.

Operator

The next question come from Nicolas Gaudois with UBS.

Nicolas Gaudois - UBS

Hi. Just before kicking off, clarification on what you said, you said about HSDPA volumes will ramp in H-108, is that correct?

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

Yes.

Nicolas Gaudois - UBS

Okay. Now, just to stay on the wider side and on the guidance for fiscal Q2; let me ask a question differently. Can we reconcile expected to meet versus initial expectations in the market with A, one or two customers basically requiring less volumes when expected, and B, access being at lower base or is there anything else that we should think about?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Yes, so you hit the point so access will remain on the lower base according to our expectation. And on the wireless side, we expect some lower order income while on the other hand of you...in order to anticipate the next question we haven't lost any significant socket or something like that what you perhaps are driving out. So this is volume and not qualitatively oriented in cost.

Nicolas Gaudois - UBS

Okay. That's what I meant, but does this...let me just stay on that a little bit. Would you say that it is your platforms of the platforms you are in at one or two customers doing less relevant platforms, you will note in or do you think it is more reflection of overall volumes that these customers.

Ulrich Pelzer - Corporate Vice President, Investor Relations

The second part of the questions what would pull me into giving statements on our customers business, this is what I would not like to do. We see the lower than expected volumes on the existing platforms and we are at this quarter also not ramping new platforms and this altogether is this weakness, which we see in this quarter.

Nicolas Gaudois - UBS

Okay, thank you. And just a quick one on AIM. I mean effectively your guidance implies that the trend is probably a little bit better about to what our consensus was initially a few months ago on the margin side. Should we think of it as the result of mix, so MOFSETs lower, high power effectively more resilience and these driving up a little bit margins versus the base because of mix?

Peter Bauer - Member of the Management Board, Executive Vice President Head of Automotive, Industrial and Multimarket Business Group

Well, Nicolas, we haven't actually guided up there as compared to the past. We are sailing steadily along and will be seeing the market is that the discrete side high-power, low-power is a little bit softer while the high power side is still strong and still on good demands, so that's why we said we are going to be flattish on the one hand, on the revenue side as well as operational EBIT. That's the guidance. There are some compensation also from lower consumer oriented and commodity oriented power business with a strong chip guard and security business. So that kind of keeps the balance and that's the background of the guidance.

Nicolas Gaudois - UBS

Okay. Thanks, Peter.

Operator

We will now move to Janardan Menon with Dresdner. Please go ahead.

Janardan Menon - Dresdner Kleinwort

Yes, hi, good morning. Couple of questions; one is was your broadband profitable in fiscal Q1?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Going around the zero line.

Janardan Menon - Dresdner Kleinwort

Okay, I was just wondering because compared to sort of where you are guiding and where we were expecting revenues in fiscal Q1, you have come at about a 30 million shortfall on revenues. And you seem to be suggesting that most of that is on the DSL, on the broad band business, and yet your margins have actually improved and you made a small positive margin when you are guiding at break even. So can you just reconcile how that happened, how you got such a big shortfall on revenue an yet your margin actually came in slightly better than expected?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Yes. As explained, the short fall is to some extent because of the headwind of the dollar-euro exchange rate, and to the other extent in the majority coming from the excess business in broadband. We say slowing down in particular infrastructure business and to a smaller extent also little bit in the CPE business. That is as it is; on the other hand, we had a favorable product mix. And so finally, we could fulfill our guidance towards being operative and positive.

Janardan Menon - Dresdner Kleinwort

Okay. So you did not see any weakness at all on the mobile phone side in Q1?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Even we increased shipments significantly on the mobile phone side and coming from two effects one of our traditional business and adding on top of this the consolidated business that we acquired from LSI, and so with the two increases we saw a significant increase in the wireless business.

Janardan Menon - Dresdner Kleinwort

Okay. But, if going back now the comments that we got from management after your Q4 results, the suggestion was that your comps division will grow at about 40 to 50% this year, and now you are saying 25% to 30%, so that's a short fall of close to 200 million euros for the full year on comps. It seems hard believe that that is only because of some slowdown in one or two customers in terms of their ramp at this point in time. Is there anything more significant there that we should be reading into, especially when you are saying ramping HSDPA and getting more design wins at LG et cetera.

Ulrich Pelzer - Corporate Vice President, Investor Relations

So it's already explained. We do of course see the currency effect, then we have to excess the situation, where we stay conservative about any kind of rebound or to looking on to the statements of customers companies and their guidance how the infrastructure market shall develop over the year. I think we should stay must conservative here. And this in connection with the second quarter, where we see this weakness. I think the overall fiscal year number is quite consistent to that what is explained.

Janardan Menon - Dresdner Kleinwort

So would you say that of that say 200 million euros, the majority is on the infrastructure, DSL, broadband kind of side?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Partly, and not to the full extend. But in general on the wireless side, we stay more ambitious on the ramp-up. So however we do not see any ramp-up in this quarter. So the ramp-ups will only be in the third and the fourth quarter, and now also note in the clarification on the precise numbers.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Yeah, I think if you take the midpoint of the guidance, we are giving now versus what we the midpoint we said last time. It's about 150 million euro of sales deviation, not 200.

Janardan Menon - Dresdner Kleinwort

Okay.And the last point is just on the DSL; would that be...would you expect in your guidance of over negative margin on comps? Would you expect significant negative figure on the broadband business for the current fiscal year?

Ulrich Pelzer - Corporate Vice President, Investor Relations

Actually, not.

Janardan Menon - Dresdner Kleinwort

Actually not. All right, thanks.

Operator

Now I will take a question from Simon Schafer with Goldman Sachs. Please go ahead.

Simon Schafer - Goldman Sachs

Yes, thank you so much. I wanted to ask question on Qimonda. And I understand that you would like to distance yourself from that business, but given the ownership structure and the overlap of the Board still perhaps can express the view that. I was wondering what your sense is on the plan convertible launch respect to timing and size of that offering. Thank you.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

I hand this over to Peter Fischl.

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

Hi, Simon. The reason why we did this or why Qimonda did that is because this window opened up just these days. Keep in mind that the share price of Qimonda in the last 10 to 14 days has increased substantially. And you should understand it as a precautionary measure looking to the medium term. This does by no means imply that the statement the company has made regarding their financial position is not holding water. As you know, they had 750 as of end of December gross cash. Qimonda has introduced a large number of measures and activities in terms of cash containment and I am not worried about the liquidity. But nevertheless seeing a positive signs in the market, but not being able to put our hands around in a firm way when the DRAM market is really coming back strongly, we think it is prudent to take a step like this.

Simon Schafer - Goldman Sachs

Understood, thank you. And my second question would be on the Automotive business. BMW yesterday announcing a very significant restructuring plan that I think also entails some significant cost cuts for those components suppliers. I know that that it doesn't impact you directly, but obviously by your own customer base. So I was wondering how much of a price decline you are baking in with BMW only being one of them, but in the wider sense, European OEM customer base in the car industry.

Peter Bauer - Member of the Management Board, Executive Vice President Head of Automotive, Industrial and Multimarket Business Group

Well, Simon, I think you understand that I can't disclose any precise price declines we have in the automotive, so qualitatively we did see already and increase pressure beginning last year and that's continuing. So the automotive industry as a whole has tried to get higher price declines year-over-year as this was the fact years ago. You also see in our guidance that this is being reflected already in the guidance. We have two effects a strong price decline and secondly the weakness in the U.S. market, which you see in our automotive guidance. But still we have grown from last year to...from previous year to last year. If you take the euro-dollar exchange rate to side more than 10% and we are also posting another growth this year. But what you say here is factored in our guidance.

Simon Schafer - Goldman Sachs

Got it,thanks so much. And my last question would be I understand that you've obviously lowered expectations for 2008, but there seems to be very little in times of your expectation for 2009. I think on paper, you haven't adjusted your expectations there, but what is the type of growth that really you expect, you to get back to you target margin levels for 2009.

Peter Bauer - Member of the Management Board, Executive Vice President Head of Automotive, Industrial and Multimarket Business Group

Well, if you take again the exchange rate aside double-digit growth and secondly also double-digit EBIT on the long run, that's being said before and we are still standing for that on the long range.

Simon Schafer - Goldman Sachs

But given the significant shortfall that you seem to be expressing for this fiscal year, what incremental upside you expect to bridge that difference?

Peter Bauer - Member of the Management Board, Executive Vice President Head of Automotive, Industrial and Multimarket Business Group

Well, I wouldn't say significant shortfall; we never gave a clear year guidance for this year. So, we set this now slightly down as compared to last year and we have some extraordinary effects in there. You are not talking about the AIM level, just really, Simon, you are talking about the Infineon level, correct?

Simon Schafer - Goldman Sachs

Yes, broadly, at the corporate level.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

Well, for 09, we never indicated any cost expectation. We only indicated that we target for the 10% EBIT margin. So what we see is that since we said that the...especially the dollar developed extremely unfavorable, and we made that announcement at a dollar exchange rate of whatever 125 and now is in 145. So you can easily calculate the loss posing revenue, but more than that in EBIT. So this target has got strong headwind. Thanks so much.

Operator

We will now take a question from Sandeep Deshpande with JP Morgan.

Sandeep Deshpande - JP Morgan

Hi, good morning. Couple of questions; firstly on your...back again to your wireless business, can we understand I mean in terms of the guidance into the current quarter, it seems to imply that there have been some push outs from some customers. Could you possibly let us know what exposure you have in your wireless revenue to the Chinese Tier 2 handset vendors?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

We do have a certain exposure into China as well. We are selling the single chips into China. However, the majority of that what we sell into China is also then again exported out of China, at least to our belief. We do not know all the tendency in China precisely. We would expect that exposure to the Chinese market is, let's say, is there, but limited.

Sandeep Deshpande - JP Morgan

Are you seeing a major inventory correction from those Chinese customers of yours like some of your other competitors are seeing in the Chinese market?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

We do also see slowdowns in revenues from the Chinese market, yes. I cannot compare this to other competitors, decent...in a decent manner.

Sandeep Deshpande - JP Morgan

Would you characterize that your decline in wireless in the current quarter is largely China, is largely China related or there are other major customers also in the mix, which is causing this to happen?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

It is going across the board, it is not China driven. Only the majority is outside China. We see currently a weaker than expected demand and as I already said before, in this quarter we do not ramp new platform, and so we expect for the first quarter then coming back to the gross rates again and also driven by a ramping of new platforms, which are not in production yet. And as we announced, we expect the high end EDGE platform to ramp. We expect also the single-chip EDGE platform to ramp as well as we expect HSDPA platform to ramp. This is all not happening this quarter and this all it's to the outlook for this quarter that we have given in a more conservative and cautious way.

Sandeep Deshpande - JP Morgan

And would you choose to give, Professor Eul, a point at which you would go back to breakeven on an EBIT level in the COM business, which quarter?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Actually, we did not give any guidance to this; we do...we did give guidance for the that complete fiscal year numbers, and now we give also guidance for the first quarter numbers, but that is as we wouldn't to stay for the time being.

Sandeep Deshpande - JP Morgan

Okay. And one last question on the automotive industrial business. I mean when you look at normal seasonality in the automotive industrial business, I mean you have not seen this quarter-on-quarter decline in to the second quarter. I mean I know that -- is this an impact of some inventory correction or disposal or is it some other issue, which is happening at this point.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Well we have very broad business in AIM. The discreet power business in low voltage and high voltage, which is going in to consumer communication, computing applications always shows strong seasonality into the second quarter of our fiscal, so the march quarter. And that's the same case this year and Chinese new year and the effects around that always impacting us that's why we are seeing at the moment softer demand and the stronger price pressure in Asia. So that's not unusual. While the automotive business and the chip card business, you are right, are relatively unaffected by this seasonality that relates really to the more discreet oriented business.

Sandeep Deshpande - JP Morgan

Thank you.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

You are welcome.

Operator

The following question comes from Adrien Bommelaer with Crédit Suisse. Please go ahead.

Adrien Bommelaer - Crédit Suisse

I was hoping...if you could give us your thoughts on the LSI integration; are you still happy with that, and is that still maintaining its market share with Samsung.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Actually I did not turn...catch the question right. Sorry for this.

Adrien Bommelaer - Crédit Suisse

Yes, just wondering if you could give us a quick update on the LSI...the integration of the LSI acquisition and how that was still performing with Samsung.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Okay. So on the execution side of the integration, we are making good progress. On the revenue expectation, what you are asking for we gave a guidance last quarter, while we expect that revenues to be that came in, in this ballpark; however at let's say at the more lower end of this ballpark, but it stayed in the expectation.

Adrien Bommelaer - Crédit Suisse

Okay. Thank you very much.

Operator

We will now move to Andrew Garner with Lehman Brothers. Please go ahead.

Andrew Gardiner - Lehman Brothers

Good morning. Thanks for taking the question. Just another one on the comp side and perhaps following up on the LSI question as well; is there any incremental weakness being factored into your second quarter guidance as a result of that particular portion of the business or is it all the legacy Infineon business?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

It is across the board, so there is no difference between the acquired product and the products, which we are before already. So we see this flattening and weakness in the second quarter across the board of all the products.

Andrew Gardiner - Lehman Brothers

Okay. and then just a question in terms of the balance sheet as well. You slipped into a net debt position for the first time in quite a while in the most recent quarter. And clearly that's largely influenced by the outflow around the LSI payment, but I was just wondering how you are...how Infineon thinking about that going forward now that you are back in a net debt position even though your liquidity maybe still pretty reasonable?

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

Yeah, as you indicated, I mean the major drivers of course the payment, the cash outflow for the LSI acquisition, which was around 320 million euros and on top of it it's a negative free cash flow of Qimonda. Looking at each company, I commented on Qimonda already. On the Infineon side without Qmonda, we have a net debt position for quite a while. But the gross cash position is around 1 billion, so very solid. We don't anticipate any issues going forward, we have a very good structure and when we turn into a net cash position for Infineon ex-Qmonda is of course depending on the progress in our core business and we have given you our guidance in that respect.

Andrew Gardiner - Lehman Brothers

Thank You.

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

You are welcome.

Operator

We will now move to Jonathan Crossfield with Merrill Lynch. Please go ahead.

Jonathan Crossfield - Merrill Lynch

Yes, thanks for taking the question. First question would be just back to COM. Obviously last quarter you saw some slippage in when you expect the Nokia design wins to ramp up. Have you seen any slippage on the ramps through fiscal 08 to other customers, because clearly your guidance into the second half is the weakness you are seeing in COM in the short-term is going to persist?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

So commenting on the Nokia question, the project is going on and what we can see from these project progress we have already given guidance when we believe the project can ramp into the market in the summer timeframe; that is what our guidance here would be; what we can do from the project focus. We also expected a few auto guidance in the first calendar year quarter, they do not happen. So for that reason, we said that the high end EDGE as well as single-chip EDGE ramp as well as the HSDP ramp will happen in the first half of this year.

Jonathan Crossfield - Merrill Lynch

And can you confirm whether those delays or anything to do with Infineon Technology or is that your customers decision to push out when they want those handsets to ramp up.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

The insight into customer ramp up plans is always somehow little bit limited. And also customers changing their plans making up for future sets and having different strategies. And usually they don't give us so deep inside. So here we have to just follow a customer's recommendation and customer plans.

Jonathan Crossfield - Merrill Lynch

Okay. And then just as a follow-up. Clearly, you've had good success on the 3G and EDGE design wins over the last year or so. Can you just say if you are making any further progress on this 3G and HSDPA beyond what you've talked about before?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

You will see that we will be announcing also next generation platform for HSDPA, HSUPA for the first half of this year. And as already mentioned the ramp up of the HSDPA platform we expect to happen in the first half of this calendar year. So I think this is good prediction and this will certainly be one...more than one customer ramping the HSDPA platform.

Jonathan Crossfield - Merrill Lynch

Okay.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

I think so this is a good confirmation of our stand in 3G, the UMTS platform that we already shipping now for one and half year is also continuously shipping in Japan, success there is also quite nice. This delivers us a lot of stability in our capabilities of our 3G technology. So we believe that the HSDPA generation then will be quite stable as the UMTS that we currently ship.

Jonathan Crossfield - Merrill Lynch

That's great, thanks very much.

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

Perhaps as there are...have been many questions on COM and the outlook for the current quarter; let me really summarize what we have...what Hermann has stated. So we don't see a general weakening of the market. There are no sockets, which we have lost and there is also no technology issue or something else or delays being caused from our side in technology. It's just the fact that there is very little new stuff coming up and in the second quarter from our side. There is also the seasonal decline we know the dollar to euro, and this all then leads to the outlook we have given in Q2. And this will change in Q3 and Q4 as indicated as we will have a lot of new products ramping.

Operator

We will now move to Jérôme Ramelwith Exane BNP Paribas.

Jérôme Ramel - Exane BNP Paribas

Yes, good morning, just one question on we talked a lot about volumes in the wireless, just one question on pricing. I was just wondering if you have seen a kind of abnormal pricing pressure and specially for your single-chips as from now it's coming from Asia that your single-chip could be below $4. I remember last year in Barcelona, you talk about something like $5, below my guess [ph]. So could you explain this?

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

In this market, of course, that is a highly volume driven market. There is always pricing pressure, and we do not see extra ordinary pricing pressure beyond that what's this market always sees and what numbers is concerned the precise numbers usually do not comment us in these calls, that is customer secret. And this, of course we do not comment.

Jérôme Ramel - Exane BNP Paribas

Thank you.

Operator

[Operator Instructions]. We will now move Frank Meunier with Cazenove.

François Meunier - Cazenove

Hello, yes. Sorry to ask a question again about Qimonda, but I mean clearly they will have to raise more cash in the coming, into coming quarter. So you do confirm again that you will not held them to raise, this cash flows on our balance sheet.

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

Yes, we have stated this several times and this stays the way we stated it.

François Meunier - Cazenove

And let's assume something comes wrong with Qimonda in the coming quarter although in the coming 18 months. They are asking many employees with Qimonda in Germany. I think that's around...between 5,000 and 6,000. There is no implication for Infineon if Qimonda goes chapter 11?

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

I mean, first of all I like to reiterate that the financial situation of Qimonda is anything, but worrisome. They have stable condition, a stable situation, we are trying to secure this year with the precautionary measure of the convertible. Of course nobody knows what's happening in 18 months, but knowing this market and being in this business for long time, it is highly unlikely that this situation will continue for other 18 months, and as you see from the market, there are many encouraging signs, which go into the right direction and to right now over Chinese New Year, there are the few guys even shutting down their production for two weeks or so. That has a lot of 200 millimeter capacity being taken out of the market in the next quarters. Some people are shifting capacity to NAND coming from DRAM, which is also on the price pressure, but relatively better than DRAM and the CapEx budgets across the board have been contained substantially. So I don't like to elaborate on the scenario of 18 months going into the future. I think what we have under control the next immediate quarters and there we feel comfortable.

François Meunier - Cazenove

Okay, thank you for your reassuring comments.

Peter J. Fischl - Member of the Management Board, Executive Vice President and Chief Financial Officer

Please.

Operator

Now, I will take a question from Didier Scemama from ABN Amro. Please go ahead.

Didier Scemama - ABN Amro

Good morning gentleman. It was tough to get in, but managed to get in eventually. Let me go back to where this just to understand one thing. Would it be fair to say that the DSL [ph] business that you both underperforms as a result of the disruption of the sale of the business, which provided an XP [ph] with market share again in GPRS, EDGE, number one? And number two, is there any impact or you should it be like -- could your market share loss at Samsung and 2G be explained partially also by market share gains in HSDPA at the same customer? In other words, Samsung basically rebalancing the custom to suppliers between them and I have a follow-up.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

Thank you for that question. However, I do not want to dive in to more details and already given upon this LSI business and also what HSDPA speculation on that customize concerned. I am not in the position that I can confirm anything officially. We just have to wait for the ramps, which we expect to happen in the first half of this year, so within the next months and stay a little bit patient about that. Sorry for not being able to go beyond that.

Didier Scemama - ABN Amro

Right. And just on Nokia, now that you are designing handsets for them, and hopefully we are ramping the summer; do you have any idea at this point as your market share at Nokia for low cost handsets versus low cost stores in Nokia, and you get it about 20% of their low influence were now as low cost. So, I was wondering if you had a view maybe over the next 12 to 18 months from the point of ramp up of your market share at Nokia.

Prof. Dr. Hermann Eul - Member of the Management Board, Executive Vice President Head of Communication Solutions Business Group

This is very interesting question, but also this question I have to disappoint you a little bit. First of all this is far looking future; second is, our customers do not really share this information about their product planning with us. And so this would be too much of a speculation, how much of this share then will go to us and go to the Nokia own develop platform. We think that our platform is in a good shape, otherwise the customer wouldn't have selected it and what I can confirm is that the project mix focus so that we are confident that we can meet the time schedule, which we have given.

Didier Scemama - ABN Amro

Okay.

Ulrich Pelzer - Corporate Vice President, Investor Relations

We have time for one more question.

Operator

We will now take a question from Richard Gordon [ph] with UBS. Please go ahead.

Unidentified Analyst

Hello, sir. Could you please give us the CapEx figures for 2008? your guidance for 2008 as well as the Q4 and full year 2007 figures?

Dr. Wolfgang Ziebart - Member of the Management Board, President and Chief Executive Officer

The guidance for CapEx we have indicated between 400 and 500 million. And we now think that we will be on the lower end of those...of that range.

Unidentified Analyst

Okay. Thank you.

Ulrich Pelzer - Corporate Vice President, Investor Relations

And I think we are going to have to call it quits here. We are starting to run past the scheduled time. Thank you everyone for your interest. Thank you for dialing in. Thanks for the questions. If anything has remained open or we were not able to answer all questions here on this call, please be in touch with the Investor Relations team in Munich. And look forward to speaking to you again after the next quarter. Thanks a lot everyone. Bye, bye.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: In Fineon Technologies AG F1Q08 (Qtr. End 12/31/07) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts