Chips and Infineon

We have reviewed a number of chip companies including deep-dives and valuation analysis on Broadcom (BRCM), Qualcomm (QCOM), Interdigital (IDCC), and Texas Instruments (TXN). We have not yet done Infineon (IFX), STMicroelectronics NV (STM), or Marvell (MRVL). We will, in due course, but for the moment, we will take a quick look at Infineon’s Quarterly results and signals.

On February 7, Infineon Technologies AG (NYSE: IFX) reported its financial results for Q1 fiscal 2008. Earlier coverage on its iPhone design win is available here and here.

Net sales (excluding Qimonda) were €1.09 billion, down 3% q-o-q and up 14% y-o-y. EBIT (excluding Qimonda) was €65 million, up from negative of €9 million last year. This EBIT includes €28 million gained from the sale of 40% of its stake in the high-power bipolar business to Siemens in November, and the €17 million write-off related to the acquisition of LSI’s mobility business (in October).

On March 10, LSI announced its plans to buy Infineon’s hard disk drive semiconductor business. Infineon is also looking to decrease its stake in its subsidiary Qimonda to less than 50% by early 2009. However, with DRAM prices declining, it could be hard to find a buyer for its loss-making spin-off that led to the group’s net sales decline 13% q-o-q and 25% y-o-y and net sales increase 41%, sequentially.

Segment-wise, net sales in the Automotive, Industrial & Multimarket [AIM] segment were €743 million, up 5% y-o-y and down 9% q-o-q. The sequential decline was primarily because of the sale of the high-power bipolar business.

In the Communication Solutions segment, net sales were €356 million, up 51% y-o-y and 12% q-o-q driven mainly by the LSI Logic Corp. (LSI) acquisition, and mobile phone platform sales. It got design wins from LG for its single-chip EDGE XMMTM2060 and EDGE XMMTM2080 platforms. It will start shipping these platforms as well as X-GOLD 208 90 nanometer base band to LG in the first half of fiscal 2008. It expects to start shipping its GSM, GPRS single-chip to Nokia (NOK) in the summer.

Together with Atheros Communications (ATHR), a developer of Wi-Fi solutions, Infineon has recently unveiled a low-cost, dual-mode GSM/Wi-Fi mobile platform for low-cost mobile phones. Infineon also has a new XMM 2130 EDGE single-chip telephone that integrates EDGE functionality and ARM 11 core as well as MP3, FM radio, and a 2 MP camera.

In the Communication Solutions segment, for Q2 fiscal 2008, Infineon expects revenues to decline by a mid-teens percentage year-on-year primarily due to wireless seasonality and lower than expected volumes in certain mobile phone platform projects. However, it expects to return to growth in Q3 of fiscal 2008. For the full year, it expects y-o-y revenue growth of 25 to 30%.

AIM segment revenues in Q2, on the other hand, are expected to be on the same level as Q1. Fiscal year 2008 revenues are expected to decline slightly over 2007. Its stock is trading around $7, and its market cap is around $5 billion. It hit a 52-week low of $6.26 on March 20.

Infineon has a lot of cleaning up to do, but between iPhone, LG and Nokia, it has some very interesting design wins in the high growth convergence device market which is starting to position the company well for the future. This is certainly a stock worth watching.

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