Infineon Technologies F4Q07 (Qtr End 9/30/07) Earnings Call Transcript

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

Executives

Ulrich Pelzer - Corporate VP IR

Wolfgang Ziebart - ChairmanPresident and CEO

Peter Fischl - CFO

Peter Bauer - EVP and Chief Salesand Marketing Officer

Hermann Eul - Deputy ManagementBoard Member

Reinhard Ploss - Management BoardMember

Analysts

Nicolas Gaudois - UBS

Janardan Menon - DresdnerKleinwort

Sandeep Deshpande - JPMorgan

Simon Schafer - Goldman Sachs

Francois Meunier - Cazenove

Didier Scemama - ABN Amro

Jerome Ramel - Exane BNP Paribas

Jonathan Crossfield - MerrillLynch

Adrian Bommelaer - Credit Suisse

Stephane Houri - NatixisSecurities

Gunther Hollfelder - UniCredit

Operator

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

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

We caution you that thisstatement and other statements are not historical facts subject to factors anduncertainties, any of which are outside Infineon's control, that could causeactual result to differ materially from those described in the forward-lookingstatements.

Investors are cautioned that Infineon'sactual results could differ materially from the results anticipated orprojected in any of these forward-looking statements. You should not put unduereliance on them.

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

At this time I would like to turnthe 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 fullyear 2007 conference call. We have published the release with our results forthe last quarter and our outlook for the current quarter, some two and a halfhours ago. Hopefully, you were able to have a look. It is available fordownload off of our website just in case you don't have it handy.

Here today for this call, asusual, 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 someintroductory remarks, which Dr. Ziebart is going to go through in a minute. Andthen we're happy to take your questions and answer them. With that, over toyou.

Wolfgang Ziebart

Yeah, Ulrich, thank you verymuch. Good morning ladies and gentlemen. Welcome to all of you to ourconference call for the results of the fourth quarter and '07 fiscal year. Letme first make some general comments on our performance and our longer-termoutlook.

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

Well, overall, we have made goodprogress in the Infineon core business last year. Firstly, we were able tomaintain revenues for Infineon excluding Qimonda in fiscal year '07, almostflat versus fiscal 2006 at EUR4.07 billion. This was achieved despite a salesdecline of approximately EUR150 million resulting from the weakening of theU.S. dollar against the Euro, and despite sales loss of approximately EUR250million resulting from the insolvency of our main basement customer at the veryend of fiscal year '06.

Secondly, we have made progresson the EBIT for Infineon excluding Qimonda as well. Coming from an EBIT loss ofEUR207 million in fiscal year '06, we narrowed this to a negative EUR49 millionin fiscal '07. Included in the fiscal '07 EBIT, were net charges of EUR120million of which EUR84 million related to the book losses from the Qimondaplacement in September '07. EBIT in the '06 fiscal year included net charges ofEUR199 million. Excluding these charges, EBIT was positive EUR79 million infiscal '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 alsoapparent in the development of sales and EBIT in the individual quarters of thefiscal year '07. We started the year with revenues of EUR959 million and EBITexcluding charges of negative EUR8 million in the first quarter. We thenimproved steadily on both metrics throughout the year and booked sales of EUR1.13billion with EBIT excluding charges of positive EUR69 million in the fourthquarter.

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

We are now looking towardsreaching breakeven EBIT excluding charges for COM and wireless in the currentquarter. Going forward, we want to continue on this track. The very drasticfall of the U.S. dollar against the Euro with its negative EBIT impact isoutside our control and we have to deal with it.

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

Now let me come to the lastquarter's results and our outlook for the next quarter or, actually, thecurrent quarter, I must say. In the fourth quarter '07 fiscal year, EBIT forInfineon excluding Qimonda was negative EUR25 million versus positive EUR13million in the prior quarter. EBIT included net charges of EUR94 million, ofwhich, approximately, EUR84 million related to the sale of Qimonda sharecompared to net charges of only EUR3 million in the previous quarter.

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

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

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

We were able to fix capacityconstraints in our high power business and so continued growth and demandstrength there. In the low power business, we saw seasonally strong demandacross consumer computing and telecom applications.

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

Overall, EBIT for our chip cardbusiness was clearly positive. This business also booked positive EBIT for thefull '07 fiscal year.

In our Communication Solutionssegment, revenues rose to EUR318 million from EUR259 million last quarter.Following the sales trend, segment EBIT improved significantly to negative EUR16million versus negative EUR34 million in the previous quarter. Within thosefigures, the DSL CPE activities that we acquired from Texas Instruments hadadded a high-teens million euros sales amount. Excluding those activities, theresults in our wired communication business increased slightly compared to theprevious quarter.

Results in our wireless businessimproved again, quarter-over-quarter, as we continued to execute on the turn aroundhere. As planned, we saw a strong increase in sales and the business remainson-track to achieve its breakeven EBIT target in the fourth calendar quarter. Basebandshipments were up more than 50%, quarter-on-quarter, with both our single-chipdevices for the GSM/GPRS markets, as well as our EDGE platforms making solidcontributions.

In the fourth quarter, weexpanded our customer base in the RF transceiver business with a developmentcontract 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 segmentsand Corporate and Eliminations combined in the fourth quarter was negative EUR107million. EBIT in Corporate and Eliminations included net charges of EUR93million of which approximately EUR84 million related to the placement ofQimonda shares in the month of September.

Now, let me turn to the outlookfor the first quarter of the '08 fiscal year. For Infineon excluding Qimondaand including the wireless phone business acquired recently from LSI, we expectsales to be about flat compared to the previous quarter.

EBIT excluding charges forInfineon and excluding Qimonda is anticipated to decline when compared to thelast quarter's level. Nonetheless, we expect that it will remain very clearlyin positive territory and will improve considerably versus a year ago.

We expect to book a lowdouble-digit million-euro gain from the sale of the stake in the high powerbipolar activities in our AIM segment antitrust approval for this transactionis still pending.

In our COM segment, we expect totake a low double-digit million Euro charge for the write-down of in-processR&D in connection with the initial consolidation of the former LSI mobileproduct 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, wewill no longer consolidate the associated revenues in the current quarterresulting in a low single-digit percentage revenue decline.

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

Thirdly, we expect that theweakening U.S. dollar relative to the euro will also lead to a low single digitsales decline. And finally, we expect a small impact from annual price reductionsin our auto business.

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

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

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

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

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

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

When thinking beyond the currentquarter, we would like to stress that we estimate EBIT for the activitiesacquired from LSI to be about breakeven. But that this EBIT figure is expectedto include amortization of acquisition related intangible assets of around EUR10million per quarter.

In our wireless business, wecontinue to execute on our shipment ramp to mobile platform customers. We againanticipate shipments of our single chip devices and our EDGE platform to be upnicely compared to the September quarter. Results in our access activitiesshould increase in the current quarter relative to the fourth quarter of fiscal'07, driven mainly by the full quarter's contribution from the DSL CPEactivities acquired from Texas Instruments.

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

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

Well, ladies and gentlemen, thisconcludes my introductory remarks and I open up the call now for yourquestions.

Question-and-Answer Session

Ulrich Pelzer

Operator, could you please callfor the questions.

Operator

(Operator Instructions). We willtake 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 nextquarter, EBIT being broadly flat Q-over-Q, you are talking about EBIT value orEBIT margin, firstly?

Wolfgang Ziebart

Let me hand this question over toMr. Peter Bauer.

Peter Bauer

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

Nicolas Gaudois - UBS

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

Wolfgang Ziebart

Hermann Eul will answer thatquestion.

Hermann Eul

Thank you for the question. So,we expect LSI revenue to come in with two of a three quarter portion after theclosing and this should be in the mid-range of the teens of revenue and thisadditional business gives us quite a good strong foothold in the customer, herewe 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 wantto give precise numbers on this as this is still a forward-looking figure, butI 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 fromJanardan Menon from Dresdner Kleinwort. Please go ahead.

Janardan Menon - Dresdner Kleinwort

Yes, I have two questions. Oneis, Dr. Ziebart you said that your EBIT will rise significantly in the currentfiscal year, and that it will be on course to meeting a target of 10% EBITmargin 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 thesetargets, both in terms of a significant rise in EBIT in the current year, aswell as, a 10% margin in 2009, if you continue to face an adverse currencyenvironment as you are today?

Wolfgang Ziebart

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

Janardan Menon - Dresdner Kleinwort

So: would you regard the currentEUR1.46 or so on the dollar as an extreme development or this is a manageabledevelopment?

Wolfgang Ziebart

I think this is already beyondthe 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 willbe 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 maindrivers of your revenue after the weak state of affairs at the end of lastyear. If you look into 2008: where do you see the maximum revenue upside comingfrom? Is it from a continuing development of these customers as well asexisting customers like Bird and Panasonic? Or: is it from some of the newcustomers, which will start making a meaningful contribution in the currentyear like Samsung, Nokia, as well as, the new RF transceiver customers, EMP andMotorola?

Hermann Eul

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

Janardan Menon - Dresdner Kleinwort

And, given your excellent trackrecord of getting new design wins on wireless in the last 12 months, 15 monthsor 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 inthe near term and its digestion time?

Hermann Eul

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

Wolfgang Ziebart

I think we can clearly point outthat we have now booked all- all big five mobile phone makers, which reallymake up about 80% to 85% of the market. We have booked them as our customersand the major challenge now will be to expand within those customers ratherthan gaining new customers.

Janardan Menon - Dresdner Kleinwort

Okay. Thank you very much.

Operator

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

Sandeep Deshpande - JPMorgan

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

Wolfgang Ziebart

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

Hermann Eul

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

Sandeep Deshpande - JPMorgan

Do you have any significantdesign 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 wasrelated to currency effect in manufacturing, and direction in terms of advancedlogic going to foundries and regarding front-end manufacturing we have themajority of our fabs in the euro region. And so that is both, addressing Regensburgand Villach. And growth takesplace, however, in our fab in Malaysia.And, so that is fact, so we are lowering the effect of the euro in our valuecreation ratio, where is that fab in front-end back-end anyway has always beenin Asia. So the traction towards foundries of coursecontinues, all the new designs with 65-nanometer and below are done infoundries or to be more precise currently in Chartered. So this trend is goingto continue, so we are well on track here.

Sandeep Deshpande - JPMorgan

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

Hermann Eul

The quick answer would be a yes.Yes, of course, we will continue selling the LSI parts to the customer. This isof utmost importance for the customer to have an uninterrupted and smoothtransition towards its production and also towards his future while on theother 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 questionfrom Simon Schafer from Goldman Sachs. Please go ahead.

Simon Schafer - Goldman Sachs

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

Wolfgang Ziebart

Peter?

Peter Bauer

Well, first of all as youperfectly know we don't disclose the numbers below the business group level. Sorough 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 sidedue to two effects. Number one, the SIM card business had a good peak upwardsas well as the government ID business where we really made some enormousprogress and also had very high orders and delivered also against a very highorder especially from overseas. So therefore we are in the vicinity of that butnot sustainable yet.

Simon Schafer - Goldman Sachs

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

Wolfgang Ziebart

That business used to beprofitable for many quarters already now. And currently, we faced little bit ofa 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 questionwould be a bigger picture question. I believe Infineon becomes unlocked againin what you could conceivably do with your Qimonda stake as of next week. Asyou look into 2008 or more specifically the first half of 2008: how are youlooking at opportunities in order to reduce that stake further? Just some moreclarity as to: what your latest thinking there is? it would be very helpful.Thanks.

Wolfgang Ziebart

I hand this question over toPeter Fischl.

Peter Fischl

Hi, Simon. I mean you know thegoals which we have publicly stated that in Spring 2009 we will go into aminority. We have applied or we will apply, I should say more precisely, at theAGM also to be able to get the approval then to distribute shares as oneoption. As you know, we have successfully made a transaction in September in avery difficult environment, but, of course, I will not get more precise goingforward 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 fromFrancois Meunier from Cazenove. Please go ahead.

Francois Meunier - Cazenove

Morning. Thanks for taking myquestion. Two questions about your EBIT guidance. If we look at AIM, shall weexpect the margin, the EBIT margins to be down in the December quarterexcluding the two one-offs?

Wolfgang Ziebart

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

Francois Meunier - Cazenove

Okay. So still close to 10%?

Peter Bauer

Let me explain this more indetail. We have here two effects. We have a declining top line, due toseasonality especially in the industrial business. And also, as I justmentioned, we can't keep up with the high quarter and chip card had lastquarter. And then we have an adverse currency effect, which is pretty severe onthe AIM side, as well as the deconsolidation of, the assumed deconsolidation ofour bipolar joint venture. So, all those effects show up on the top line, aswell as, in the bottom line, therefore, value and margin from an EBITperspective. 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 sothat 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 thisas a normal process as the Q4 in AIM typically is that kind.

Francois Meunier - Cazenove

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

Peter Bauer

We have sent that, we want to bewell on the way and we haven't been more precise yet and we don't intend to bemore 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 questionfrom 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 COMsEBIT in the December quarter. You're guiding breakeven before charges. I wasjust wondering: if you could give us an idea of sort of a clean EBITDAcontribution in December '07 quarter actually?

Hermann Eul

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

Wolfgang Ziebart

So when we communicated thetarget of breaking even in the wireless business in the current quarter, bothof those acquisitions were not on the horizon, and so of course we have toexclude those.

Didier Scemama - ABN Amro

So does that mean: you areprofitable 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 EUR10million, or EUR10 million to EUR20 million, in fact, if I take into accountalso TI EBITDA.

Hermann Eul

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

Didier Scemama - ABN Amro

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

Hermann Eul

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

Didier Scemama - ABN Amro

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

Hermann Eul

It was formerly guided that weexpect this to be in the EUR10 million ballpark for the LSI acquisition. Andthe guiding number for the TI acquisition I think, Ulrich Pelzer has alreadygiven before.

Didier Scemama - ABN Amro

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

Hermann Eul

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

Didier Scemama - ABN Amro

Perfect. Now if I may, a quickfollow-up. If you look at AIM beyond basically, the December '07 quarter withthe ramp of clean and also obviously taking into account the negative headwindsfrom 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 makesuch a judgment for the whole year. Definitely it very much depends on thecurrency and on the exchange rates and I wouldn't really want to say more atthis point in time.

Didier Scemama - ABN Amro

Okay, I understand. And maybe forProfessor Eul to square off, obviously you have made strong progress as youmentioned, you know the top five handsets OEMs of customers, now for bothbaseband or either baseband or RF or both. I gave the key question and now it'sgoing to be on the 3G baseband or 3G platform fronts where so far we haven'tseen much apart from Panasonic. You've said you've got design wins, but: do youthink the 3G-baseband or 3G-platform business could be substantial in fiscalyear '08 or is it more further in the fiscal year '09 timeframe?

Hermann Eul

You will see significantshipments in 2008 on the HSDPA platform.

Didier Scemama - ABN Amro

Okay. Thanks very much.

Operator

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

Jerome Ramel - Exane BNP Paribas

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

Peter Bauer

The CapEx for '08 was between EUR400mand EUR500m.

Jerome Ramel - Exane BNP Paribas

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

Peter Bauer

Could you repeat the questionagain?

Jerome Ramel - Exane BNP Paribas

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

Peter Bauer

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

Jerome Ramel - Exane BNP Paribas

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

Peter Bauer

Yes of course, we are constantlyoptimizing our portfolio, as you saw in the past with some activities like thesale of POF, Plastic Optical Fiber, and some others to come. And also goinginto the future we have some growth business on the sensor side, which we'vefinanced throughout sometime and now, definitely, over-time we'll get somereturn. So, we are in a constant process of optimizing the portfolio, as well asmanufacturing landscape. I'm repeating myself, however we have a bit of anadverse effect right now from the dollar as our European peers have as well.

Jerome Ramel - Exane BNP Paribas

Okay. And maybe just a finalquestion for the automotive business. It seems that the Japanese are veryaggressive in the micro-controller field. What's your view there? Because I'vegot 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 isvery 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, thepower drain, we feel very strong still.

Jerome Ramel - Exane BNP Paribas

Okay. And is it fair to assumethat 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 lookat the overall margin that must be the case probably.

Jerome Ramel - Exane BNP Paribas

Okay, thank you.

Operator

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

Jonathan Crossfield - Merrill Lynch

Yes good morning. First questionwould be on revenue progression in COM. Given you have your various newcustomers ramping up through the course of next year: do you think that willmitigate against the normal seasonal decline in the March quarter and thenwe'll see a stronger ramp after that?

Hermann Eul

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

Jonathan Crossfield - Merrill Lynch

Okay. And then --

Hermann Eul

This is for the March quarter, weexpect. And the underlying trend of ramping the platforms will continue overall the quarters in the next year.

Jonathan Crossfield - Merrill Lynch

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

Hermann Eul

You may have noticed that withoutmaking big announcements we were the first having a single chip in the marketand already have a second generation of that device now shipping. We had the firstsingle chip for EDGE available, so, I think: you can trust that we have thecapabilities for doing the single chips right in the point in time. But, Ithink: you should rely on execution rather than on announcements.

Jonathan Crossfield - Merrill Lynch

Great! And just finally, and -- Iknow, you've probably talked about this a lot, but there still seems to be thisniggling 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 morecapital into Qimonda?

Wolfgang Ziebart

Peter Fischl will answer that.

Peter Fischl

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

Jonathan Crossfield - Merrill Lynch

Excellent! Thank you very much.

Operator

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

Adrian Bommelaer - Credit Suisse

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

Wolfgang Ziebart

It's stated publicly, we won thedesign with Nokia for the single chip solution. We see the customer working,very diligently, to commercialize this product. Of course, you know that we donot comment on detailed customer schedules, but, from that what we see, I wouldthink that a summer market introduction is within reach, based on how theprogress looks at the moment.

Adrian Bommelaer - Credit Suisse

Okay, thank you.

Operator

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

Stephane Houri - Natixis Securities

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

Wolfgang Ziebart

Yes. Stephane first the '09target is not to be reached in a limited amount of time or I would say, to makea 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 handover to Peter Bauer.

Peter Bauer

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

Stephane Houri - Natixis Securities

Yes, yes, yes. Thank you verymuch.

Peter Bauer

Okay.

Operator

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

Sandeep Deshpande - JPMorgan

Yeah hi, I actually had afollow-up question on your chip card business. Did you say that you haddouble-digit margins in your chip card business in the just ended quarter? And,I mean: historically you have talked about this business being close tobreakeven, so, I mean: do you expect this business to be in positive EBITterritory 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 thesector and give indication sector includes chip card and ADS. But I said: “it'sprofitable” and I also can confirm that it will be profitable in 2008, yes.

Sandeep Deshpande - JPMorgan

Is this profitability because ofa change in mix? Or: is that the SIM card business itself is likely to showingbetter profitability at this point?

Peter Bauer

Well, it's a change we did in ourmix, in our portfolio mix towards the higher end products and towards the -- justI mentioned Government ID and payment and products. And we did some very strongmeasures on the manufacturing and in R&D side to basically make the wholebusiness more profitable. We then had the effect on the more commoditizedbusiness on SIM as well.

Wolfgang Ziebart

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

Sandeep Deshpande - JPMorgan

So does this change in theprofitability of chip cards change what you think longer term margins in theAIM business can be?

Peter Bauer

Well, as I said, there are a lotof effects not only the chip cards, and ultimately our goal certainly mid-termis to get all the business units in the double-digit margins. And I thinkthat's also a very feasible option, but I wouldn't like to comment further onthis.

Sandeep Deshpande - JPMorgan

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

Hermann Eul

Definitely, we see quite a lot oftrack. You may know that CTE is shipping millions of our fuelled product. AlsoBird is shipping into Chinaas well as into the international market with our products and we have North of10 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 alsoalready some headwind coming from competition seeing losing ground.

Sandeep Deshpande - JPMorgan

Sorry can you repeat?

Hermann Eul

I said we also see somesignificant headwind coming from competition because they see that they loseground in Chinaagainst us.

Sandeep Deshpande - JPMorgan

Okay. So you are seeingincremental market share gains within China?

Hermann Eul

Yes.

Sandeep Deshpande - JPMorgan

Okay. Thank you.

Operator

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

Nicolas Gaudois - UBS

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

Hermann Eul

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

Nicolas Gaudois - UBS

Well, effectively what Media Techsaid, when they reported, is that in the December quarter they were seeing thenegative impact: of them seeing shortages of power amplifiers in the Chinesebusiness for cell phones. And I was wondering: if that was one of the reasonswhy you potentially are getting incremental circuits that Chinese OEMsobviously to continue ramping?

Hermann Eul

I would say: the visibility ofthe power amplifier shortage out of Chinais obvious. Yes, this is obviously happening. We do not see any slowdown in oursales into Chinadue to that fact. So, we sell as well as we can and we do not see ourselvesimpacted by this currently. The design wins we had in Chinawere, much earlier, already on track and are not as recent as the poweramplifier shortage in this quarter.

Nicolas Gaudois - UBS

Okay, understood. And just a veryquick follow-up: In your guidance for Automotive Industrial down seasonally inthe December quarter, I mean: are you seeing anything there which is beyondseasonality? Obviously, I'm referring to any potential impact of US GDP slowdownand how it features for you business?

Peter Bauer

Seasonality, well, not really. Thisyear could be the exception of the currency exchange rate, no. We have theseasonality in the computing consumer segment of every where ship our powerproducts. 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'tsay it's abnormal, no.

Nicolas Gaudois - UBS

Okay. Thank you.

Ulrich Pelzer

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

Operator

Our last question will come fromGunther 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 withSiemens. In your press release today you mentioned that there is adeconsolidation of this business going forward. So sales are excluded goingforward, but you will still have our earnings part in your EBIT at AIMs, isthis correct?

Peter Bauer

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

Gunther Hollfelder - UniCredit

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

Peter Bauer

Yes.

Gunther Hollfelder - UniCredit

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

Wolfgang Ziebart

So, actually if I would answerthat 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 fromthe progress of the project what would be feasible. And feasible in terms ofproject progress would be somehow ramp in summer time.

Gunther Hollfelder - UniCredit

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

Wolfgang Ziebart

Certainly!

Gunther Hollfelder - UniCredit

Including, I mean EBIT, alsogiven the amortization you will have?

Wolfgang Ziebart

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

Gunther Hollfelder - UniCredit

Okay that's great. Thank you verymuch.

Ulrich Pelzer

Great! Thanks everyone for yourinterest and taking the time for asking so many questions. I do realize thatsome questions did remain unanswered. Please feel free to contact the IR teamhere in Munich over the course ofthe day. And I look forward to speaking to all of you again in February when wehave the next quarter's results. Thanks everyone. Bye bye.

Operator

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

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