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Q4 Results : Infineon Chip Card Improved 29%!
Infineon Technologies announced results for its fiscal year 2002, ended September 30, with revenues of US$5.14 Billion, a decrease of 8% from the previous fiscal year. The revenue decrease resulted from the overall sluggish semiconductor market with substantial pricing pressure in all business groups, especially Memory Products.
However, Infineon’s Automotive & Industrial segment had its best quarterly and annual revenue performance ever. A 16% sales increase in memory products year-on-year was achieved with higher production volumes as a consequence of productivity and capacity increases as well as higher bit demand. These achievements were offset by a revenue decline in the communications and chipcard segments mainly due to the dramatic reduced capital spending of global telecommunication carriers, weak demand and strong overall pricing pressure.
Dr Ulrich Schumacher, President & CEO of Infineon Technologies said, “Despite the unexpectedly long continuation of adverse market conditions, we improved revenues in all logic segments sequentially quarter by quarter during fiscal year 2002 and achieved profitability on an operating level in three business groups in the fourth quarter.“
Annual EBIT (earnings before interest and taxes) was a loss of US$1.12 Billion, compared to a loss of US$1.01 Billion in the previous year mainly due to the ongoing price pressure in the industry and to decreased demand in the communications and chipcard ICs segments, especially during the first half of the year.
Net loss amounted to US$1.01 Billion compared to a net loss of US$582.5 Million in the previous year. The net loss includes a non-cash charge of US$271 Million to establish a deferred tax valuation allowance. The valuation allowance is determined in accordance with US GAAP, whereby factors such as recent losses are given substantially more weight than forecast future profitability. Basic and diluted loss per share for fiscal year 2002 was US$1.45, down from a loss per share of US$0.91 in 2001.
Expenditures for Research and Development in fiscal year 2002 totaled US$1.04 Billion, or 20% of sales, reduced from US$1.17 Billion in the prior fiscal year. This includes acquired in-process research and development charges of US$36.5 Million in 2002 and US$68 Million in 2001. “We continued to invest heavily in R&D and in advanced manufacturing technology in order to maintain our innovative capabilities and our position as a technology leader,” said Dr Ulrich.
SG&A expenses totaled US$633.8 Million or 12% of total revenues, compared to US$774.8 Million or 14% of total revenues in the prior year. The decrease of SG&A expenses is mainly due to successful implementation of Infineon’s ‘Impact’ cost reduction programme.
Infineon’s strategic investments in advanced logic capacities and in the successful transition to more productive 300mm manufacturing have helped the company to significantly improve its cost position. In addition, Infineon’s new manufacturing alliances will enable the company to further increase its manufacturing capacities while reducing the required level of capital expenditures through strategic partnerships.
In fiscal 2002, Infineon’s free cash flow, the amount of net cash provided by operating activities reduced by net cash used in investing activities and excluding the effect of marketable securities, significantly improved to -US$355 Million from -US$1.96 Billion in fiscal year 2001. This was mainly due to a major reduction of capital expenditures to US$633.8 Million, down from US$2.25 Billion in fiscal year 2001. The net cash provided by operating activities improved to US$233.7 Million from US$208 Million in the previous fiscal year.
Infineon’s gross cash position, representing cash and cash equivalents, marketable securities and restricted cash, amounted to US$1.97 Billion, up from US$922.6 Million at the end of fiscal year 2001.
“The successful implementation of our cost cutting program ‘Impact’ resulted in more than US$1.97 Billion cash savings since June 2001. Consequently we improved our free cash flow and gross cash position. This provides us with a solid financial foundation as well as sufficient flexibility to maintain our competitive market position,” commented Dr Ulrich.
Revenues outside Europe constituted 54% of total revenues, up from 47% in the previous year. The revenue increase outside Europe reflects the success of Infineon’s strategic goal of increasing the global spread of its business, with an increase in market share in North America and in Asia including Japan. As of September 30, 2002, Infineon had approximately 30,400 employees worldwide, including about 5,400 engaged in research and development.
Q4 2002 Results
Total revenues for Q4 were US$1.36 Billion, down 1% sequentially, but up 28% compared to Q4 of 2001. EBIT for Q4 was a loss of US$288 Million, compared to a loss of US$105.5 Million for the previous quarter, mainly due to price-related losses in the Memory Products group. Q4 2002 EBIT loss also reflects inventory write-downs of US$ 67 Million, acquisition related expenses of US$46.3 Million and other net charges of US$3.94 Million totaling US$117.3 Million. Q4 2001 EBIT loss also reflected inventory write-downs of US$140 Million, acquisition related expenses of US$66 Million and other net charges of US$85.7 Million totaling US$291.77 Million. Net loss, which includes the impact of a US$271 Million deferred tax valuation allowance, amounted to US$498.8 Million compared to a net loss of US$75 Million in the previous quarter and a loss of US$515.5 Million year-on-year.
Business Group Performance
The Automotive & Industrial group’s Q4 revenues reached an all-time high of US$316.4 Million, an increase of 4% sequentially and of 14% year-on- year, mainly driven by stronger sales in power management & supply as well as body & convenience applications. EBIT improved by 27% to US$37.5 Million compared to US$29.5 Million in the previous quarter and by 46% compared to Q4 last year.
In fiscal year 2002, the Automotive & Industrial group reported record sales of US$1.18 Billion, up 4% compared to 2001. Due to strong competition and pricing pressure, EBIT was US$109.5 Million, a reduction of 22% compared to the last fiscal year.
The strong quarterly and yearly revenue performance reflect Infineon’s leading position in car comfort appliances and power supply for PC motherboards, as well as continuing improvements in productivity. We further established our TriCore microcontroller technology for next generation engine management at leading automotive suppliers, especially in Europe and the US. The automotive group also integrated and restructured the sensors segment to better serve the growth markets for pressure and temperature sensors in automotive applications. In 2001, Infineon further strengthened its leading position and gained market share in automotive semiconductors including car entertainment as the No. 2 worldwide and No. 1 in Europe according to Strategy Analytics.
Wireline Communications revenues improved slightly to US$103.5 Million in Q4, up 2% from the previous quarter, but down 26% year-on-year. The sequential revenue increase was due to increased sales of Infineon’s VDSL/10BaseS broadband access technology in Asia. EBIT improved to a loss of US$43.4 Million from a loss of US$48.3 Million in the previous quarter, and improved significantly from a loss of US$136 Million in Q4 of 2001.
Revenues for fiscal year 2002 were US$380.5 Million, down nearly 50% year-on-year, mainly due to the strong deterioration in infrastructure investments by global carriers in traditional telecom and fiber optics products. EBIT amounted to a loss of US$241.5 Million, compared to a loss of US$91.7 Million in 2001.
Despite the difficult market environment Infineon strengthened its market position in the overall access market (both traditional and broadband segments) to No. 3 worldwide according to iSuppli and further build-up its market position as the leading vendor of next generation high-speed broadband access technology with major design-wins on ADSL (such as Alcatel) and VDSL/10BaseS in the Asian markets. For VDSL/10BaseS, Infineon positioned itself as the leading supplier with over 70 major vendors using this solution, including Huawei Technologies, ZyXEL, Sumitomo Electric, Allied Telesis KK and Telson.
Wireless Solutions’ Q4 revenues were US$245.4 million, up 18% from the previous quarter and up 39% compared to Q4 of last year. The revenue increase was driven by stronger demand for Bluetooth and Wide Area Wireless (Baseband ICs) products. EBIT amounted to a loss of Euro 29 million, down from a positive EBIT of US$1.97 Million in the previous quarter but improved from a loss of US$76 Million year-on-year. Acquisition related charges of US$38.4 Million with regard to the completed acquisition of Ericsson Microelectronics were taken in Q4 of the 2002 financial year. Excluding these charges, quarterly EBIT would have been US$9.8 Million.
Fiscal year 2002 revenues were US$861.5 Million, down 9% from the previous year. The decrease in revenues was due primarily to lower prices, especially for baseband products. EBIT amounted to a loss of US$80.8 Million, compared to a loss of US$175.5 Million in the previous fiscal year. This EBIT improvement reflects productivity increases and a shift towards a better product mix.
Due to the company’s leading position in customized wireless solutions, radio frequency ICs and Bluetooth solutions, revenues in this segment improved sequentially over the last 5 quarters. For multimedia phones, based on GPRS and EDGE standards, first engineering samples of S-GOLD, a Baseband Controller with integrated application processor, are available. Infineon has commitment from several tier one customers to use S-GOLD for their next generation mobile phones. In H1 of 2002 Infineon has supplied approximately one third of the world’s Bluetooth demand. Infineon further strengthened its market position, particularly in Asia, with more than ten recent design-wins for complete GSM/GPRS mobile solutions.
Q4 revenues of the Security & Chip Card ICs group were US$127.2 Million, an increase of 8% from the previous quarter and of 29% year-on-year. EBIT amounted to US$2.96 Million, improving from a loss of US$3.94 Million in the previous quarter and from a loss of US$1.97 Million in the fourth quarter of fiscal year 2001.
For the fiscal year 2002, the Security and Chip Card ICs segment reported revenues of US$415 Million, down 28% compared to 2001. EBIT decreased to a loss of US$51.2 Million, compared to earnings of US$26.6 Million in fiscal year 2001. The declines in revenues and EBIT reflect overall weak demand and strong pricing pressure, especially for SIM card ICs.
The continuing improvement of this segment has been mainly driven by improved sales of security controllers used in mobile communications, payment and identification applications. In 2001, Infineon was the worldwide market leader in Chip Card ICs for the fourth consecutive year and has improved its revenue market share to 39% according to Dataquest. And the company received the Frost & Sullivan market leadership Award 2002. Furthermore, Infineon strengthened its leading position by involvement in all important identification projects world-wide (e.g. US Department of Defense access card, Hongkong ID, Taiwan healthcare card) and providing the industry’s first security solution to fulfill the specifications of the Trusted Computing Platform Alliance.
The Memory Products group’s Q4 revenues were US$422.9 Million, a decrease of 21% sequentially, but an increase of 77% with respect to Q4 of last year. EBIT amounted to a loss of US$197 Million, compared to a loss of US$16.7 Million in the previous quarter, but a strong improvement from a loss of US$514.5 Million in Q4 of fiscal year 2001. The revenue decline and losses primarily reflect price erosion for SDRAM products. The price decline for standard SDRAM products was partially offset by stronger bit-sales and improved productivity due to the successful ramp-up of 300mm production and conversion to 0.14-micron technology. The quarterly loss included the effect of Euro 55 million of inventory write-downs.
For fiscal year 2002, the Memory Products group reported revenues of US$1.81 Billion, up 16% from last year. At the same time, the EBIT loss of US$607 Million showed an improvement from a loss of US$917.7 Million in the previous year. The revenue increase and reduced loss reflect higher production volumes as a consequence of productivity and capacity increases as well as increased bit growth volume driven by memory upgrades in the PC and server markets.
At mid-year 2002, iSuppli ranked Infineon as the world’s third largest DRAM supplier. The Memory Products group succeeded in further technological breakthroughs, for example reaching 4,000 wafer starts per week in its 300mm Dresden plant on schedule, validating 512Mbit DDR components and 2GB DDR registered modules by INTEL (1 of 2 suppliers validated) and the start of the volume production of 256M Mobile-RAM increasing penetration of major PDA-manufacturers.
In the Other operating segment, Q4 revenues were US$135 Million, up 29% sequentially and up 6% year-on-year. EBIT amounted to a loss of US$4.93 Million, compared to earnings of US$4.93 Million in the previous quarter. For the financial year 2002, revenues were US$427.8 Million, a decrease of 23% from fiscal year 2001. EBIT totaled US$5.9 Million, down from US$185 Million in fiscal year 2001, which reflected a gain from the sale of our Image and Video business of US$199 million.
Outlook for H1 of fiscal year 2003
“The market outlook for the coming months shows no clear signs of a sustained improvement in demand yet. We have improved our sequential revenue growth in all logic segments by 25% over the last four quarters in a challenging market environment. Currently, we see a stabilization of demand in mobile communications and a moderate development of demand in automotive semiconductors. However, development of demand in our wireline communications and chipcard segments remains uncertain until the end of Q2 of fiscal year 2003. And we expect continued pricing pressure in all business groups in the months ahead,” said Dr Ulrich.
In the market for mobile phones, Infineon sees a stabilization of demand, driven primarily by the further proliferation of the current generation of GSM/GPRS mobile handsets.
Infineon expects an overall positive trend in the market for security and chip card ICs for fiscal year 2003, but a downward market trend until spring of 2003. Growth is expected to take place primarily in payment and identification applications.
The market for telecom infrastructure is also expected to remain difficult in H1 of fiscal year 2003, due to continuing weak capital expenditures by global carriers. However, the company believes that the broadband access market (ADSL / VDSL) will continue to grow modestly in the current fiscal year, especially in Asia and Japan.
Worldwide automobile production is expected to stabilize in 2003 with increasing pricing pressure on automotive electronics and automotive semiconductor suppliers. However, Infineon anticipates a moderate growth of its automotive semiconductor business in the current fiscal year based on further increasing electronic content in all automotive applications, the company’s strategic customer base, further market penetration in North America and Japan and higher standards for safety as well as body & convenience.
Despite the current increase in demand and prices for memory products, it is too early to assume a sustained market improvement. Infineon will continue to concentrate on reducing its DRAM manufacturing costs, extending the range of its DRAM product offerings and improving its memory product mix.
“We believe that our technological lead in 300mm production and the strategic cooperations with our Taiwanese partners will enable us to gain further market share and be among the first to achieve profitable growth upon a recovery in the DRAM market,” said Dr Ulrich.
“Our ambitious strategic goal is to become one of the top 4 semiconductor companies and double our worldwide market share to 6% in the next five years. We expect our growth to come primarily from organic growth, supported by partnerships and strategic acquisitions. We will utilize our strong product and technology portfolios, system know-how and strategic partnerships in order to return to profitability. And we believe that the expansion of our solution business will be a key to the implementation of our strategy over the coming years,” commented Dr Ulrich.
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