February 5, 2020 / 6:52 AM / 17 days ago

Infineon yet to feel coronavirus impact as demand outlook lifts shares

BERLIN (Reuters) - Germany’s Infineon Technologies (IFXGn.DE) said on Wednesday that the coronavirus outbreak had not yet had an impact on its operations as it reassured investors that demand was steadying after a cyclical downturn, boosting its shares.

FILE PHOTO: A close-up of a the Infineon microcontroller kit XMC 4700 is pictured at an exhibition during the German semiconductor manufacturer Infineon's annual shareholder meeting in Munich, February 21, 2019. REUTERS/Andreas Gebert/File Photo

Infineon’s more sanguine outlook on demand, inventories and margins sent shares in the maker of automotive, power management and security chips 9% higher, their best one-day gain since March 2017.

Its forecasts did not take account any potential impact of the coronavirus outbreak in China - a key market for Infineon where it is a major automotive supplier - but chief executive Reinhard Ploss said there had been little disruption so far.

“We have not yet seen major impact on either supply or the sales side,” Ploss told analysts on a call. “However, there clearly is a disruption to at least the Chinese economy and it is too early to fully assess potential impacts.”

Infineon confirmed its guidance for the fiscal year to Sept. 30, saying it expects revenue to grow by 5% while segment margin - the key measure of profitability targeted by management - would come in at 16%.

The Munich-based company said its first-quarter revenue fell 7% on a sequential basis while the segment margin was boosted to 15.5% by one-off items.

After stripping out those effects, segment margin would have been 13.6% - slightly higher than earlier management guidance of around 13% for the quarter.

“Infineon confirmed demand is normalizing and channel inventories are largely back to normal levels – we view these comments as reassuring,” Citi analyst Amit Hirchandani said in a note.

SECOND-HALF PICKUP

For the fiscal second quarter, Infineon forecast quarter-on-quarter revenue growth of 5%, plus or minus 2 percentage points, and a segment result margin of around 14%. The forecasts assume an exchange rate of $1.13 to the euro.

While parts of the business such as silicon microphones and servers were doing better, the company doesn’t foresee a broader-based recovery in demand until the second half of its fiscal year.

Infineon also said it expected its $10 billion takeover of Silicon Valley-based Cypress Semiconductor (CY.O) to close around the end of the current quarter.

Ploss said the Cypress deal, announced last June, had been approved by the authorities in Taiwan and Infineon was in a constructive dialogue with U.S. national security regulators.

“From today’s perspective, consider closing of the transaction to occur around the end of the current quarter or the beginning of the next quarter,” said Ploss.

The merger would create an automotive market leader with an estimated 13% market share, coupling Infineon’s prowess in managing electric drivetrains with Cypress’s superior connectivity in areas such as in-car entertainment.

Reporting by Douglas Busvine; Editing by Michelle Martin and Alexander Smith

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