Germany's Infineon warns of 5% sales slump in fiscal 2020 on COVID-19 impact

FRANKFURT (Reuters) - German chipmaker Infineon Technologies IFXGn.DE on Monday said that it expects sales to decrease by 5% in the fiscal year to Sept. 30 because of the impacts of the coronavirus pandemic, compared to an original target of a 5% increase.

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 is a leading maker of power management chips used in electric drivetrains, exposing it to a sudden stop in car production.

Car sales across the world have slumped as measures to contain the pandemic forced production lines to shut and showrooms to close, starving manufacturers of much needed cash for investments.

“The economic upheavals caused by the coronavirus pandemic make it extremely difficult to provide a reliable forecast. The outlook is therefore subject to a high degree of uncertainty”, Infineon said in a statement.

The revamping of economic activities, particularly in the automotive industry, as well as the level and effectiveness government support programs, will play a significant role in determining the company’s revenues, it added.

The German carmaking states of Bavaria, Baden-Wuerttemberg and Lower Saxony are calling for 4,000 euro incentives to be introduced to encourage people to buy more environmentally friendly cars, while the business climate in Germany’s auto sector is at a record low.

Infineon in March withdrew its revenue forecast citing the coronavirus pandemic but at the time gave no new target.

The company last month closed the $10 billion acquisition of U.S.-based Cypress Semiconductor, coupling its own prowess in managing electric drivetrains with Cypress’s superior connectivity in areas such as in-car entertainment.

Excluding Cypress, Infineon now expects 2020 revenues of around 7.6 billion, while including the in-car entertainment company, Infineon’s total revenue would be around 8.4 billion. Infineon also expects a profit margin of around 12 percent.

“Free cash flow for the combined company will be strongly negatively impacted by the acquisition of Cypress and by the consequences of the coronavirus pandemic. Therefore, it will foreseeably turn significantly negative”, Infineon said.

In the second quarter to March 31, revenue rose by 4% to 2 billion euros while the profit margin decreased to 13.8% from 15.5%, Infineon said.

In the current third quarter the company expects revenues for the combined company to be 1.9-2.3 billion, with a profit margin the mid-single digits.

Reporting by Arno Schuetze; editing by Grant McCool