Infineon Earnings: Still Seeing Upside From Automotive and Green Energy

Infineon IFX reported strong results for the March quarter and provided investors with an upbeat forecast for the June quarter and fiscal 2023 (ending in September), as the company is still prospering from robust demand for power semiconductors used in electric vehicles and “green” industrial products. Pricing remains strong, and we remain impressed with Infineon’s ongoing gross margin expansion, which we think the firm can maintain (cycles permitting) in the long term. We are raising our fair value estimate for narrow-moat Infineon to EUR 47 from EUR 43 (and to $52 from $48 for U.S. shares), and continue to view the firm as undervalued.

Revenue in the March quarter was EUR 4.12 billion, up 4% sequentially, up 25% from the year ago quarter, and ahead of guidance of EUR 4.0 billion. Automotive (ATV segment) revenue was again the bright spot with sales up 11% sequentially, up 40% year over year, and better than expected, thanks to robust demand for power semis used in EV’s, as well as chips used within active safety systems. Sales in the firm’s green industrial power segment rose 12% sequentially and 30% year over year with strength across all applications, such as renewable energy and energy infrastructure, among others. Power and sensor systems, or PSS, revenue fell 11% sequentially and was flat year over year, due to well-known weakness in demand from PC and smartphone customers. Nonetheless, higher sales levels and strong pricing enabled adjusted gross margin to be up 320 basis points year over year to 48.6%, well ahead of guidance of 45%.

Infineon expects revenue in the June quarter to be EUR 4.0 billion, which would be down 3% sequentially but up 11% year over year. For fiscal 2023, Infineon lifted its revenue guidance to EUR 16.2 billion, which would represent 14% growth. On an adjusted operating margin basis, Infineon earned a stellar 28.8% in the March quarter, and anticipates a modest dip to 26% in the June quarter and 27% for the full year.