About Infineon Technologies
Infineon Technologies AG engages in the design, development, manufacture, and marketing of semiconductors and semiconductor-based solutions worldwide. Its Automotive segment offers automotive microcontrollers; 3D ToF, gas, magnetic, and pressure sensors; discrete power semiconductors; IGBT modules; industrial microcontrollers; power and memory ICs; transceivers; diodes, MOSEFTs, and modules; and voltage regulators for use in assistance and safety systems, comfort electronics, infotainment, powertrain, and security products. The company’s Green Industrial Power segment provides bare dies, discrete IGBTs, and driver ICs; SiC diodes, MOSFETs, and modules; and IGBT modules for home appliances, industrial drives, industrial power supplies, industrial robotics, industrial vehicles, and traction, as well as for energy generation, storage, and transmission. Its Power & Sensor Systems segment offers chips for gas and pressure sensors, and MEMS microphones; 3D ToF sensors; control ICs; discrete low-, mid-, and high-voltage power MOSFET; customized chips; GaN power switches; GPS low-noise amplifiers; low-voltage and high-voltage driver ICs; radar sensor ICs; RF antenna switches and power transistors; transient voltage suppressor diodes; SiC diode and MOSFETs; and USB controllers for use in audio amplifiers, automotive electronics, BLDC motors, cellular communications infrastructure, electric vehicle charging stations, human machine interaction, IoT, LED and conventional lighting systems, microinverter, mobile devices, power management, and special applications. The company’s Connected Secure Systems segment provides connectivity solutions, embedded security controllers, microcontrollers, and security controllers for authentication, automotive, consumer electronics, government identification document, IoT, mobile communication, payment system, ticketing, access control, and computing applications. The company was incorporated in 1999 and is headquartered in Neubiberg, Germany.
Results of Infineon
In the 2024 fiscal year, Infineon cut its revenue forecast three times as an expected recovery in the auto sector failed to materialize. More than half of Infineon’s sales are to the car industry.
The market is unlikely to be surprised by Infineon expecting a slight decline in revenue for fiscal 2025 ending September, but the forecast for a small decrease in automotive sales appears better than the high-single-digit reduction anticipated. Guidance for 1Q sales representing a 15% miss relative to the Bloomberg consensus implies the need for a strong recovery in the rest of year, which may be challenging amid industry headwinds.
Segment result margin, a profitability metric, was 21.2% in the quarter ending in September, compared to 25.2% a year ago.
Infineon Technologies stock analysis
Infineon stock is trading at a 38% discount to our fair value estimate of $54 per share.
Infineon is a leading broad-based European chipmaker with significant exposure to secular growth drivers in the industrial and automotive chip sectors. Infineon should emerge as a leading supplier for electric vehicles and active safety systems used in cars, with increasing exposure to car “infotainment” systems. However, like most chipmakers, Infineon’s business remains highly cyclical as demand rises and falls with the health of its various end markets.
Looking at the automotive chip market, EVs and cars with advanced powertrain technology and safety systems require a variety of sensors and power voltage chips supplied by firms like Infineon. Silicon-carbide, or SiC-based semis, used to handle higher voltages and improve the range and efficiency of EVs, are a particularly attractive opportunity for Infineon, but also for its rivals. Infineon’s exposure to power semis also allows it to benefit from trends in the electronics industry toward power conservation, not only in more efficient devices like industrial drives, but also in green energy solutions like solar panels. Infineon is also a leader in chip card and security products, such as chips for chip-and-pin credit cards. Finally, we think limiting exposure to challenging markets is just as important as increasing exposure to promising markets, and Infineon did a good job of eliminating unattractive business segments in prior years.
Nonetheless, Infineon’s product lines still face formidable competition. Many other large semiconductor firms also focus on power semiconductors and have similar products. Further, Infineon focuses on discrete power products rather than analog power management integrated circuits. While the former products are valuable to customers, the latter of which we view as more complex products that allow leading analog firms (such as several wide-moat names we cover) to enjoy stronger pricing power and relatively higher returns on invested capital. Infineon also has hefty manufacturing capacity for its products, which may lead to a higher fixed-cost structure and may cause significant margin compression when supply far exceeds demand.