The sequential decrease reflects a decline in revenues in all of the company’s operating segments due to significantly lower demand as a result of the global economic slow-down and inventory corrections throughout the electronics supply-chain. The company’s Automotive and Wireless Solutions segments were most severely affected. Overall, the company’s revenues were slightly better than forecasted, largely due to the stronger US dollar against the Euro. Excluding effects of currency fluctuations, primarily between the US dollar and the Euro, and acquisitions and divestitures, revenues decreased 32% sequentially and 26% year-over-year.
Beginning October 1, 2008, Infineon’s management board uses Segment Result to assess the operating performance of the company’s reportable segments and as a basis for allocating resources among the segments. Infineon’s combined Segment Result was negative EUR102 million in the first quarter, compared to positive EUR59 million in the fourth quarter of the 2008 fiscal year. First quarter Segment Result was better than expected as a result of higher than forecasted revenues and very good progress with cost reductions under the company’s IFX10+ cost-reduction program.
Net loss from continuing operations for the first quarter was EUR116 million, resulting in basic and diluted loss per share from continuing operations of EUR0.16. For the prior quarter, net loss from continuing operations was EUR297 million, and basic and diluted loss per share from continuing operations was EUR0.45.
The loss from discontinued operations, net of tax, was EUR288 million for the first quarter. This loss consisted of EUR93 million in connection with the recognition of currency translation effects primarily related to Qimonda’s sale of its interest in Inotera to Micron and of EUR195 million in provisions and allowances following Qimonda’s filing of an application to open insolvency proceedings. Basic and diluted loss per share from discontinued operations was EUR0.34.
For the first quarter, Infineon reported group net loss of EUR404 million, and basic and diluted loss per share of EUR0.50.
In line with an overall effort to focus on liquidity management, the company reduced its investment in property, plant and equipment and intangible assets, including capitalized development costs to only EUR40 million for the quarter. In addition, Infineon reduced net working capital by EUR79 million. Hence, free cash outflow could be contained to negative EUR22 million for the quarter despite cash outflow in connection with the IFX10+ program of EUR25 million. The company also repurchased a total nominal amount of EUR117 million of its convertible and exchangeable bonds during the quarter.
Infineon’s IFX10+ cost-reduction program
In the first quarter of the 2009 fiscal year, Infineon made very good progress with cost reductions under the IFX10+ program, mainly in operating expenses, where the company saved approximately EUR45 million during the quarter compared to the expense run-rate of the prior quarter. In that context, the company has also made progress with regards to headcount reductions. By the end of December 2008, the company had reached agreements regarding or had already effected separation with respect to approximately 85% of the announced workforce reduction.
In response to continuing weak demand worldwide in all of the company’s target markets, Infineon has identified additional savings potential from a combination of measures that have already been implemented or will be implemented shortly. Amongst others, the company has introduced reduced work hours in the company’s German production sites Regensburg and Dresden, has changed its bonus schemes for the 2009 fiscal year and has issued a new and very stringent travel policy. In addition, Infineon exited the employers’ union in November 2008 in order to achieve more flexibility in wage adjustments. Infineon does not expect to incur additional expenses or cash outflows in relation to the additional measures mentioned above. Infineon originally announced expected annualized savings of at least EUR200 million, and then increased this target in December to at least EUR250 million. As a result of substantial additional cost reductions and cash savings, including those mentioned above, the company now targets total annual savings of EUR600 million. These savings include approximately EUR200 million in operating expenses and EUR400 million savings related to manufacturing operations. Of the savings in manufacturing operations, EUR300 million have been designed to offset at least in part the cost impact of lower loading of the manufacturing sites caused by the downturn.
In addition to the savings mentioned above, the company is reducing its 2009 fiscal year budget for investment in property, plant and equipment and intangible assets, including capitalized development costs, to approximately EUR200 million, compared to the EUR250 million that was originally budgeted.
Infineon’s outlook for the second quarter of the 2009 fiscal year
The drastic slow-down in world economic demand that started in the first quarter of the 2009 fiscal year is expected to continue to have a severe impact on overall demand levels in the second quarter. In addition, the company anticipates that inventory reductions throughout the entire electronics supply chain will continue. As such, the company has relatively limited visibility with respect to the revenue development, even in the second quarter. Within the limits of that low visibility, the company currently expects revenues from continuing operations for the second quarter to decrease by approximately 10% compared to the first quarter. After the significant decrease in demand in the Automotive and Wireless Solutions segments in the first quarter, the company expects these segments to be more resilient in the second quarter compared to the first quarter. By contrast, the three other segments, Industrial & Multimarket, Chip Card & Security and Wireline Communications, are expected to be more severely affected by the continuing slow-down in the second quarter.
Additional savings measures implemented under the IFX10+ program are expected to result in substantial additional cost and cash savings over and above the savings levels realized in the prior quarter. As a consequence of continued sales declines and an aggressive reduction in factory loading in order to reduce inventory, Infineon expects combined Segment Result margin in the second quarter to be within the range of a negative mid-to-high teens%age. Without the additional measures described above, the impact of lower sales and factory loading on the bottom-line would have been significantly more severe.
Following Qimonda’s insolvency filing, Infineon expects to deconsolidate Qimonda in the second quarter. In this context, the company anticipates that it will recognize accumulated losses related to unrecognized currency translation effects related to Qimonda. As of December 31, 2008, the amount of such accumulated losses totalled approximately EUR100 million. The recognition of such accumulated losses will not have any impact on Infineon’s shareholders’ equity.
“Despite extremely challenging market conditions, our first quarter results held up reasonably well, largely due to very good progress with our IFX10+ program. We successfully focused on liquidity management, contained cash outflows and lowered our debt”, said Peter Bauer, CEO of Infineon Technologies AG. “In the second quarter, market conditions will unfortunately worsen further. Responding to this challenge, we are reducing our cost and CapEx levels further. We will continue to focus on cash flows by reducing inventory levels and fab loading even further and by managing working capital tightly.“
