Infineon Predicts Slowdown as Quarterly Profit Drops
Nov. 9 (Bloomberg) -- Infineon Technologies AG, Europe's second-
largest semiconductor maker, predicted an industry slowdown as fourth-
quarter profit unexpectedly fell on a charge to write down the value
of its investment in a U.S. chip startup.
Net income in the three months through September fell to 44 million
euros ($57 million), or 6 cents a share, from 49 million euros, or 7
cents, a year earlier, the Munich-based company said. A Bloomberg
News survey of analysts had estimated net income of 144 million
euros. Sales rose 13 percent to 1.99 billion euros.
``It's disappointing they haven't been able to capitalize on a year
that was actually quite good for the industry,'' said Friedrich Diel
at Frankfurt Trust Investment, which oversees $15 billion including
Infineon shares. ``The outlook is pretty glum.''
Chief Executive Wolfgang Ziebart, 54, today in a statement said ``we
have to prepare ourselves for a slowdown.'' Infineon joins chipmakers
including Intel Corp., Royal Philips Electronics NV and Taiwan
Semiconductor Manufacturing Co. in forecasting a decline in the
industry as higher inventory eats into profit.
The shares dropped as much as 34 cents, or 3.9 percent, to 8.31 euros
and traded at 8.38 euros as of 10:35 a.m. in Frankfurt. Before today,
the stock had lost 37 percent in the past 12 months, making it the
worst performer on Germany's benchmark DAX Index.
Catamaran Writedown
Infineon took a charge of about 80 million euros related to the
writedown of its 2001 purchase of Catamaran Communications Inc. as
well as 18 million euros in provisions to cover an antitrust probe by
the European Commission into price-fixing in the memory-chip
business, spokesman Ralph Heinrich said.
It's the second consecutive quarter that unexpected charges have
eroded Infineon's earnings. In the three months through June, the
company had a surprise 56 million-euro loss after bolstering
provisions to cover antitrust charges in the U.S. and Europe.
Infineon bought San Jose, California-based Catamaran for $250 million
in stock as it bet on rising demand for faster Internet connections.
Since then, spending on broadband and fiber-optics networks has
dropped, and Infineon's wireline unit, which makes semiconductors for
Internet and communications networks, has been unprofitable for three
straight years.
Revenue Drop
Infineon said it doesn't expect growth at the wireline unit in the
current quarter. The company also forecast a drop in first- quarter
revenue at its automotive and secure mobile solutions chip
businesses, which together make up about half of total sales.
``It's not a sparkling outlook,'' said Michael Bahlmann, an analyst
at M.M. Warburg in Hamburg, who rates the stock ``buy.'' ``The charge
was unexpected, too.''
Fourth-quarter operating profit at the memory unit, which is
Infineon's largest by sales and makes dynamic random access memory
chips, or DRAM, used in personal computers, rose 11 percent to 149
million euros. Infineon said the unit's business will develop ``in
line with normal seasonal demand'' in the quarter ending December.
The secure mobile solutions unit had operating profit of 47 million
euros, while the loss at wireline, Infineon's smallest unit,
ballooned to 110 million euros on the Catamaran writedown.
Earnings before interest and tax at the automotive and industrial
unit almost doubled to 76 million euros in the three months through
September as sales gained on higher demand for products such as
sensors. The company said continued pressure to lower prices will
weigh on sales and earnings this quarter.
Industry Decline
Intel, the world's biggest chipmaker, last month said profit rose at
the slowest pace in five quarters as a record stockpile of computer
chips prompted it to cut prices and slow production. Philips,
Europe's third-largest chipmaker, said semiconductor sales will
stagnate this quarter as demand slows for DVD players and mobile
phones.
Excess inventory also weighed on the earnings of Taiwan Semiconductor
Manufacturing and United Microelectronics Corp., the world's two
largest supplier of made-to-order chips, which reported slowing
profit growth as customers cleared inventory after overestimating
demand for electronics.
``Nobody's been saying anything positive on the industry outlook
lately, so it was pretty unlikely Infineon would be any different,''
said Jens Troll, who holds 600,000 Infineon shares in the portfolio
he manages at Bank Julius Baer AG in Zurich.
Infineon in July forecast growth in fourth-quarter earnings and
sales, based on a ``favorable supply-demand-balance'' at it memory
division and higher demand at its automotive unit. The company also
forecast the average cost to produce a 256-megabit equivalent memory
chip to be below $4 at the end of the quarter.
The company's chips are used in products including personal
computers, mobile phones and cars. Infineon generates about 40
percent of total sales from memory chips, the type of semiconductors
most susceptible to price swings. That division contributed to the
majority of more than 2 billion euros in combined losses the company
racked up in the past three years.
Ziebart, a former Continental AG executive who took over Sept. 1
after CEO Ulrich Schumacher left in March under pressure from
Infineon's supervisory board, will hold a press conference in Munich
at 11:30 a.m. Munich time to discuss the earnings. |
