Good morning, everyone. Welcome to the Conference Call for Analysts and Investors for Infineon's 2022 fiscal first quarter results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury, and Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded. This conference call contains forward-looking statements and/or assessments about the business, financial condition, performance, and strategy of the Infineon Group. These statements and/or assessments are based on assumptions and management expectations resting upon currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance, and strategy may therefore differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements.
At this time, I'd like to turn the call over to Infineon. Please go ahead.
Yes. Thank you, operator, and good morning and welcome, ladies and gentlemen, to our first quarterly earnings call in 2022. As usual, we have the entire management board on this call. Reinhard Ploss, CEO, Helmut Gassel, CMO, Jochen Hanebeck, COO, Constanze Hufenbecher, CDTO, and Sven Schneider, CFO. Today's call is a special one. As we announced two and a half months ago, Reinhard will retire and pass the baton on to Jochen by first of April after leading Infineon as CEO for nearly 10 years. It's the last earnings call hosted by Reinhard today. For now, back to business. You are familiar with our usual procedure. Reinhard's summary will again come after the Q&A, so please stay tuned until the end of the call. The illustrating slideshow, which is synchronized with a telephone audio signal, is available at infineon.com/slides.
After the introduction, we will, as always, be happy to take your questions. However, today we will be strict on the one question per caller rule in order to let as many participants as possible have their say. A recording of this conference call, including the aforementioned slides and a copy of our earnings press release, as well as our investor presentation, are also available on our website at infineon.com. Now, for one last time, Reinhard, over to you.
Yeah. Thank you, Alexander, and good morning, everyone. The new year has started, and for us it feels very similar to how the old year ended, with the business situation looking very positive. Our December quarter topped the record revenue and segment result levels of the previous quarter. Semiconductors continue to be the gating items in many verticals as demand is outstripping supply by far. Manufacturing capacities are being added, but ongoing cyclical and underlying structural needs are still exceeding them. Inventory reaches in some areas are going slightly up, but stay considerably below long-term averages. Of course, dynamics are different in the various submarkets. In some, a supply-demand equilibrium will be reached sooner than in others. For our Target Applications, Automotive, Industrial Data Center, and IoT, as well as other areas, we do not see this happening in the near future.
Supply limitations, especially from foundries, will persist well into 2022. In such an environment, specific supply disruptions in individual fabs are being felt twice as severely. The December quarter was the first one in a while where we did not experience such disruptions, and the numbers are clearly showing it. We started our 2022 fiscal year with revenues of EUR 3,159 million, 5% up compared to the previous quarter and a 20% increase year over year. A stronger U.S. dollar supported these growth rates. Assuming a constant U.S. Dollar-Euro exchange rate, sequential growth would have been 3% and the yearly one 17%. On higher revenue, our margin expanded considerably.
With a segment result of EUR 717 million, the Segment Result Margin came to 22.7%, an increase of a bit over 2 percentage points compared to the quarter before. All of our four segments were able to grow their profitability. Several factors drove this development. We saw a good products mix in an overall favorable pricing environment. In addition, and as already mentioned, the absence of major supply disruptions allowed us to achieve a very good operational performance. Our fabs are basically running at full levels. We take maximum COVID precaution measures, but of course, risks cannot be completely excluded. Near-term indicators tell us that the positive momentum in our key markets is intact. The order backdrop remains very supportive. New incoming orders continue to outweigh cancellation by quite a margin.
Thus far, we have provided book-to-bill figures as a proxy to assess the business situation. In the last quarters, we reported like-for-like numbers. We will cease to do so from now on. The ratio has lost much of its meaning, given that orders are being confirmed more flexible in times of allocation. Besides, Infineon has lately been the only company regularly publishing book-to-bill figures. Many of you have used them to reverse calculate our backlog. For the sake of transparency, we will provide you this figure directly going forward at company level. The combined total of confirmed and unconfirmed orders stood at around EUR 31 billion at the end of December. A further increase of about EUR 2 billion quarter-over-quarter. In other words, our nominal stable of orders corresponds to more than two years of revenue.
It is fair to assume that some of it reflects cyclical shortages, and the number might go well down in coming quarters as supply gradually improves and some double orders are being cleaned off. Having said this, though the underlying structural demand is very healthy and we are fully booked for 2022. Now to our divisions and their performance in the December quarter, beginning as usual with Automotive. The segment recorded revenues of EUR 1.39 billion. The 10% increase over the previous quarter was helped by a favorable currency development and the absence of specific supply disruptions. The higher volumes also led to an improved profitability level. The segment result came in at EUR 261 million, resulting in a Segment Result Margin of 18.8% compared to 16.7% in the quarter before.
In general terms, the supply-demand mismatch burden in the automotive industry remains quite wide. Global car production in 2022 was only slightly up compared to 2020, with 76.4 million units. Researchers from IHS Markit estimate that around 10 million cars were not built due to semiconductor and other component shortages, as well as various supply chain issues. For 2022, a gradual easing of the worst constraints is expected, but the recovery of worldwide auto production remains susceptible to external shocks like the spread of the Omicron variant. The 82.9 million vehicles currently predicted by IHS for this year will still be considerably below the 2018 and 2019 numbers. Hence, supply limitations are far from over and will persist well into 2022. Inventories are likely to remain tight, albeit gradually improve, with some replenishment moving into 2023.
Within an overall constrained car market, electromobility is remaining on a strong trajectory. In fact, the current phase might once be seen as pivotal for EV adoption. In 2021, around 6.7 million battery electric and plug-in hybrid vehicles were sold, basically doubling within a year's time frame. About half of these cars have inverters equipped with Infineon chips or modules. With an industry-leading portfolio of silicon and silicon carbide solutions, we are central to EV growth. Anecdotally, December was the first month ever in which more Battery Electric Vehicles than Diesel Cars were sold in Europe. The car of the future will not only be carbon neutral, but also autonomous, fully connected, and cybersecure. This is opening up attractive semiconductor content growth opportunities for which we are at the pole position.
Our AURIX microcontroller family has become the first-choice automotive architecture for high-growth and safety-critical applications, such as assisted and autonomous driving, powertrain, safety, as well as domain or zone control. At the CES a couple of weeks ago, we launched a new AURIX generation focusing on addressing growing vehicle complexity, the enablement of AI implementations, and advanced connectivity. With its scalable family concept, AURIX is a key ingredient for dependable electronics and software-based applications. We expect AURIX-related revenues to grow strongly over the coming years. Now to Industrial Power Control. Following a very strong second half of our 2021 fiscal year, revenues in the December quarter moderated to EUR 382 million, a sequential decline of 6% reflecting typical seasonal patterns in most application areas. A positive exception was power infrastructure, which among others comprises energy storage as well as EV charging stations.
The segment result of IPC came in at EUR 73 million, corresponding to a Segment Result Margin of 19.1% after 17.7% in the prior quarter. The impact of lower revenue was more than offset by positive mix effects and the fall away of costs related to supply disruptions. The current business perspective is positive. Order intake is strong and many of our product areas continue to be on allocation, and channel inventories have downticked again. The market outlook remains constructive across the majority of end application. After a strong surge in sales to serve pent-up demand, mature markets like home applications or industrial drives see a reversion to average long-term growth rates. Manufacturing PMIs are staying in expansion territory. Structural drivers in areas like solar power remain fully intact. However, some supply chain imbalances are limiting near-term growth.
Our advanced power solution, based on silicon as well as silicon carbide, enable the energy transition necessary in order to meet CO2 reduction targets. Governments and enterprises alike now need to turn net zero commitments into specific course of action. Now over to Power & Sensor Systems, which continues its very strong performance seen in the previous quarter. Revenue came in at EUR 955 million, a bit up sequentially. Various components for smartphones witnessed a seasonal decline. All power-related product areas saw strong demand from cordless power tools to server power stages. The strengthening US dollar provided an additional tailwind. Like revenue, also the segment result of PSS edged up slightly for the December quarter from EUR 276 million to 285 million, corresponding to a Segment Result Margin of 29.8%.
Demand remains very robust across a large majority of applications. Customer orders exceed our supply abilities by quite a margin. Around half of our products remain on allocation, and channel inventories are very lean. This overall healthy picture should last well into this year, driven by several trends. For data center, we see continued demand from cloud operators and hyperscalers, but also rising enterprise spending motivated by return to office momentum and platform refreshes from processor vendors. The ongoing 5G cycle will continue to support smartphone upgrades and drive spending on telecom infrastructure equipment. The desire to make human machine interaction more intuitive is calling for advanced sensor solution. One of them is capacitive inductive touch, for which we recently launched a new generation of our CAPSENSE technology.
It enables advanced solutions like proximity sensing, gesture detection, and directivity, along with hover direction for demanding user interfaces in home appliances, industrial, consumer, and IoT products. Closing the divisional revenue for Connected Secure Systems. The segment strongly increased its revenue by 11% quarter-over-quarter to EUR 427 million. Main drivers were a favorable product and customer mix, a strengthening of the U.S. dollar, and some supply improvements for microcontrollers and Wi-Fi products. These factors also led to a significant profitability increase. The Segment Result Margin of CSS amounted to EUR 100 million, equivalent to a Segment Result Margin of 23.4%, after 15.5% for the quarter before. Going forward, we will continue to invest in R&D resources to further strengthen our product roadmap.
Demand continues to be very robust across practically all application areas, far outstripping available supply, especially from foundries. Therefore, revenue potential is kept by scores available of aid capacities. Meanwhile, we see ongoing momentum in design-in activity, especially for connectivity offerings. Our Wi-Fi chipsets have been selected for a next generation, Automotive Infotainment System and by a leading smart home thermostat OEM. Generally speaking, connectivity is one of the key ingredients of our Digitalization, and we continue to strengthen our position in this field with our AIROC product family. A few recent examples. With our Cloud Connectivity Manager solution, developers can easily and securely connect IoT devices to Amazon Web Services. We launched a multi-protocol solution including Bluetooth Low Energy for small home applications supporting the Matter standard, as well as low-power Wi-Fi chipsets enable precise location solution for the Israeli location as a service company, Deeyook.
All in all, our innovation pipeline around the IoT is well filled. Now over to Sven, who will comment on our key financial figures.
Thank you, Reinhard, and good morning, everyone. It's always reassuring to report on positive numbers at the beginning of a new year. Let's take a closer look at our margin development. Gross profit in the first quarter of our fiscal 2022 came in at EUR 1.312 billion, resulting in a gross margin of 41.5%, slightly up compared to the previous quarter. Excluding non-segment result effects, the adjusted gross margin was stable at 43.9%. This high level reflects the good traction we are seeing in the market for our high-value system solutions and an overall supportive environment in which we are able to pass on higher input costs related to foundry and subcon supply, base materials, and energy. Furthermore, utilization rates at our manufacturing sites are high. Before coming to operational expenses, let me spend a word on currency development.
As you are well aware, Infineon benefits from a strengthening US dollar as around 2/3 of our group sales after the Cypress acquisition are in this currency. Looking at very recent headlines this morning, I think I just want to stress that again, in your calculations, please factor in 2/3 of the revenues are in dollars, not 100%. Therefore, according to our well-known rule of thumb for sensitivity, for each cent movement in the US dollar-Euro exchange rate, we see a quarterly impact of around EUR 15 million in revenue and around EUR 5 million in segment result. To illustrate that, assuming the US dollar stays at 1.15 throughout the entire fiscal year, this would lead to a positive revenue impact of around EUR 300 million compared to our initial planning rate of 1.20.
Reinhard will build on this in the outlook section later on. Now back to our OpEx numbers, which at the end of September had seen a true-up of variable compensation for our successful 2021 fiscal year. In the currently running 2022 fiscal year, we accrue for bonus payments at a lower rate reflecting internally raised targets. Despite this, research and development expenses remained flat quarter-over-quarter at EUR 399 million, showing our consistent efforts to fund an ambitious technology and product roadmap. Selling, general, and administrative expenses, however, decreased to EUR 330 million from 3 73 million in the quarter before. The net other operating income was EUR 34 million. The non-segment result for the quarter amounted to EUR -100 million.
Of this amount, EUR 76 million corresponded to cost of goods sold, EUR 6 million to R&D expenses, and EUR 47 million to SG&A expenses. As a partial offset, the net other operating income contained EUR 29 million of non-segment result income. The financial result for the September quarter was EUR -45 million after - 37 million in the previous quarter. Income tax expense amounted to EUR 117 million for the first quarter of the current fiscal year, equivalent to an effective tax rate of 20%. A quarter-over-quarter comparison is not meaningful as fiscal year-end quarter in September was influenced by adjustments to deferred tax assets and liabilities. Cash taxes in the December quarter were EUR 51 million, resulting in a cash tax rate adjusted for PPA effects of 7%.
This is somewhat lower than our expectation for the entire FY 2022 of around 15%. As in many years, the cash tax rate for the first quarter is influenced by a time lag with respect to the assessment of prepayments. Let's now look at our investments into property, plant, and equipment, other intangible assets, and capitalized development costs. These totaled EUR 408 million in the December quarter, down from EUR -596 million in the quarter before. We expect this amount to go up again in the coming quarters as we are consistently investing to reap opportunities for profitable growth. Depreciation and amortization, including acquisition-related non-segment result effects, were EUR 393 million in Q1 after EUR 397 million in the preceding quarter.
The free cash flow from continuing operations was EUR 378 million, identical to the level achieved in the September quarter, as higher operating income and lower investments were offset by incentive payouts that took place in December. The strong free cash flow contributed to a further improvement of our liquidity and leverage figures. Our gross cash at the end of December was close to EUR 4.3 billion. Our gross debt amounted to just under EUR 6.7 billion, leading to a further reduced net debt figure of EUR 2.4 billion. We are pleased to report already today to you that gross leverage is now closing in on our target level of below 2% with sequentially rising EBITDA.
The net leverage at the end of December quarter came to a level of 0.7x, underlining once again the strong business performance over the last quarters and the success of the faster than anticipated Cypress refinancing. We are not standing still on our deleveraging path. In mid-January, we fully repaid back a former Cypress convertible bond for a conversion amount of $387 million, bringing our gross leverage down further. We are proud that these efforts and our firm commitment to investment grade are being recognized also by our rating agency. As you might have seen the day before yesterday, S&P Global Ratings increased our rating by one notch to BBB-. Counting from the closing of the $9 billion Cypress transaction, it took us less than two years to get back to our starting rating level.
I will finalize my part with reporting on our after-tax return on capital employed. The ROCE for the first quarter of our 2022 fiscal year came in at 12.5%. This number is underestimating the margin by which we exceed our cost of capital as it is burdened by bookings related to the acquisitions of Cypress and International Rectifier, in particular goodwill, fair value step-ups, and amortization, as well as deferred tax effects. However, to simplify our reporting, we will not anymore illustrate these effects by providing an adjusted ROCE figure going forward. Now back to Reinhard, who will comment on our outlook.
Thank you, Sven. The market environment continues to be characterized by tight supply and strong demand due to cyclical tailwinds and structural factors. Over time, capacities will gradually be added, allowing for some restocking from very low levels, but no full replenishment in the foreseeable future. Rather, across a large majority of product categories and end markets, everything that we ship gets assembled into final products and sold. As a consequence, our outlook is still predominantly determined from the supply side, that is by the extent by which we can expand capacities both in-house as well as from external manufacturing partners. Regarding currency, we adjust our outlook to an assumed US dollar-euro exchange rate of 1.15 from 1.20 before. This is a major driver for raising our projections, as you can conclude from the sensitivities Sven mentioned earlier.
First, to the running second quarter of our 2022 fiscal year. We anticipate revenues to increase modestly to around EUR 3.2 billion. By division, we expect IPC to grow sequentially by a high single-digit %, ATV by a low single-digit %. CSS should be flat, and PSS seasonally decline by a low single-digit %. In terms of profitability, typically the March quarter marks a low point within our fiscal year, driven by effects from inventory revaluation and price declines. As stated in last analyst call already, we do not expect such a dip in the current environment. Hence, the Segment Result Margin should come in again at a level of around 22%, beating our usual seasonality.
For the full 2022 fiscal year, we raise our anticipated revenue figure from EUR 12.7 billion to 1 3 billion, EUR ± 500 million, taking into account the stronger U.S. dollar. At the midpoint, this would constitute an annual growth rate of 17.5% higher than market predictions. We expect to benefit from structural growth opportunities and the expansion of our in-house manufacturing capacities. From a divisional perspective, we continue to expect ATV and CSS to exceed the group average growth rate. PSS should grow in line with group average. For IPC, we increase our projected growth slightly to a high single-digit percentage range. Specifically talking about silicon carbide, we confirm our goal to roughly double our business again and achieve close to EUR 300 million of revenue in our 2022 fiscal year.
Also, in this area, the demand lies clearly above available capacities. On a cautionary note, our outlook is predicated on the absence of larger supply chain disruptions or other new bottlenecks. Whereas our current visibility is fairly good, the resurgence of COVID-19 cases and the rapid spread of the Omicron virus variant create uncertainties. Bearing this in mind, we are confident about our margin trajectory. Therefore, we are firming up our guidance for the Segment Result Margin, which goes from 21% to a level of 22%, assuming the expected revenue comes in. As already mentioned, cost and price increases do not necessarily occur at synchronized points in time. Our projection for investment in property, plant, and equipment, other intangible assets, and capitalized development costs remains unchanged at around EUR 2.4 billion.
Key projects are the expansion of 300-mm silicon capacities at the Dresden and Villach sites and expanding our wide bandgap manufacturing in Villach and also Kulim, Malaysia. For depreciation and amortization, we expect a value between EUR 1.6 billion and 1.7 billion, including amortization of around EUR 400 million resulting from the purchase price allocation for Cypress and, to a lesser extent, sale related to International Rectifier. For free cash flow, we expect a level of around EUR 1 billion. Overall, we are well set to continue our successful journey into 2022. Before coming to your question, please allow for a short personal note. Today's analyst call will be the last one for me as Infineon CEO. The first one was 10 years ago. I have enjoyed the rigor of this quarterly exercise, same as I have enjoyed the dialogue with you.
As sell-side analyst, you are the key link between our company and our owners, as well as general capital markets. Many thanks for all your support, reports, and recommendations, and particularly those with buy and strong buy. Many thanks for all your investigative questions. I hope I could answer most of them throughout the years, but I'm sure you have a couple more. Let's bring them on. Some of them I might pass on to Jochen, who will chair this call from next quarter onwards.
Thank you. Our question and answer session will be conducted electronically. If you would like to ask a question, simply press the star key followed by the number one on your telephone. If you are joining us today using a speakerphone, please ensure that your mute function is turned off. Once again, in order to be fair to all participants, please keep it to one question. We'll take our first question then from Alex Duval from Goldman Sachs. Please go ahead.
Yes, many thanks for the question, and actually to Reinhard as well for all the dialogue and help over the years. One question was just on what you said about your business and tightness not being resolved in the near term. It sounded like you said you think tightness is gonna persist for all of auto, industrial, and data center. Can you just clarify is that correct? Can you give a bit more color on what near term means? To what extent do you see areas of the business that are likely to come more into balance this year? Could you help us think about the phasing as we look through the year? Many thanks.
Thank you, Alex. First, in general, yes, our outlook is definitely affected by the tightness of supply, mainly from foundries and Helmut will go into details for the Automotive market. We also can briefly touch on other verticals, but I think the major one is the Automotive, not to forget also our CSS segment.
Yes, happy to add some color. At first, yes, the current demand situation is by far exceeding capability to supply. That is in particular true for Automotive. Figures have been reported by analysts that about 10 million cars would have been built more in last year than actually was possible through the shortage of semiconductors and other materials. Certainly there is a need to catch up with that figure throughout the year. For the entire year 2022, we do see that demand in Automotive will continue to exceed, gradually improving over the year. Yet there's definitely no doubt that demand will be more than sufficient to fill the books of ours. There is other verticals that are also very strong or remain to be very strong.
Let's say the server market in the compute area definitely we see it hold on very strongly. On the renewable side, in particular, solar is gonna be driving double-digit growth. Many other things besides Automotive continue to drive our demand up.
Yeah. The situation, I will hand over to Jochen, but we expect that the foundry supply will improve in second half year. You see it only partially in our numbers. One addition to the Automotive segment, what we also see, that the current model is not anymore fitting 100% as the feature level in cars has increased significantly, and the automakers are moving to higher-end cars, but also in the midsize, much more is added, especially in the electric. Capacity and supply, Jochen, can you comment, please?
Thank you, Reinhard. Let's start with the tightest area, which is still from the foundries. Here we secured more wafers in 2022 than in 2021. Mainly backloaded, meaning supply improves for the second calendar year, which is then of course only reflected partially in the second half of the calendar year. Which is of course only reflected then partially in our forecast for our fiscal year. We see the tightest supply area still in the, let's say, mature nodes from 130 nm down to 40 nm, 28 nm. On the power side, our outsourcing share is not very significant. There we see some additional supply in the market.
On the power side, we of course benefit mainly from our continuous ramp in our own factories. Here, the CapEx spend in 2019, 2020, 2021, of course, give us the momentum reflected lately by the opening of our new 300-mm factory in Villach.
Many thanks.
Thank you. Our next question now comes from Sandeep Deshpande from JP Morgan.
Thanks for letting me on. Since you last talked, Reinhard, talking about your factory in Villach, has the ramp-up plans of the factory in Villach changed at all? How quickly will it ramp up? Is the CapEx that you have outlaid for this year, EUR 2.4 billion, enough to ramp it up, or is there a potential that you may raise the CapEx again through the year?
Hi, Sandeep. Thank you for the question. Right away to Jochen.
Yeah. The current environment is determined by, let's say, lead times of equipment. In general, I feel very comfortable with the page we showed at the CMD, where we showed two facilities ramped up over time. Of course, we would take any advantage of equipment becoming earlier available to boost this ramp, but this is difficult in the current market environment, so that is more determining everything than the, let's say, CapEx budget number.
One addition, Sandeep-
Thank you.
We are in a very good position.
Yeah.
That we also can now ramps 200 mm in 200 mm, 300 mm factories, which we reported before.
Understood. Thank you.
Thank you. We'll now go to our next question from Didier Scemama from Bank of America.
Yes, thank you. Maybe first a word to Reinhard, and thank you for your leadership over the last decade and turning Infineon what it is today. We'll miss you. My question is this. So you've given us your backlog of EUR 31 billion at the end of December, and I just wanted to understand how you reconcile that backlog with your revenue guide for FY 2022. How much of that is non-cancelable orders? And also the benefit of pricing in your FY 2022 revenue guide. Thank you.
Hi, Didier. Thank you, and Helmut will take it. In general, we have various patterns in our order concept, and Helmut will go into detail.
Yes, Didier, welcome. The backlog we reported obviously is exceeding by more than two times our revenue forecast that we have for the year. Clearly, the backlog, I'd say, has a maturity where 80%, around 80% of that is targeted for the next 12 months. Obviously, that doesn't fit to our revenue forecast, so that we will not be able to fulfill all of this. I think at this time, non-cancelable orders are really a term that is not necessary given the fact that you have that maturity and absolute number. You also added, say the additional aspect of pricing.
I think we see out of the revenue growth for the fiscal year that we have planned, more than 50% of that is actually coming from volume. We do have a triple-digit effect in terms of pricing as well as from the U.S. dollar, included in the current forecast included.
One addition to that, non-cancelable orders are a double-edged sword. You for sure will get the revenue for the time being, but we experienced this in former times where we had such contracts. After the periods where the non-cancelable orders are, I would say, finished from the contract, we saw a significant dip in revenue. We very much prefer to be close to the market and follow our customers along these lines, and I ask them to participate in the risks of idle cost.
Thank you.
Thank you. I'll now go to our next question from Andrew Gardiner from Citi. Please go ahead.
Good morning, gentlemen. Thanks for taking the question. First of all, I echo the sentiments of my peers. Best wishes, Reinhard. I had a question for you on the margin front. With the results you just reported for December and then the outlook you've given us for the March quarter, you're looking at margins in the low to mid 22% range for the first half of the fiscal year, which then begs the question, with continued revenue growth in the back half, full utilization, the supply-demand imbalance you've talked about, why would margins decline in the second half of this fiscal year to drive only 22% operating margins for the year? Thank you.
Thank you, Andrew, and Sven already hinted slightly in his presentation, but I think it makes sense to go more into detail.
Yeah. Thank you, Andrew, for the question. As we said, the margin perspective and trajectory is, of course, the sum of many different parts. There are some pluses and there are some minuses as always. I think the most important thing to note is, as we have said last time and this time in Reinhard’s part as well, this typical seasonality is no longer fully in sync with talking about cost increases and price pass-through. Therefore, we also need to be here a bit mindful of how we interpret quarters. Looking at how we come to the 22% for the full year, I mean, as you say, we have now 2022 something in the books. We are guiding for 2022.
The first half of the year would then be a little bit less than 50% of the revenue guidance for the full year. Taking all the positives like pricing environment, the revenue fall through on the gross margin, lower idle cost, the currency contribution on the positive side, and further cost pressure from foundries, from commodity prices, and all that into an equation. Also having a, I would call it, a balanced approach between risks and opportunities. We just talked about opportunities. If a foundry supply would be a bit higher in second half, there could be also a risk that an Omicron impact could hit our supply side. If that would not materialize, there would be some kind of upside.
That's also the reason why in the revenue guidance we have given you EUR 13 billion plus 500 million. Taking all that together, we think it's a balanced approach of coming with EUR 22 billion, taking all these factors into consideration. Last element, as also explained, I think, at the Capital Markets Day, please also always factor in, especially for CSS for the group that we are heavily investing, we are pre-funding PSS revenue synergies. We are investing into wide bandgap, and that also has an impact on the margin side going forward.
Thank you.
Thank you. We'll go to our next question now from Alexander Peterc from Société Générale. Please go ahead.
Yes, good morning. Thank you for the question, and congratulations to Reinhard for taking Infineon to where it is today. Great job done there. I'd like to come back a little bit on the CapEx situation. You know, given the very strong demand patterns and the inability of the industry to supply outstanding demand, would there be any upsides to your CapEx budget for the year? What would you ideally like to spend this year? If you had no constraints on the side of equipment suppliers?
Okay. That is an interesting question we never ask ourselves. No joking.
Yeah.
I think yes, of course, and Jochen can go into details.
Yeah. We always invest in a meaningful manner. Let's face it, we have now February. You know our fiscal year ends in September, in difference to our competition. EUR 2.4 billion is a good number. Again, if there are opportunities, we would take them, but the market is currently limited by equipment, and it doesn't make sense to take equipment on the books, which is not in the critical path to more revenue. We are planning here along our structural growth drivers and plans, and that is over multi years and of course will expand our capacity in order to take advantage of the coming growth in all our target markets.
Yeah, maybe one add-on here. I think, especially in the silicon carbide area, we would be happy if we could accelerate the capacity ramp up. Here, as Jochen said, the supply is limited from the equipment side.
Thank you very much.
Thank you. Our next question now comes from Adithya Metuku from Credit Suisse.
Yeah. Good morning, guys. Again, firstly to Reinhard. You know, it's been great following the company over the last decade and seeing the way you built up Infineon. You know, I wish you the very best in your future endeavors. Just, I had two questions. Firstly, you know, your peers have recently been talking about capturing more of the value added by semis. You know, talking about how pricing dynamics in the industry are changing to what they've been over the last 20 years. I just wonder, when you gave your margin target, you gave it when you bought Cypress and pricing dynamics in the industry were very different.
The 19% through cycle margin target, and you're already at 22% Segment Result Margin, and you're talking about some potential upside depending on how the year goes. I just wonder, how should we think about any upside potential to the through cycle margin target of 19%, you know, as these pricing dynamics change? Any color you can provide around that would be helpful. Then just on the free cash flow, question for Sven. You know, you obviously updated guidance. You're keeping your CapEx flat. Are there any material parts we should be aware of when modeling free cash flow remaining at probably EUR 1 billion? Any color around that would be helpful. Thank you.
Yeah, thank you. I will hand it over. Due to the acquisition, I want to make a brief remark. At the time, we had maybe a different pricing situation, but also a different supply situation. Considering these headwinds and tailwinds, we believe that we are very successful in getting the value and the acquisition, especially taking into account that we are still in a hardly to no touch scenario of the integration process. Therefore, I believe it is a very balanced number. Sven, please elaborate on that more.
Thank you, Adi, for the question, and let me maybe start with the obvious. As we said in the past, this 19% profitability level is a through the cycle number. Through the cycle to us means that in boom years, in good years, you need to be significantly above the number. As in bad years, a COVID year, for example, which was not as bad at Infineon as for others, but still below the margin target, you saw it to the downside. Having now a 3 percentage points up compared to the 19% is, from my perspective, just the confirmation that the through the cycle logic works.
The other thing I just wanna repeat, if you recall our Capital Markets Day, in the Q&A session, I said that, once markets have normalized and once all these supply demand imbalances are fading out, we will upgrade our target operating model. I can confirm that. I think at that moment in time, there is nothing to add from that perspective. To your free cash flow question, why have we not changed the EUR 1 billion given that we have now EUR 300 million more of revenues? I mean, mathematically, there would be a small additional component, I agree. It's a round number.
Also please factor in that in order to secure supply for the years to come, we are also entertaining discussions with our suppliers on some prepayments, which have also an impact on the free cash flow. All that is factored in into the guidance.
Understood. Thank you.
Thank you. Our next question now comes from Stéphane Houri from ODDO. Please go ahead.
Yes, good morning. I have a question on the Automotive margin actually, because it's pretty high at the moment. In the past, you were saying that there was a significant difference between electromobility and kind of more classic Automotive business. Can you update us on this? What do you see going forward for this? Thank you.
Yeah, thank you, Stefan. Helmut will touch on that. First of all, I want to remind you that for a very long time, we communicated that we have to improve the margin in the EV business. Means the IGBT and silicon carbide and other products going in there. There we have been very successful as volume was up, and I would say we managed it well as predicted. There are other factors in the portfolio structure. I hand over to Helmut.
Yeah, thank you, Stéphane, for the question. First of all, EV dynamics is continuing to be super strong, doubling the volume of plug-in and battery-driven vehicles. In particular, Battery Electric Vehicles are super strong. China again leading the growth with more than doubling as compared to the previous year again, which by the way, side note, not to your question, but in general interesting, is also driving charging infrastructure, which is another important growth driver for Infineon. As to the margin, as Reinhard said, we have been working on improving our cost position on one side. The other thing is, we are very strong in modules as well as in the chip business that we provide to this market. There is a margin difference between the two.
In fact, as there is less material that we have to purchase on the chip side, the margin is generally higher. That's a structural effect that certainly helps us. Automotive then in general is also trending towards higher-end vehicles. This path continues as well, which is driving components with a higher value again. That is all contributing to a margin Improvement in Automotive.
Okay. Thank you very much.
Thank you. We have a question now from Sébastien Sztabowicz from Kepler.
Thank you, and thanks for taking the question. Could you please provide some indication on the size of your backlog today on the silicon carbide? Also, have you seen any change in the competitive landscape for silicon carbide? Because it seems that some Chinese companies are investing increasingly in power semis, generally speaking, but also in silicon carbide like BYD Semiconductor and others. Thank you.
Yeah. Thank you for your question, Sébastien. First of all, we are very proud that we are very advanced in the technology progress and are leading the industry on the trench-based silicon carbide MOSFET. We are pretty much in line with our goal to EUR 1 billion in the mid-2020s. The order backlog here is developing quite positively. As we are a very reliable partner, we do not offer to our customers, especially in Automotive industry, more capacity than we foresee in the nearer future. The outlook is more supply constrained and here we would expect that in all verticals we could do more.
That is charging stations. It is renewable power supplies for photovoltaic as in the drivetrain. I think here, there we cannot give you a precise number, and we see Infineon becoming a leader in this market as we go forward. The investment plans we talked about, especially moving to Kulim, will be a substantial part of it and there are more to come in the next quarters.
Thank you. Jerome Ramel from BNP Paribas has our next question.
Yeah, good morning. Thank you, Reinhard, for this year and best of luck for the future. My question is concerning the full year revenue guidance. When we look at the guidance, implicitly, the second half of this year is just 4% above the first half. I'd just like to understand the dynamic there, because on one hand, you say you're gonna have a little bit more capacity coming online, also coming from the foundries and the seasonality of demand should be a bit stronger. I'm certainly surprised that we don't see more upside in the second half versus the first half. Thank you.
Thank you, Jerome. I think we touched it a little bit already. Jochen said something, and we will share that question. As we move forward, we see that capacity is coming on in-house as we are investing and the foundry is still pretty constrained affecting ATV, CSS, and also PSS. Please don't forget that in many areas we have kind of a bundle solution, we could deliver more power, but are constrained in other areas. Jochen, can you please go into detail?
Yeah. First of all, I would like to reiterate that the additional foundry waivers we are getting are rather good for revenue in the second half of the calendar year 2022. I would also like to point out that we baked in some risk into the forecast. Nothing like, as Reinhard said in his intro, nothing like a Texas winter storm. I am concerned about Omicron spreading, for example, in China, zero-COVID strategy there. Let's see if we come into the next quarter. Right now, we see it as a balanced forecast and some risks are baked in. Without, of course, we do not know yet exactly where they are gonna be.
Yeah, again, what we said in the intro. We do not see market risk. We see the balanced forecast, which we are giving as a supply-based forecast where we have figured in risks and opportunity, you know, Infineon, how we act. Therefore, I believe the good message is the market would support more.
Thank you.
Thank you. We have a question now from Johannes Schaller from Deutsche Bank.
Yeah, thanks for taking my question. Also Mr. Ploss from my side, big thank you for making Infineon what it is today and the great communication with us analysts. All the best for your future. Again, Mr. Hanebeck, congratulations on taking over. I wanted to dig a little bit deeper on the 5G gallium nitride on silicon business you talked about on the last call. I mean, doing a bit of digging on that, it feels like your customer and design pipeline is probably quite broad, and the financial opportunity maybe there is even bigger than the LDMOS business that you sold to Wolfspeed. Can you talk a little bit just about the breadth of that opportunity and then maybe also how we should be thinking about the size of that over the next years? Thank you.
Yeah, thank you, Johannes. Well, the situation with the gallium nitride on silicon for RF application is a complex one. The opportunity there lies in the application and introduction of the high complexity MIMO architectures moving away from, I would say, the kind, let's call it single antenna concept. Here you see two things to happen, and we see these on good track. First of all, the gallium nitride technology has to develop, and there are quite substantial challenges in the behavior of gallium nitride RF components where we believe we have solved this better than the competitors, make it more easy for our customer to design it in. On the other side, we also see that the adoption of new architectures has to go on.
Of course, we see in this a very wide interest, but also some challenges due to the geopolitical constraints, which does not enable us to move everywhere fully freely. Here we have a very great technical cooperation, but we see a great opportunity to go beyond. You will see this gradually growing, but we should not overestimate the consequence on the business, as it will remain a smaller absolute number of revenue. We believe that we will be able to enter this, especially when we think about moving to higher frequencies. You see there are a number of steps to be taken, and we believe that we are very well positioned.
It's very clear. Thank you very much.
Thank you. We have a follow-up question now from Didier Scemama from Bank of America. Please go ahead.
Yes, thank you for that. I just wanted to just come back to the point earlier on the backlog. You're saying 80% of your EUR 31 billion backlog is for fiscal year 2022 delivery, but clearly you won't deliver on that given your capacity limitations. How much of it do you think will spill into 2023 at this stage? Or to put it differently, is 20% of your EUR 31 billion already for 2023 deliveries? Can you just comment on this? That would be great.
Hi, Didier. So, yeah, I think Helmut can put more light on it.
Yes. That's a $1 billion question, I would say. If I would know, I'd be happy how much of that is gonna be in 2023. Definitely yes to the second part of your question. 80% for what? 12 months means 20% beyond 12 months. As you know, our fiscal year ends in September. There's, what is it? eight months, I think, with that we're probably having of that, 12 months, of the 80%. eight out of 12 × 80% is what we have in this fiscal year, and the rest goes already into the next fiscal year, which is substantial, a substantial portion of it.
How that is going to develop will as usual depend on many things. One of it, how is the market gonna hold? Is there gonna be increase in supply? To predict a figure for that one for 2023 is not possible now.
Didier, one addition. In this backlog, we have confirmed and unconfirmed orders. We very much believe that quite a portion of those, which we cannot serve, we will shift forward to 2023. Therefore, I think, this is not so simple to try to have a precise calculation on it.
That is helpful. Thank you very much.
Thank you. We have a follow-up question now from Jerome Ramel from BNP Paribas.
Yeah, thank you for squeezing me in. Last question on silicon carbide, on the target of $1 billion volume in 2025. How much is the mix between Modules, MOSFET and Diode? Thank you.
Oh, Jerome, this is a challenging question. We believe that the industrial business is and to a large extent module-based, as we have a lot of customer in the renewables which prefer to use modules. We see also some trends to discrete packages which we can solve quite well. You know that the challenge with silicon carbide is that out of the same package size you have four times the current use. So it's for many of our competitors, it's difficult to support that technology. In the Automotive segment, we see quite some demand on silicon carbide chips, and there it is we cannot clearly say as business develops, and therefore I think Helmut any addition to that?
Yeah, what I can say is obviously the diodes are substantially lower in value than the MOSFETs. We have higher volume in diodes, but higher value in MOSFETs, if you wanna take that split between MOSFETs and diodes. It all depends on yeah, right now we are much stronger in industrial, and we do see a stronger growth in industrial too than we do have in Automotive currently. There we have a higher portion of the discretes as well. Overall modules are more than discretes.
To add here, for PSS, for high-end server supplies, for larger power server supplies, silicon carbide in the PFC stage is a very valuable solution parallel to gallium nitride. Nevertheless, don't forget CoolMOS. I think here we really have a strong foothold because we can offer the full range, especially also high power packaging. Let's wait and see how it develops. Of course you can guess Infineon optimize for profit, and therefore this may change over time as we take business on, and but I think we can go next time more in detail on that. Back to-
Thank you.
I think here we come to the end. Now ladies and gentlemen, it's time to summarize. Infineon was off to a strong start into the 2022 fiscal year with more than EUR 3.1 billion of revenue, a 22.7% Segment Result Margin, and close to EUR 400 million of free cash flow. In our target application areas, the near term dynamic remains favorable. Supply is seeing some improvement, but keeps being insufficient to meet demand. Many products are in allocation and inventories remain low. Against this backdrop, we continue to expect a strong 2022 fiscal year. To reflect the stronger U.S. dollar, we have raised our guidance to revenue of around EUR 13 billion, a Segment Result Margin around 22%, and around EUR 1 billion of free cash flow.
The supply demand imbalance will stretch well into 2022, but hardly last forever. There will be restocking and phases of slower momentum. More importantly, our structural growth drivers are fully intact. Semiconductors are becoming ever more strategic and product defining. Infineon is ideally positioned to shape and benefit from the two secular themes of our Time, Electrification and Digitalization. With both near and long-term prospects bright and full trust in the execution capability of this team here under Jochen's leadership, it is a great time for me to say goodbye.
Ladies and gentlemen, thank you very much for dialing in. This concludes our today's call. Thank you for all your questions and in particular for being so disciplined with the one question per caller rule. If you do have further questions, please do not hesitate to reach out to us in the IR team here in Munich. Other than that, stay safe and healthy, and have a good day.