Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2018 fiscal first-year results. This call will be hosted by Juergen Rebel, Corporate Vice President, Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded. This conference call may contain forward-looking statements based on current expectations or beliefs, as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control, that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these statements, and they should not put undue reliance on them.
For a detailed discussion of important factors that could cause actual results to differ materially from the statements made on this conference call, please refer to our quarterly and annual reports available on our website. At this time, I turn the conference over to Infineon. Please go ahead.
Good morning, welcome, ladies and gentlemen. With us today, we have Reinhard Ploss, CEO; Dominik Asam, CFO; Helmut Gassel, CMO; Jochen Hanebeck, member of the management board responsible for operations. As usual, Reinhard will start with some remarks on group and division results, market developments, and our achievements during the quarter. Dominik will comment on some selected key financials. After those introductory remarks, the entire management will be happy to answer your questions. In order for everyone to have a chance to ask their questions, please restrict yourself to one question and one follow-up question in the first round. A recording of this conference call a copy of our 2018 fiscal first quarter earnings press release, also the investor presentations, is available on our website at infineon.com. Reinhard, please go ahead.
Thank you, Juergen. Good morning, everyone. Here are our latest news. In the December quarter, revenues came in at EUR 1.775 billion for the group, a year-over-year increase of 8% a quarter-over-quarter decline of 2%. At a constant euro-US dollar exchange rate. In the later text, I will abbreviate this a little bit because we will have it very often. We have grown by about 13% year-over-year. This actually represents an acceleration from the about 11% year-over-year growth at a constant exchange rate to the dollar, which we had generated in the prior quarter. Our underlying growth has gained further momentum. Segment result increased year-over-year by 15% decreased quarter-over-quarter by 14% to EUR 283 million. The segment result margin came in at 15.9%. Order entry also accelerated during the December quarter, the book-to-bill ratio came in at 1.4.
With this fiscal first quarter performance, we met our quarter one guidance for revenues and actually overachieved our segment result margin guidance. In spite of the headwind from the weaker U.S. dollar compared to the assumed exchange rate of 1.15. Let's take a look at the divisions. Automotive revenues came in at EUR 770 million for the quarter. This represents a 9% year-over-year increase and a 5% increase quarter-over-quarter. At a constant dollar exchange rate, we would have grown 13% year-over-year. If you look at our Automotive year-over-year growth in U.S. dollar terms, we actually grew by 19%. The book-to-bill ratio came in at a strong 1.3, supporting our confidence in another year of above trendline growth in Automotive. The segment result decreased in contrast to the growth in revenues quarter-over-quarter to EUR 103 million from EUR 109 million previously. The segment result margin stood at 13.4%.
The primary reason for this unexpected development is a production-related one-off charge. On the top of the very steep ramp that we're currently managing for electric drivetrain-related modules, raise on the margin before the output will kick in in the second half of the fiscal year. For this, we expect a gradual snapback of the ATV segment result margin in the next three quarters to the levels seen throughout the last fiscal year. The key messages for our Automotive business are as follows. We achieved a major design win for our Automotive MOSFETs of several hundred million EUR lifetime revenue at a leading European tier 1. The design win includes a wide variety of classic applications such as braking and power steering. Design wins like this one confirms our view that still about half of our growth in Automotive will come from these conventional applications.
We are also very proud that the world first true level 3 car on the road for autonomous driving level 3, the new Audi A8, features plenty of Infineon semiconductor and critical application. This includes our radar ICs or the AURIX microcontroller as the safety host controller and the sensor fusion box. We also realize that innovative xEV drivetrain topologies are hitting the market and require even more power semiconductor. As illustrated in our quarterly presentation, the new NIO ES6 SUV requires four HybridPACK Drive IGBT modules. There is one motor at the front axle and one motor at the rear axle with two modules per motor. This results in about EUR 800 power semiconductors for the drivetrain, the highest value ever. Second, the electric drivetrain business continues to ramp extremely strongly. Third, the Automotive business remains very solid across the board. Industrial Power Control.
We posted revenues of EUR 296 million compared to EUR 328 million in the September quarter. Year-over-year, this marks a 12% increase. Quarter-over-quarter, this means a seasonal decline of 10%. At a constant U.S. dollar exchange rate, we would even have grown 15% year-over-year. Against seasonal trend, demand for solar inverter solutions continued to be high. All other primary application areas showed a typical seasonal decline. Order entry remained very strong and the book-to-bill ratio came in at 1.4. The segment result came in at EUR 48 million, down from EUR 60 million in the September quarter, however, doubling year-over-year. The segment result margin came in at 16.2%. This quarter's highlight for IPC. We see a continuous design win momentum across all product classes.
Be it our latest generation IGBT5-based modules or our integrated power controllers for motor control, molded IPMs for major home appliance at leading Asian suppliers, or finally, new product tenders for our silicon carbide modules. Let me also comment on the IGBT market in general. After we saw a very strong growth in 2017, we expect the growth momentum to normalize in 2018. Turning to Power Management & Multimarket. Revenues of PMM increased by 10% year-over-year and declined seasonally by 5% quarter-over-quarter to EUR 545 million. At a constant EUR-U.S. dollar exchange rate, PMM would have grown 18% year-over-year. The power business remained very strong across all applications and products. We actually saw inventory levels declining at distributors. We noted the highest order entry ever, leading to a book-to-bill ratio of a staggering 1.6. The smartphone component business showed a typical seasonal decline.
The RF power amplifier business for base stations is stable. We saw solid demand across all applications with an increasing order backlog. Especially demand for server power supply remains strong. Still from a small base, our power IC and AC/DC business is developing nicely with a year-over-year growth of almost 40%. Adding further to this momentum, we are ramping our XDP digital controller now also into lighting applications, and we are beginning to ramp our new line of analog mixed signal CoolSET products. Integrated power and driver IC products. We also saw solid demand across all applications and again, order backlog is increasing. Demand for server platforms remained high. We also make progress expanding our expertise in server power stages into telecom base stations.
The smartphone component business, we noted a strong year-over-year increase of more than 60% in the silicon microphone business, indicating a further increase in market share. The PMM segment result decreased to EUR 107 million. The segment result margin stood at 19.6%. Now, a look at Chip Card & Security. Revenues decreased year-over-year by 7% and quarter-over-quarter by 10%, coming in at EUR 162 million. However, at a constant EUR-U.S. dollar exchange rate, the year-over-year decline would only have been about 4%. The security controller market remains difficult for the moment. As we noted some stabilization in the payment card market, we saw a seasonal decline in all other areas. In our eSIM business for the emergency call function in newly registered car, we saw some temporary inventory adjustments with our customer.
The book-to-bill ratio slightly improved compared to the previous quarter and came in at 1.1. Segment result stood at EUR 25 million, marking a segment result margin of 15.4%. In spite of the difficult overall market, the foundations for future return to growth are continuously laid. We won both ePassport and eID projects and government ID, including projects in Asia and Africa. We also secured further design wins for embedded security control application, such as TPM at major PC OEM, embedded SIM for machine-to-machine asset tracking, and embedded security solution for smart homes. With this, I would like to hand over to Dominik, who will comment in more details on some selected key financial figures.
Thank you, Reinhard. Good morning, everyone. Quarter-over-quarter, the euro strengthened only slightly against the US dollar, from 117 in the September quarter to 118 in the December quarter. Against the exchange rate assumption of 115 for the December quarter, we had to cope with some headwind, which amounted to EUR 24 million for the top line. In the year-over-year comparison, we actually see a significant headwind from the US dollar as the exchange rate depreciated by about 8% as compared to the average exchange rate of 1.08 in the December quarter of 2017. Note that this implies an 18% year-on-year revenue growth for the fiscal first quarter in US dollar terms. This is obviously the measure we need to use for an apples-to-apples comparison of our growth momentum against our major competitors and industry statistics such as WSTS. Gross profit decreased to EUR 646 million.
This implies a gross margin of 36.4% after 37.5% in the September quarter. Research and development expenses and selling, general, and administrative expenses came in at EUR 195 million and EUR 205 million respectively. Included in these numbers are EUR 35 million of non-segment result charges, a significant improvement compared to the September quarter. Of that amount, EUR 30 million are International Rectifier acquisition-related amortization and other charges. EUR 17 million of these acquisition-related charges hit our cost of goods sold, EUR 13 million SG&A. Excluding acquisition-related and all other non-segment result effects, the adjusted gross margin stood at 37.4%, compared with 38.6% in the September quarter. Depreciation and amortization, including non-segment result effects, remained essentially flat at EUR 204 million. Included in this figure are EUR 27 million related to the amortization and depreciation of fair value step-ups from the purchase price allocation from International Rectifier.
Continuing with tax, we booked an income tax expense of EUR 28 million in the December quarter, which included a mid-single-digit million gain from the U.S. tax reform. For cash flow modeling, a tax rate of 15% continues to be a reasonable assumption going forward. Please consider that the low tax rate is primarily a result of the existing German tax loss carryforwards. We expect to benefit from these for about another five years. When modeling the P&L, you have to bear in mind that the effective tax rate will gradually increase a couple of years ahead of the actual full usage of the tax loss carryforwards. For this, expect the P&L tax rate to rise to about 25% already by around 2020 and to roughly stay on this level beyond, with impacts of the U.S. tax reform already considered.
What we obviously cannot judge at this point in time is if and how other jurisdictions will react to the reductions in U.S. corporation income tax and the preferential treatment of profits related to the exports from the United States. Free cash flow from continuing operations came in at a negative EUR 135 million after positive EUR 249 million in the September quarter. This more pronounced seasonal decline is a result of the accelerated investments into capacity expansions in face of the low teens underlying growth at a constant euro-US dollar exchange rate as compared to our 8% trend line growth model. Our after-tax return on capital employed came in at 14.6% in the December quarter after 13.3% in the September quarter. The increase is essentially driven by the increase in net operating profit after taxes or NOPAT as a consequence of the lower tax expenses in the December quarter.
Return on capital employed continues to be strongly affected by bookings related to the acquisition of International Rectifier. In particular, goodwill, we have any step-ups in the context of the purchase price allocation and the related depreciation and amortization. Excluding acquisition-related bookings and effects, as well as deferred tax effects, the adjusted return on capital employed stood at roughly 21%, i.e., about twice as high as our cost of capital. Let me now hand back to Reinhard who will comment on our outlook.
Thank you, Dominik. For the 2018 fiscal year, we now expect revenues to grow 5%, plus or minus two percentage points, assuming a rate of 1.25 for the dollar against the euro for the remainder of the fiscal year. You have to remember that we guided at an exchange rate of 1.15 in November 2017. More than half of our revenues are in U.S. dollars. Even with a very good momentum, we are unable to compensate for this. If the dollar were at the same level as in the 2017 fiscal year, we would expect a EUR revenue growth of 11% at the midpoint of the guidance. If we look at our growth outlook for the 2018 fiscal year in U.S. dollar terms, we are actually guiding about 16% growth at the midpoint of the guidance.
Taking the impact from the weaker dollar into account, the relative growth expectation of the divisions are as follows: ATV will grow meaningfully above group average. IPC should come in around group average. PMM should come in below group average. CCS might see a revenue decline. We cannot fully compensate the impact of the weaker U.S. dollar on the segment result margin. It should come in at 16.5% of sales at the midpoint of the guided revenue range. Looking into the March quarter, our fiscal second quarter, we expect revenues to increase seasonally by 4% plus or minus two percentage points. This also assumes a rate of 1.25 for the dollar against the euro for the remainder of the quarter. The segment result margin should come in at 16% at the midpoint of the guided revenue range.
Ladies and gentlemen, let me summarize the key points for the first fiscal quarter. First, the order entry stays on a very high level and even accelerated in some areas. For this, we are very confident for the March quarter. For the rest of the 2018 fiscal year, we expect an unchanged business momentum only affected by the significantly weaker U.S. dollar. This is reflected on our adjusted guidance. However, the underlying growth for this year remains strong. At a constant dollar exchange rate, our growth outlook would be at 11% at the midpoint. Obviously, if we reported in U.S. dollar as most of our competitors, we would even guide for 16% growth at the midpoint. Second, in spite of the headwind from the weaker U.S. dollar, our profitability came in slightly better in the first quarter.
For this, we only have to reduce our full-year segment result margin guidance by half a percentage point, which is slightly less than you would expect from our currency sensitivity rule of thumb. Third, we have reached the crossover for our Dresden 300-millimeter power fab compared to 200 millimeter relative to our original ramp-up scenario. Due to the booming demand for power discretes, we decided to significantly accelerate the ramp at Dresden 300, and are ramping as fast as we can to add new capacity. This pull-in, of course, triggers incremental cost in the near term for the benefit of fast growth and higher profits in the coming years. However, adding the same capacity on 200 millimeter would have caused even higher ramp-up costs and CapEx.
Our 300-millimeter project not only provides us a great runway to drive growth and fulfill the strong demand of our customer, but is also accretive for Infineon's margins and earnings. Ladies and gentlemen, this concludes our introductory remarks, and we are happy to take your questions.
Operator, please start the Q&A session.
Thank you. Our question and answer session will be conducted electronically today. If you would like to ask a question, please press the star key followed by the number 1 on your touch-tone phone. If you are joining us today using a speakerphone, please ensure the mute function is turned off to allow your signal to reach our equipment. Once again, to signal for a question, please press star one now. We will take our first question from David Mulholland from UBS. Please go ahead.
Hi. Thanks very much. Just two questions, if I may. Firstly, on the design win you commented on potentially as much as over EUR 900 within the NIO SUV. Obviously, I think in all the commentary we've had before, the power semi content is expected to be somewhere around EUR 400, give or take. Is this something that's changing the game in a sense of where the average content in an EV might end up in three or four years' time, or should we treat this as an exception? Just a quick second question on terms of the ramp that you're now accelerating in 300 millimeter. You've commented before you expect to be fully utilized and using the space you have by 2020. Does that mean you could reach that kind of full point quicker now?
What does that mean in terms of the longer-term capacity planning for the business, and when you might need to kickstart something else?
Hello, David. Thank you for the questions. I will answer the first one, and Jochen will talk on the 300 millimeter. The design win for NIO is for us very remarkable because it of course also shows that the range which we expect for the EVs is very broad. In the near term, we expect that a lot of OEMs will decide, in order to improve their CO2 balance for their fleet, to introduce 48-volt systems, which we would call a very mild hybrid solution. This can range up to the level which we have seen in the NIO. For the time being, we will not change the average expectation for hybrids or full electric cars and the content for that. Nevertheless, long term, it can range up to there, especially when a significant share of silicon carbide will kick in.
Maybe if I can just stop and ask the question a slightly different way. Is this an exception within the mix of deals that you've been winning for full EV platforms? Is this an exception, or is what you've been winning before consistent with the EUR 400 type range for full EV, ignoring the hybrids and so on?
Yeah. The average is 400. This is exceptionally high.
Hi, David. Turning back to your 300 millimeter question, you're right. We said that we expect the full load of the clean room early next decade. Currently we accelerate. The year for full load is probably close to what you mentioned with 2020 now.
How do you think about sort of planning to do something beyond that then? When should we start hearing about what the plan is to continue growing beyond 2020?
Sure. Typically, we have to assume two years of construction for new fab facility. We are in the midst of making up our thoughts, and we will communicate this in due time. Yeah, two years lead time. Yeah, that's it.
That's great. Thanks very much.
We'll now take the next question from Adithya Metuku from Bank of America.
Yeah. Good morning, guys. I had two questions. Firstly, on silicon carbide. You guys had said in three Q17 numbers that you expect that you had more than 15 Tier 1s looking at your solutions. Can you give us some update on how the traction is for silicon carbide in the EV market? Secondly, I just wondered whether you have priced in any conservatism for any potential double ordering that may be happening in the space currently. Thank you.
The first question will be answered by Helmut, I just jump on the conservatism. Look, the current situation in Infineon is our revenue guidance is to a large degree, defined by our manufacturing capabilities, where Jochen already told that we are ramping significantly. Yes, of course, with this situation, we expect that there are some double ordering in, but we have figured this into our growth expectation. Again, currently a significant part is limited by adding capacity.
Yes. Hi. Hello, Helmut Gassel here. We have received phenomenal feedback from these Tier 1s so far on our SiC MOSFET, in particular to the terms of reliability. However, they are still in progress, and we have nothing to public at this point yet. But yes, you can expect more coming.
Okay, very clear. Just a quick clarification on the conservatism. If you hadn't priced in any conservatism for double ordering, how much higher could your guidance be, roughly? Thank you.
Well, that is a good question. Again, the same answer. If we would have more capacity, we might have guided differently. I think this is nothing which is in. Just think about what we communicated as book-to-bill ratios, and many of these bookings are in the, I would say, near to mid-term. The potential would be significantly, I would say, to a certain degree, higher. This is nothing where we base our guidance on. Nevertheless, the momentum is stronger in the market than you can read from our revenue guidance.
Perfect. Thanks very much.
I'll now take the next question from Sandeep Deshpande from JP Morgan.
Yeah. Hi. Thanks for letting me on. My question is regarding, you've talked about in your presentation on silicon carbide on the roadside chargers, as well as my question is regarding silicon carbide in the automotive itself. Firstly, on the automotive, what kind of content do you expect when silicon carbide starts getting introduced in the auto engine? And with these chargers probably taking off before the automotive market takes off, when should we expect revenues on these roadside chargers?
Sandeep, thank you for the questions. I think Helmut can answer this on the chargers. Just one general comment on silicon carbide. I think we expect that silicon carbide will kick in and will kick in on the high power cars, mainly where the benefit is the most significant. The smaller cars with a smaller power, the benefit of silicon carbide is much more limited. The next point, which is for me, also very much defining the inroad of silicon carbide into the drivetrain of the car is the automotive people, the Tier 1s and OEM have to adopt to a different way how they design their ECUs in order to benefit from the silicon carbide, which takes place gradually. Currently, the major focus definitely to build up the portfolio. It is very difficult to tell you, but we expect that silicon carbide in the car will come.
Well, there are some, I would say OEMs already around today, but in a broad range will come in the car drivetrain at the beginning of the next decade.
Sandeep, some comments on silicon carbide in xEVs. It is all about cost performance at the end of the day, and it factors in the cost of the battery as well as the cost of the inverter and the designs. One of the reasons why we said onboard chargers for hybrid vehicles will be potentially first is because additional constraints are there in terms of space. Obviously, silicon carbide designs are much smaller, slimmer designs and lighter. Therefore, you will see them first there. The exact modeling on how silicon carbide will be adopted for the main inverter as well is still work in progress. As we just said, we see OEMs and Tier 1s really exploring capability of silicon carbide. It's not possible to give you a very exact figure when it will come.
Nevertheless, the content per inverter on silicon carbide is significantly higher as we talked about as compared to silicon. When it comes to the roadside, we see that if you want to go beyond 100 kW of charging power, the design calls out for use of silicon carbide. Again, at this early stage, hard to tell how exactly the charging stations will be installed. Please bear with us that we do not have a precise model at this point in time on how silicon carbide will be deployed.
Just a quick follow-up for Dominik on your sales number itself, Dominik. Underlying in USD, you had higher growth as you reported the numbers today, because of probably you've seen better trends in the fourth quarter. Are you saying at this point, in terms of the guidance you're giving for the rest of the year in terms of 5% ± 2%, that if there is incremental upside like you saw in the fourth quarter in terms of USD year-on-year growth, that there could be also incremental upside through the year for the revenue growth?
Sandeep, let me just clarify what is exactly underlying in terms of growth. I think it's very important to understand how sharp the USD has actually depreciated on a year-on-year comparison. In the December quarter, we had 1.08 last year and are now at 1.18. Actually, in the current quarter, in the March quarter, which we've just guided, we actually had last year, only 1.06 and are guiding now implicitly to be very precise, 1.24. Why 1.24? That is basically the first month of January with the actuals you can read on Reuters. Plus two months of 1.25. If you fold that together with our guidance, you actually see that we are guiding in U.S. dollar terms, which is actually the comparable number to competition, 22%.
It's actually the March guidance is a strong further acceleration after December quarter accelerated year-on-year to the September quarter. Again, we are accelerating in the March quarter. The issue is, however, why is there not more upside? First of all, I think it's very early in the fiscal year, so I think it's prudent not to get carried away too much at this point in time. Secondly, as Reinhard and Jochen mentioned, there are some capacity limits. Of course, if we got tons more demand in shipment cuts suddenly, which we don't expect by the way, we could ship more. In other products where we have this huge delta between confirmed and unconfirmed, we unfortunately have no capacity left.
That's why, as always, we give the best guidance we can give, which is the 5% ±2% in EUR terms, which has the headwinds I've described.
Thanks, Dominik.
Just to make one comment on the capacity limitations, even so we have noted this very clearly, I believe we should also underline that Infineon is, from a growth perspective and capacity, best positioned compared to our competitors.
Thank you.
The next question comes from Andrew Gardiner from Barclays.
Good morning. Thanks for taking the question, gentlemen. Sticking on the Automotive topic, I'm afraid, but I was just interested in a bit more detail around the profitability. You'd highlighted that some of the pressure in the current, or sort of the fiscal first quarter was due to ramp-up costs. Can you quantify that for us? Also, I'm just wondering on the continued impact of competition here. If I recall from the last conference call, you had flagged that some of the margin pressure that you were already seeing at the tail end of the fiscal 2017 year was due to competition in the xEV space in general. I'm just trying to determine the balance between the ramp-up cost and competition. Thank you.
Andrew, thank you for your questions. I answer the second one, and then Dominik will go more in details with the profitability. In general, Automotive is always a buyer's market and the pressure on the price is, I would say always the same. Yes, so there are more people coming in and heavily showing interest in the market. This does not affect our pricing situation for the time being.
On the margin side, I think we have been quite specific by saying that we are going to see a convergence, so to speak, to the margin levels in the second half of the year we've seen last year. Frankly, the December quarter was an exceptionally weak quarter in terms of margin, not only because of the ramp-up cost, but also operationally there were some things happening which didn't help at all. I would really ask you to look a little bit beyond that. It's not so representative, so to speak. Reinhard already gave the second part of the answer.
Okay. Thank you. Dominik, just a quick follow-up on your statements on tax. Just to be clear, were you saying a step up in the P&L rate by 2022 to what level?
No. What happens is basically we have these tax loss carry-forwards in Germany, which provide us with a pretty low effective and cash tax rate. However, there is a timing difference between the cash tax rate and the effective tax rate in the P&L because of deferred taxes. This is why you should assume kind of a ramp to this 25% or so long-term sustainable level, absent any tax loss carry-forwards in the P&L as early as 2020. Whereas on the cash side, we can benefit from them a couple of years later. That will lead you like 2022. Is that clear for you now?
Yes, it is. Perfect. Thank you.
We'll now take the next question from Achal Sultania from Credit Suisse.
Hi. Good morning. Thanks. Just a question or a clarification on the EV ADAS business. Can you just give some color. I think last time you said it was about 10% or 15% of your Automotive business, and it was growing 70%, 80%. What kind of trends that we've already seen for first four months of this year already? Is it expected to replicate what we saw last year? How much is today is that number as percentage of total sales in Automotive?
Yeah. Helmut would answer on that.
Yes. Good morning. Basically, I would say the momentum is unchanged. Both, as we always have said, are probably carrying half of the growth of the Automotive group. Yes, of course, the percentage of Automotive is slightly changing, but just from a smaller base. Yes, there's still maybe somewhere between 10% and 15% of the Automotive total business, and are growing faster, continue to grow faster.
One question for maybe Dominik. When you talk about the 300-millimeter ramp in Dresden, can you just give us some color around how much of revenues out of total group revenues is coming from Dresden today? What's the capacity utilization? I think, was it like 15%-20% a couple of quarters back? Has that number changed much in the last six months or so?
The loading discussion is pretty unchanged. Of course, we ramped very fast, but at the turn of the year, we were at kind of quarter loaded. Now I would need to do the math, and I think Juergen can follow up with that, what that means precisely in terms of revenue contribution. You can back solve, actually. Jochen should comment on the situation with a more forward-looking view.
Yeah. The ramp-up plan is as expected, as described before. I would guess, but we can come back with a more precise number. It's about 10% of group revenue if I include everything, not only the in-house capacity currently.
Okay.
Of course, increasing quickly.
All right. Great. Thanks a lot.
Yes.
We'll now take the next question from Amit Harchandani from Citi.
Good morning, everyone. Amit Harchandani from Citi. Thanks for letting me on. A question and a clarification, if I may. The question is with respect to the lead times evolution across your various segments. Suggests to me the demand momentum was probably stronger than you anticipated over the course of the December quarter. Would it be fair to say that your lead times are still continuing to stretch, or are they starting to stabilize, albeit at relatively elevated levels? If you could comment on that, please, and then I have a quick follow-up.
Yep. Helmut. Amit, this question will be answered by Helmut.
Yeah. As we have already said, one important thing is that lead times vary depending on which product area we're talking about. Chip Card, obviously, is very different. On the other side, where we are completely full, the only chance that we have is to confirm orders later. The orders that are coming today as the capacity is completely full. Yes, lead times are continuing to stretch for the areas where we are in allocation. On the other hand, a confirmation in a very long time from today, we'll have to see how much it remains valid when finally the market demand turns. At this point in time, yes, they are stretching.
Okay. In terms of a follow-up, I was just wondering, you've left your CapEx guidance unchanged at the moment for this year. Was there ever a thought process looking at how the demand was shaping up in the December quarter to potentially look to add even more capacity than what you had planned at the end of September? Or in other words, could you give us a sense for what is the maximum level of revenue your current CapEx would support exiting fiscal 2018?
Amit, it's a good question. We will answer this question next time about CapEx when we have a clearer picture of long-term development of the market. The absolute revenue we could make out of the capacity which we have is very difficult to answer because we are ramping significantly, and I would say the investment as we record it and as it becomes effective on the revenue streams is a little bit, I would say, shifted out in time frames. I think here it is maybe the best idea when Juergen comes over and gives you these eight answers later. The next point is also that we see again and again structural changes in the portfolio. The overall optimization of the revenue out of CapEx is significantly impacted there. Maybe we can prepare some hints on that.
The situation is so dynamic, and in case we might see a positive further development in the business, we even have to prepare for the next level of growth. Again, as we said, it is a matter of ability to add this capacity in our fabs, which is very much dominating how we grow.
Thank you.
I'll take the next question from Adam Waller from Deutsche Bank.
Hi. Thank you for taking my question. It was just a quick one on M&A. Obviously, the way euro-dollar has moved has kind of hurt your numbers, potentially it could be quite favorable depending on how you're thinking about M&A going forward. Yeah, any thoughts you could share on that, please?
Yeah. Well, the M&A strategy is not defined by the exchange rate. Nevertheless, yes, this can help us to move forward as the major targets are in the U.S. Maybe Dominik can add on that.
I don't think it's really a big driver because also the revenues are impacted if I then convert them back into euros. However, in a certain sense, dollar-denominated assets can be interesting if the dollar depreciates because the competitiveness of that target would be a little bit higher, but that's all I think that matters. Otherwise, I would say it's actually a consequence of the lower cash flows you then also get. I'm not sure it really helps.
Thank you.
We'll now take the next question from Jerome Ramel from Exane BNP Paribas.
Good morning. First question on the capacity constraint. Can you share with us if you have increased prices in power? If we listen to your competitors on semi, they claim they are gaining share in IGBT because you have been capacity constrained. Do you think just temporary, when you have the ramp-up of the 300 millimeter fab, when you get the tools, you're going to catch up? I have a follow-up. Thank you.
Thank you for your question, Jerome. I think related to pricing, Helmut will answer, and same for the market share. I think if we have further questions on the capacity constraints, Jochen will comment on those.
Yes. Like in every market, when demands are high and capacity is low, there is a certain reaction of prices. What you have to bear in mind is that a significant portion of our business has an annual contract base, so it is not moving as quickly. However, we see an average reduction in price decline for the time being. Not always possible to completely pass forward also the cost increase that we see, for instance, on the wafer prices coming in as well. I would say yes, in average, a slightly reduced price decline.
Yeah. In terms of capacity build-up, I think in general what we get as feedback from our customers is that we are the company that is building up capacity the fastest, especially in power discrete. Sorry, Jerome, let me add that. Don't forget the currency. I'm not sure your statement is actually correct. If you compare everything at WSTS data, U.S. dollar denominated, we had huge growth in IPC. I'm not sure we lost market share. I don't think so. If you think about the guidance, I think it's like 25% growth or more. I'm not sure who else has grown by so much in IGBTs.
Yeah. I think here I only can confirm what is Dominik saying. Of course, the significant capacity addition is also for modules overall, we don't see that competitors are significantly better suited in delivery capability than we are. The market overall is constrained. Maybe there are some minor shifts in between, the majority may be due to the, let's say, the currencies.
Okay. Thank you. Maybe just to follow up on Automotive. Back from CES, we saw your competitor being very aggressive, especially for the radar, 77 GHz radar with TI coming, with Renesas coming, with NXP coming with the CMOS process, STMicro as well. You've been a dominant player in that field for a couple of years now, and I guess you will continue to gain market share probably this year. My question is, when you look forward, let's say two, three years from now, what kind of market share are you assuming in radar specifically? Thank you.
Yeah. Well, this is a difficult question when we ask about market share. You're right, we are currently in an extremely nice position with our radar system. What we expect is that other solutions will come in. Nevertheless, we also assume that we will be able to grow significantly in this area, and it will be also dominated by the number of radar applications. There are some applications which need less precision and less distance capability, which may move to CMOS more quickly. Here, I think the market as such will continue to grow. In our plans, we expect to have a reduced overall market share, because today we are having a huge market share. On the other side, we also will step into CMOS radar and will enhance radar in the non-Automotive application.
We cannot give precise expectation for this, because we also don't know the intensity of application in the various cars. That is extremely dynamic.
Thank you.
We'll now take the next question from Günther Hollfelder from Baader Helvea.
Yeah. Many thanks. Just one follow-up question and then a second. The follow-up on the CapEx. Doesn't your unchanged CapEx guidance not include already an increase, given the US dollar exchange rate?
Günther Hollfelder, hello. Dominik will answer your question.
Yeah. Actually, you should know that the kind of fall-through, so to speak, in the CapEx is much lower than it is on the revenue side. As a trend, so to speak, we had a pretty broad range of 1.1 to 1.2. It would be a little bit artificial precise to then also adjust because of the US dollar. You're right in principle. By the way, the CapEx we have right now is not taking into account any kind of huge incremental upswing. It's more geared towards the normal trend line growth next year. If we saw another year of above trend line growth, it would need to be higher.
Okay, thanks. One question on your image sensor business. You had some sales, some business in 2017. Now you presented an improved, I think, a shrink image sensor, also software partners that enable facial recognition. I just wanted to understand what the opportunity of this product and technology could be, let's say, looking into 2019.
Well, Mr. Hollfelder, this is a segment which is, from our point, an area of potential new growth depending on the areas of application. We are in the 3D imaging sensor since quite a while. Especially in the mobile application, it is very obvious that it is a matter of the idea how it can be used. Many of these ideas have not taken place. Now with the idea or the need for facial recognition and many other areas, the Time-of-Flight may come in more quickly. The advantage of it is that you can, I would say, have a three-dimensional recognition without a lot of compute power. Here, definitely the 3D Time-of-Flight is a wild card. Give us some time in order to, let's say, tell you more as we move on.
Nevertheless, the interesting thing is that compared to the time before, the interest in using this as an add-on in various areas is moving on, but we cannot give you precise growth expectation for this as it is in many other areas of this human machine interface topic. We expect in this area, I would say, quite some dynamic. How it will come, we will see.
Many thanks.
We'll now take our next question from Tammy Qiu from Berenberg.
Hi. Thank you for taking my question. My first question is about auto revenue outlook. Basically for this year, next few quarters, auto is likely to drive the group revenue growth significantly. I'm just wondering, what's your visibility on the auto revenue into the near future? Are we likely to see the above-trend growth over medium term, or is that going to return to the normalized 8% level at a certain point?
Hi, Tammy. Thanks for the question. Helmut will answer it.
Yes, very rightfully stated. For this year, we expect automotive again to be above group average and above normal or long-term trend line. We stick to our guidance for long-term to be in 8%. When exactly it is lowering from its above trend line to trend line is very difficult to predict. At this point in time, we have no visibility to that yet. It is still a red hot market, I would say, for us going forward.
Just adding, if you consider these new applications where nobody clearly knows how xEV will come in and the speed of ADAS, we can also assume that there is a potential for higher growth above the average trend line. It's a significant uncertainty in this assumption.
The second question is about margin. You are saying you're going to keep ramping the 300 millimeter fab capacity. I remember previously you mentioned that the margin from 300 millimeter will be offset by price decline. Can you give us a rough idea how we should be modeling the margin on the back of 300 millimeter ramping together with the impact from pricing?
I think for the current fiscal year, the guidance is the 16.5%, which by the way, you could characterize a little bit as a kind of very, very small raise in a segment result. Because if you just do the U.S. dollar sensitivity, you would see that we would have actually lost a little bit more than that from the 17% we have guided at the outset of the year. It's maybe 0.2% or basically the outperformance we had in the Q1, we have kind of added on the segment results, which is a tiny raise. Going forward, we cannot give you guidance as always for the margin developing in 2019 at the beginning of next fiscal year, because then we will have much more clarity on important factors such as price decline you mentioned already.
There's also a new kind of imponderability, which is the wafer price increases, which have eaten a lot away of our positive effects from 300 millimeter in the current fiscal year because the increases are very, very significant. We have to watch how that will evolve. The problem is that the longer we go out in time and add the productivity from 300 millimeter, the more the compound effect of small variances in price decline can either make that fall through to the margin or eat it away. We are actually not willing to really speculate on that.
Okay, thank you.
We will now take our next question from Gianmarco Marchesini from Equita.
Yes, good morning. Just going back to your guidance for 2018, if I understand correctly, in, let's say, constant currency, you are speaking about 11% top line growth. In the December quarter, I calculated it was about 13%. Keeping the currency constant and also for the March quarter, it will be a similar rate of 13%. Is there a particular reason why you are indicating for the remaining of the year, so the June, the September quarter, the year-over-year growth in constant currency should be, let's say, only high single digit doing the math? Thank you.
Yeah, it is very simple. The capacity constraints.
Okay. When is that issue solved? In the next fiscal year already?
I think here, Jochen can explain a little bit more on the strategies for capacity addition. Here, Gianmarco, it is very clear, we have to balance the growth and we also are cautious not to run into an overheated mode. It's a lot of matter of the ability. Here, Jochen has a great team, and he will explain that.
Yeah. Again, I think we can state that the factories are running at full steam. We are ramping maximum in Dresden. Even though we would prefer to do everything on 300 millimeter, we are also ramping in our Kulim facility on 200 millimeters. We are also working with our subcontractors, they are also, of course, fully loaded these days. We do everything that is possible. I think it's also reasonable that we are building up capacity, maybe not to the full demand customers show us at this point in time, because we do have to assume double bookings. We do everything in order to catch up. Whether we meet the demand depends more on the demand than on our abilities.
There's also one topic where we at Infineon might be a little bit different because of our customer structure than others, which is we are not going to run down the inventories to bare minimum because we need some delivery performance later on for certain important customers. This is a little bit of a difference with huge customers where you have certain commitments where you cannot really do opportunistic like in a distribution business and then kind of in a good cycle like that go to really nothing in inventories anymore. We need certain delivery certainty for certain periods of time, and I think that's a little bit different in our shop than in some other businesses.
Oh, yeah, that is a great comment. I want to add on. It had already been asked about the lead times and many other things. We want to be able to manage our customers and retain those customers where we have a good growth potential, and therefore we can only accept orders, I would say, when we get close to the time when the demand comes. This is also something which Infineon has a clear strategy to come out stronger out of that race situation than we had been before.
We may have time for one more question. We will now take our next question from Douglas Smith from Agency Partners. Please go ahead.
Yeah, thank you. You mentioned very briefly you wanted to gain share in the smartphone market. Can you specify what you think today your smartphone contribution is as a % of total sales? What are the specific products you want to gain share in or get traction in for smartphones?
Oh, thank you for the question, Douglas. Dominik will answer on this. We have a very selected strategy.
On the share, it's 7% more or less.
In last fiscal year.
The number of products and the type of products very much around the silicon microphone, where we have a unique position in technology and capability and around the highly differentiating high-frequency products. It is extremely selective strategy on that. We also are here more on the products in order not to be, I would say, victim of the in and out of the winning and losing platforms.
All right. Thank you everybody for all your questions, allow me one personal comment. Most of you will have seen that I pass on the baton as Head of IR to my colleague Alexander, who was actually listening here next to us, and I will take on an operational role within the Chip Card division. I would like to thank you all for the great and professional collaboration and the great discussions we had. Some of you I might still see on our handover road shows in March together with Alexander. To everybody else, all the best, thank you and goodbye.
Not yet. Also from Dominik and me, a big thank you to Juergen. He had done a great job in order to represent us at the investors and analysts, and we are looking forward with Mr. Foltin in order to continue this great performance Juergen has shown. Thank you a lot from the board side. Now you may close it as your last action on that.
Thank you. That concludes our conference call, and as usual, for further questions you can contact us anytime here in Munich. Thank you. Back to the operator.
Thank you. That concludes today's conference call. Thank you everyone for joining. You may now disconnect.