Earnings Call: Q1 2018

Jan 31, 2018

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2018 fiscal 1st year results. This call will be hosted by Juergen Rebel, Corporate Vice President, Investor Relations of Ascendiant Technologies. As a reminder, this 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 could on due 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, and welcome ladies and gentlemen. With us today, we have Reinhard Plas, CEO Dominic Azam, CFO, Helmut Castle, CMO, and Johan Harnibek, member of the management board responsible for operations. As usual, Reinhardt will start with some remarks on group and division results, market developments, and our achievements during the quarter. Dominik will then comment on some selected key financials. After those introductory remarks, the entire management will be happy question in the first round. A recording of this conference call and a copy of our 2018 fiscal 1st quarter earnings press release and also the investor presentations is available on our website at vinyan.com. Reinhard, please go ahead. Thank you, Jurgen. Good morning, everyone. Here are our latest news. In the December quarter, revenues came in at 1,000,000,000 1,000,000 for the group. Video over year increase of 8% and a quarter over quarter decline of 2%. At a constant euro, U. S. Dollar exchange rate in the later text, I will abbreviate this a little bit because we have all 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. So our underlying growth has gained further momentum. Segment result increased year over year by 15% and decreased quarter over quarter by 14% to EUR283,000,000. The segment result margin came in at 15.9 percent. Order entry also accelerated during the December quarter the book to bill ratio came in at 1.4. For this fiscal first quarter performance, we met our quarter 1 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 change rate of 1.15. Now let's take a look at the divisions. Automotive revenues came in at 1,000,000 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 trend line growth in automotive. The segment result decreased in contrast to the growth in revenues quarter over quarter to 1,000,000 from $109,000,000 previously. The segment result margins stood at 13.4% The primary reason for this unexpected development is a production related one of charge. On the top of the very steep ramp, that we're currently managing for electric drivetrain related modules raised 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. We achieved a major design win for our automotive Moss sets of several €100,000,000 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 oral 3x microcontroller as the safety host controller in the sensor fusion box. We also realized that innovative XUV drivetrain topologies are hitting the market and require even more power semiconductor. As illustrated in our quarterly presentation, the new new ES8 SUV requires for hybrid back drive IVG modules. There is 1 motor at the front axle and 1 motor at the rear axle with 2 modules per motor. This results in about €800 power equipment inductors for the drivetrain, the highest value ever. 2nd, The electric drivetrain business continues to ramp extremely strongly. 3rd, the automotive business remains very solid across the board. Industrial Power Control. We posted revenues of 1,000,000 compared to 1,000,000 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, you would even have grown 15% year over year. Again, 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 1,000,000, down from 1,000,000 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 IGBT 5 based modules or in 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 and multi market. Revenues of PMM increased by 10% year over year and declined seasonally by 5% quarter over quarter to 1,000,000. At a constant 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. In ACDC, we saw solid demand across all applications with an increasing order backlog, especially demand for server power supply remains strong. Also, So from a small base, our power IC and ACDC 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 mix signal cool set products. Integrated power and driver IC products. In DCDC, we also saw solid demand across all applications, and again, order backlog is increasing. Demand for server platforms remained high. We also make progress. It expanding our expertise in server power stages into TVcom base stations. With 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 1,000,000. The segment result margin stood at 19.6%. Now I look at chip card and security. Revenues decreased year over year by 7% quarter over quarter by 10% coming in at 1,000,000. However, at a constant dollar exchange rate, the year over year decline would only have been about 4%. The security control and 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 CEs and business for the emergency call function in newly registered car, we saw some temporary inventory adjustments at our customer. The book to bill ratio slightly improved compared to the previous quarter, and came in at 1.1. Segment result stood at 1,000,000, marking a segment result margin of 15.4 end. In spite of the difficult overall market, the foundations for future return to growth are continuously late We want both e passport and EID project 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 assets tracking and embedded security solution for smart homes. With this, I would like to hand over to Dominic who will comment in more details on some selected key financial figures. Thank you, Reinhard, and good morning, everyone. Quarter over quarter, the euro strengthened only slightly against U. S. Dollar, from 117 in the September quarter to 118 in the December quarter. However, against the exchange rate assumption of 115 for the December quarter, we had to cope with some headwind, which amounted to EUR 24,000,000 for the top line. In a year over year comparison, we actually see a significant headwind from the U. S. Dollar as the exchange rate depreciated by about 8% as compared to the average exchange rate of one point 0 8 in the December quarter 2017. Note that this implies an 18% year on year revenue growth for the fiscal first quarter in U. S. Dollar terms. And this is obviously the measure we need to use for apples to apples comparison of our growth momentum against our major competitors and industry statistics such as WSTF. Gross profit decreased to EUR 646,000,000. 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 1,000,000 and EUR205 million, respectively. Included in these numbers are EUR 35,000,000 of non segment result charges a significant improvement compared to the September quarter. Of that amount, EUR 30,000,000 are international rectify acquisition related amortization and other charges. 1,000,000 of these acquisition related charges hit our cost of goods sold 1,000,000 SG and 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 1,000,000. Included in this figure are EUR 27,000,000 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 28,000,000 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 carry forwards. We expect to benefit from these for about another 5 years. When modeling the P and 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 carry forwards. For this, expect the P and L tax rate to rise to about 25 percent 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 jurisdiction We 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 1,000,000 after positive 1,000,000 in the September quarter As more pronounced seasonal decline is a result of the accelerated investments into capacity expansions in phase of the low teens underlying growth at a constant euro, U. S. 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 notepad 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, Dominic. For the 2018 fiscal year, we now expect revenues to grow 5 percent plusor-2 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 17 and 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 euro revenue growth of 11% at the midpoint of the guidance. If you 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 meaningful above group average. IPC should come in around group average and PMM should come in below group average. TCS might see a revenue decline. We cannot fully compensate the impact of the weaker U. S. Dollar on the segment result margin which should come in at 16.5 percent of sales at the midpoint of the guided revenue range. Looking into the March quarter, our fiscal 2nd quarter, we expect revenues to increase seasonal by 4% plus or minus 2 percentage. Points. This also assumes a rate of 1.25 for the dollar against 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 key points for the 1st 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. And obviously, if you reported in U. S. Dollar, as most of our competitors we would even guide for 16% growth at the midpoint. 2nd, in spite of the headwind from the weaker US 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 0.5 percentage point which is slightly less than you would expect from our currency sensitivity rule of thumb. 3rd We have reached the crossover for our drace 300 millimeter power fab compared to 200 millimeter relative to our original ramp up scenario. Due to the boom in demand for power discretes, we decided to significantly accelerate the ramp in 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. As such, our 300 millimeter project not only provides us a great runway to drive growth and for further strong demand of our customer, but it's also accretive for infinanced margins and earnings. Ladies and gentlemen, this concludes our introductory remarks and we are happy to Thank you. Followed by the number one on your touch tone phone. If you are joining us today using a speaker phone, please ensure the mute function We'll 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 $900 within the Neo SUV, obviously, I think in all the commentary we've had before, the par semi content is expected to be somewhere around $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 3 or 4 years' time? Or should we treat this as an exception? And then just a quick second question. On terms of the ramp that you're now accelerating in 300 millimeter, does that mean you've commented before you expect be fully utilized and using the space you have by 2020. Does that mean you could reach that kind of full point quicker now. And what does that mean in terms of the longer term capacity planning for the business? And when you might need to kick start something else? Hello, David. Thank you for the questions. I will answer the first one and Joachan will talk on 300 The design win for NIO is for me, of us, that's 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 wall systems, which we would call a very mild hybrid solution. And this can range up to the level which we have seen and the neo. And for the time being, we will not chains, the average expectation for hybrids of full electric cars and the content for that. Nevertheless, long term, it can range up to there, especially when a significant tier of silicon carbide will kick in. Maybe if I can just help and ask the question a slightly different way. Is this represent is this an exception within the mix of deals that you've been winning for full EV platforms? Is this an exception or is the way you've been winning before consistent with the $400 type range for fully V, ignoring the hybrids and so on? Yes. So the average is $400,000,000, this is exceptionally high. Okay. Thanks very much. Hi, David. So 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 And, currently, we accelerate. So the year of, for full load is probably close to what you mentioned with 2020 now. But does that mean 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. So typically, we have to assume 2 years of construction for new facility. So we are in the midst of making up our thoughts and we will communicate this in due time. 2 years lead time, yes, I said. That's great. Thanks very much. We'll now take the next question from Atya Mettu Kohl from Bank of America. Yes, good morning guys. So I had two questions. Firstly, on silicon carbide, you guys have said in 3Q 'seventeen numbers that you expect that you had more than 15 Tier 1s looking at solutions. Can you give us some update on how the traction is for taking carbide in the EV market? And 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. So the first question will be answered by our mode and 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 y'all already told that we are ramping significantly. So yes, of course, with this situation, we expect that there are some double ordering in what we have feared in this into our growth expectation But again, currently a significant part is limited by adding capacity. Yes, Hardi. Hello, Hammar Kassel here. We have received a phenomenal feedback from these Tier 1s so far on a Syk 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. Hey, very clear. Just a quick clarification on the conservatism. So if you hadn't priced in any conservatism for double ordering, how much higher could your guidance be roughly? Thank you. Well, this is a good question. Again, the same answer. If you would have more capacity, we might have guided differently. But I think this is nothing which is in just think about what we communicated as book to bill ratios and many of these book to bookings are in the, I would say, near to mid term. So the potential would be significantly or there significantly is, let's say, to a certain degree higher, but this is nothing where we base on our guidance on. Nevertheless, the momentum is stronger in the market than you can read from our revenue guidance. Now take the next question from Sandeep Deshpande from JP Morgan. Yeah, hi. Thanks for letting me on. My question, is regarding, I mean, you've talked about in your presentation on silicon carbide in the on the roadside charges as well as my question is regarding silicon carbide in the automotive itself. Firstly, on the automotive, what kind of content do you back when silicon carbide starts getting introduced in the auto engine. And, with these charges probably taking off before the automotive market takes off, I mean, when should we expect revenues on these roadside charges? So, Sandeep, Sandeep, thank you for the questions. I think Helmut can And so this on the charge us, 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 the smaller power, the benefit of silicon carbide is much more limited. And the next point, which is for me, also very much defining the in road of Silicon Carbide into the drivetrain of the car is the automotive people in the tier 1s and OEM have to adapt 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. So we it is very difficult to tell you, but we expect that silicon carbide in the car will come, but there are some, I would say OEMs already around today, but in a mode, in a broader range will come in in the car drivetrain at the beginning of the next decade. Yes, Sandeep, some comments on Silicon Carbide in X EVs. As we have said earlier, 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. And one of the reasons why we said, onboard charges for, hybrid vehicles will be potentially first is because additional constraints are there in terms of space. And obviously, silicon carbide designs are much smaller, slimmer designs and lighter. So therefore, we will see them first there. The exact modeling on how silicon carbide will be it 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. So it's not possible to give you a very exact figure when it will come, nevertheless, Content per inverter, on silicon carbide is significantly higher as we talked about as compared to silicon. When it comes to the road side, we see that if you want to go beyond 100 kilowatt of charging power, the design calls out was use of Silicon Carbide. Again, at this early stage, hard to tell, and how exactly the charging stations will be installed. So please bear with us that we do not have a precise model at this point in time and how silicon carbide will be deployed. Just a quick follow-up for domic on your sales number itself Dominic. I mean, underlying dollar, you had higher growth as you reported the numbers today, because 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% plus -2 percent? That, that if there is incremental upside like you saw in the fourth quarter in terms of dollar year on year growth that there could be also incremental upside through the year for the revenue growth? Sandy, let me let me just clarify, what is exactly underlying, in terms of growth? I mean, I think it's very important to understand, how sharp with all that actually depreciated on a year on year comparison. In the December quarter, we had 108 last year and are now at 118 And 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 12.4? That is basically the 1st month of January. With the axles, you can read on Reuters here, plus 2 months of 1 25. And if you fold that together with our guidance, you actually see that we're guiding in U. S. Dollar terms, which is actually the comparable competition 22%. So it's actually the March guidance is a strong further acceleration after December quarter accelerated year on year to the September quarter. Again, we're 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. And secondly, as Reinhard and Jochen mentioned, there are some capacity limits. So of course, if you got tons more demand in ship cuts, I believe, which we don't expect, by the way, we could ship more. But in other products where we have this huge delta between confirmed and unconfirmed, we unfortunately have low capacity left. So that's why As always, we give the best guidance we can give, which is the 5% plus minus 2% in euro terms, which has the headwinds I've described. Thanks, Tommi. So 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? And 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 'seventeen year was due to competition in the XEV space in general. So I'm just trying to determine the balance between the ramp up costs and competition? Thank you. Andrew, thank you for your questions. I answered the second one and then Dominic 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, all of the same. Yes, so there are more people coming in and have a showing interest in the market, but does not this does not affect our price or pricing situation for the time being. So on the margin side, I think we have been quite specific by saying that we're going to kind of see a convergence, so to speak, to the margin levels in 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 costs because also operationally, there were some things happening, which didn't help at all. So I would really ask you to look a little bit beyond that. It's not so representative, so to speak. And Ronald already gave the second part of the answer. Okay. Thank you. Dominic, just a quick follow-up on your statements on tax. Just to be clear, were you saying, sort of a step up in the P and L rate by 2020 to to what level? No. So what happens is basically we have these textless carry forwards in Germany, which provide us with a pretty below effective and cash tax rate. However, there is a timing difference between the cash tax rate and the effective tax rate and the P and L because of deferred taxes, yes? This is why you should assume kind of a ramp to this 25% or so long term sustainable level absent any text loss carry forward in the P and L as early as 2020, whereas on the cash side, and we can benefit from them a couple of years later. So that will lead you like 2022. Is it clear for you now? Or Yes, it is. Perfect. Thank you. We'll now take the next question from Achal Volthania from Credit Suisse. Hi, good morning. Thanks. Just a question or a clarification on the EV ADAS business Can you just give us some color as to, I think last time you said it was about 10% or 15% of your auto business and it was growing 70%, 80%. What what kind of trends that we've already seen, for this, for 1st 4 months of this year already? Like, is it expected to replicate what we saw last year? And and how much is today? Is it that number as percentage of total sales in ATV? Yeah. I have a good answer on that. Yes. Good morning. Basically, I would say the momentum is unchanged. Both, as you always have said, probably carrying half of the growth of the automotive group. And, yes, of course, the percentage of automotive is slightly changing, but just from a smaller base. So yes, there's still maybe somewhere between 10% 15% of the automotive total business. And are growing faster continue to grow faster. Okay. And one question for maybe Dominic, when you talk about the 300 millimeter, ramp, in interest in, can you just give us, some color around how much of revenues out of total group revenues is coming from dressed in today, and and what's the capacity utilization? I think was it, like, 15, 20% like, couple of quarters back and and how has that number changed much in the last 6 months or so? So I mean, the loading discussion is pretty unchanged. Of course, we ramped very fast, but at the turn of the year, it's kind of a quarter loaded. And now I would need to do the math, and then I think Ewan can follow-up with that. What that means, precisely, in terms of revenue contribution, you can back solve actually but you also should comment on the situation with a more forward looking view. The ramp up plan is as expected as described before. And 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, but of course, increasing quickly. All right. Great. Thanks a lot. Yes. We'll now take the next question from Amit Parchendani from Citi. Good morning, everyone. I'm Thir Chandani from Citi, and 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. But just to me, the demand momentum was probably stronger than you anticipated over the course of the December quarter. So would it be fair to say that your lead times have are still continue to stretch, or are they starting to stabilize LDA at relatively elevated levels? You could comment on that, please. And then I have a quick follow-up. Yes. So, Hamid, this question will be answered by Hamid. Yeah. And as we already said, one important thing is that lead times vary depending on which product we're talking about chip card, obviously, it's very On the other side, where we are completely full, the only chance that we have is to confirm orders later. The orders are coming today as the capacity is completely full. So yes, lead times are continuing to stretch for the areas where we are in a location. On the other hand, a confirmation in a very, very long time from today, we'll have to see how much it remains valid when we finally, the market demand turns. So at this point in time, yes, they are stretching. Okay. And, in terms of a follow-up, I was just wondering, you've left your CapEx guidance unchanged at the moment for this year. So 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 revenue your current CapEx would support exiting fiscal 2018? It's a good question. We will answer this question next time about CapEx when we have a clearer picture or 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 the, I would say, the investment as we record it and as it becomes effective on the revenue streams. There's a little bit, I would say, shifted out in time frames. I think here, this maybe the best idea when Jurgen comes over the and give you these 8 answers later. And the next point is also that we see again and again structural changes in its portfolio. So the overall optimization of the revenue out of CapEx is significantly impacted there. We can prepare some in on that. But 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. But 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. We'll now take the next question from Adam Goller from Deutsche Bank. Hi, thank you for taking my question. It was just a quick one on M and A. Obviously, the way eurodollar move has moved is, has kind of hurt your numbers, but potentially could be quite favorable depending on how you're thinking about M and A going forward. So, yeah, any thoughts you could share on that, please? Yeah. Well, the M and A strategy is, but not defined by the exchange rate. Nevertheless, yes, this can help us to move forward. The major targets are in us, but maybe, Dominic can add on that. I mean, it's 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 that's all I think that matters. Otherwise, I would say it's, but it's actually kind of consequence of the lower cash flow unit I also get. So I'm not sure it really helps. Okay. Thank you. We'll now take the next question from Jerome Raneau from Exane BNP Paribas. Yeah, good morning. First question on the capacity constraint. Can you share with us if you have increased prices in power? And also, if we listen to your competitor's home and submit the organic share in IGBT because you have been a capacity constraint. So do you think just temporary? And then when you have the ramp up of the 300 milligrams fab, when you get the tools, you're gonna catch up, and then 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. And I think if you have further questions on the capacity constraints, Johan will comment on ours. Yes. And, like in every market, when demands are high and capacity is low, there is a certain reaction of prices, but we have to bear in mind is that a significant portion of our business has an annual contract base. So it's 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. So, I would say, yes, in average, a slightly reduced price decline. Yeah. And in terms of capacity build up, I think in general, what we get is feedback from our customers is that we have a company that is building up capacity, the fastest and especially in power discretes. And just to sorry, no, let me add that on the don't forget the currency. I'm not sure your state was actually correct. If you include 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. So if you think about the guidance, I think it's like 25% growth or more. So I'm not sure who else has grown by so much in IGBTs. Yeah, I think I only can confirm what is Dominic saying. We, of course, the significant capacity addition is also for modules overall and we don't see that competitors are significantly better suited in delivery capability than we are. The market overall is constrained. And maybe there are some minor shifts in between, but the majority may be due the, let's say, the currencies. Okay, thank you. And maybe just to follow-up on OTMT. Back from CS, we saw your competitors doing very aggressive, especially for the radar a seventy seven gigahertz radar with a key eye coming with a, no, Rainy, with a NXP coming with a CMOS process HTML as well. So, you're being a dominant player in the field for a couple of years now, and and I guess you will continue to gain my for me this year. But my question is, when you look forward, let's say 2, 3 years from now, what kind of market share are you assuming in way to ask it typically? Thank you. Yeah, well, this is a difficult question when we ask about market share. But you're right. We are currently in an extreme, nice position on with our radar system, what we expect that other solution will come in. Nevertheless, we also assume that we will be a to grow significantly in this area. And it will be also dominated by the number of radar applications And there are some applications which need less precision and less distance capability, which may move to CMOS more quickly. So 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 a seamless radar and will enhance a radar in the non automotive application, but we cannot a precise expectation for this because we also don't know the intensity of application, the various cars. That is extremely dynamic. Thank you. We'll now take the next question from Gunther Holcelder from Baader Helvea. Yes, many thanks. Just one follow-up question and then a second. The follow-up on the CapEx. I mean, doesn't your unchanged CapEx guidance not include already like an increase given the U. S. Dollar exchange rate? Dominique will I answer your question? 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. But as a trend, so to speak, we had a pretty broad range of 1.1to1.2.2 So it would be a little bit kind of, artificial precise to then also adjust because of dollar, but you're right, in principle, And by the way, the CapEx we have right now is not taking into account any kind of huge incremental upswing. It's kind of more geared towards the normal trend line growth next year. So if we saw another year of above trend line growth, it would be would need to be higher. Okay. Thanks. And then one question on your image sensor business. I mean, you had some sales, some business in 2017. And now you presented an improved, I think a shrinked image sensor, also software partners that enable facial recognition. I just wanted to understand what what the opportunity of this product and technology could be, let's say, looking into 2019? Well, Ms. Olga, this is a segment which, is for our from our point, an area of potential new growth depending on the areas of application. We are in the 3 d imaging sensors since quite a while. And 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 I have not taken place, but 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 say have a three-dimensional recognition without a lot of compute power. But here definitely a time of flight, the 3 d time of flight is a wild card And, well, give us some time in order to, let's say, tell you more as we move on. Nevertheless, interesting is that compared to the time before the interest in using this as a 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. But 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 Tamiq from Berenberg. Hi, thank you for taking my question. So my first question is about auto revenue outlook. So basically for this year, next few quarters also is likely to drive the group revenue growth significantly. So I'm just wondering what's your visibility on the auto revenue in 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 certain point. 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 an 8% However, when exactly it is lowering from its above trend line to trend line, it's 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. And 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, but it's a certain significant uncertainty in this assumption. So the second question is about margin. So, you are saying you can still keep ramping the 300 millimeter fab capacity. I remember previously you mentioned that the 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 percentage, 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 US 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. So 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 race. Going forward, we kind of 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 a way of our positive effects from millimeter in the current fiscal year because the increases are very, very significant. So we have to watch how that will evolve. So so 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 either the way. And we are actually not willing to really speculate on that. We'll now take our next question from John Merkel Barcina from Equita. Yes, good morning. And just going back to your guidance for 2018, if I understand correctly in, let's say, cost and currency, you are speaking about 11% top line growth. In the December quarter, I calculated the it was about 13%. So keeping the currency constant, And also for the March quarter, it will be a similar rate of 13%. So 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. Yes, it's very simple. The capacity constraints. Okay. Okay. And when is that issue solved so far in the next fiscal year already? I think Jorgen can explain a little more on the strategies for capacity addition. But here, John Marco, it is very clear. We have to balance the growth. And we also are cautious not to run into an overheated mode. And it's a lot of matter of the ability. But here Johan has a great team and he will explain that. So 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 cooling facility on 200 millimeters We are also working with our subcontractors, but they are also, of course, fully loaded, these days. So 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, but we do everything in order to catch up, whether we meet the demand, depends on the more on the demand and on our abilities. There's also one topic, when we at infinium 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 bear minimum because we need some delivery performance later on for certain important customers. So, this is a little bit of a difference with huge customers where we have certain commitments where you cannot really do opportunistic like in a distribution business and then kind of in a good cycle like that 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. And 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, which 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 And 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'll 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 percentage of total sales and What are the specific products you want to gain share in or get traction in for smartphones? The question, Douglas, Dominic will answer on this. We have a very selected strategy. I mean, on the share, it's 7% more or less in last fiscal year. And 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. So it's extremely selective strategy on that. And we also hear more on the pro products in order not to be I would say victim of the in and out of the winning and losing platforms. All right. So thank you everybody for all your questions. And 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. And, some of you might still see you on our handle the roadshows in March together with Alexander to everybody else. All the best. Thank you, and goodbye. With that, I would Not yet. So also from the Dominic and me, a big thank you to Yurini had done a great job in order to represent us in at the investors and analysts. And we are looking forward to Mr. Fulton in order to continue this great performance journey has shown. So thank you a lot, from the Board side. And now you may close it as your last action on that. So 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.