Wonderful. Dear representatives of the press and media, my esteemed colleagues and coworkers, I am glad to welcome you to the annual press conference of Infineon Technologies AG. Attending the conference are all of the members of the board of management of Infineon. In other words, the CEO, Jochen Hanebeck, the CDTO, Constanze Hufenbecher, the CMO, Andreas Urschitz, the CFO, Sven Schneider, and the COO, Rutger Wijburg. We have quite a tall list on our agenda today. Mr. Hanebeck will start by giving you an overview of the past fiscal year. On top of that, he will share with you some information on our new target operating model and on our planned large-scale investment in Dresden. On top of that, to conclude, he will present you with a forecast for the fiscal year that just started. After that, after the statement of Mr.
Hanebeck, all five members of the board of management will be happy to field any questions you may have. I'd like to give you some housekeeping remarks for the journalists who are following the event via live stream. This is a hybrid event once again. Some of your colleagues are here on-site. Others have dialed in. Anyone who has dialed in is also welcome to pose written questions. The link to the question tool can be found at the bottom of the stream that you have just dialed into. The question tool can also be accessed via the QR code that you can see. You can use your smartphone to do that. I'd like to ask you to indicate your name and the media outlet that you work for before you ask a question. Having said that, I would like to hand the floor to Mr.
Hanebeck for his statement.
Thank you, Bernd. Members of the press and media viewers, a record fiscal year has been completed. A new, even more ambitious set of business targets have been decided, and there are plans for the largest single investment in the company's history. Infineon is shifting into a higher gear. Our company is fully aligned to the two trends shaping our times, decarbonization and digitalization. We provide the essential building blocks for a climate-neutral, digitalized world. As the market leader in power systems and IoT, we are driving the green and digital transformations together with our partners. This is how we are contributing to a future worth living in for us and for generations to come. We want to further increase the value of our solutions which we create for our customers at Infineon, and we are making excellent progress here.
I'm all the more delighted today to be able to report to you on Infineon's progress and our ambitious targets. Welcome to Infineon's annual press conference here on-site and in our live stream. First of all, I should like to look back on the past fiscal year with you. Then I should explain the two strategic decisions that we announced yesterday afternoon. These are the upgrade of our long-term financial target through the cycle and the planned major investment in a new plant. That will be followed by a number of examples that will help you better understand where our technologies are applied and will thus make our market dynamics more tangible. I'll then look at the fiscal year that began in October and assess our outlook. After that, together with my members on the management board, I should be happy to answer your questions. First of all, looking back.
Infineon has completed a challenging 2022 fiscal year very successfully. The fourth quarter went excellently. Group revenues compared to the previous quarter rose by 15% to around EUR 4.1 billion. The development was supported by the strong U.S. dollar. The Segment Result for a single quarter exceeded the EUR 1 billion threshold for the first time. The Segment Result Margin improved to 25.5%, following 23.3% in the previous quarter. The various submarkets paint a differentiated demand picture, which remains strong in automotive industrial applications and renewable energy. In contrast, demand in the application areas of computing, home electronics, and smartphones weakened, which is due to the poorer consumer confidence levels. The bottom line for the 2022 fiscal year is a jump in revenue of more than EUR 3 billion to around EUR 14.2 billion.
That's an increase of 29% compared to the fiscal year 2021, which was already strong. Over half of this increase is due to additional volume, in other words, from expanding our manufacturing capacities and from additional supplies from our contract manufacturers. In addition, there was tailwind from a stronger U.S. dollar and positive effects from pricing and our product mix. All this contributed to the revenue increase. We are also able to increase segment results to almost EUR 3.4 billion. The segment result margin reached 23.8%, which was more than five percentage points higher than in the previous fiscal year. An increase in share of system solutions, pricing and currency effects, as well as a high manufacturing capacity, contribute to ensuring that we were able to balance out the sharply rising cost of material supplies from our contract manufacturers and energy.
Free Cash Flow at the end of the year increased to more than EUR 1.6 billion at the end of the fiscal year, which was significant. These results are the outcome of remarkable performance. The general conditions for our company are currently very challenging. There are several factors placing a heavy burden on the overall economic environment. The war in Ukraine is not only causing unspeakable human suffering, it is also leading to shortages and rising prices for energy and important raw materials. High inflation rates and increasing interest rates are weighing on consumer confidence. The Corona pandemic is persisting, and it's placing constraints on global supply chains. In short, it has been a very challenging fiscal year for Infineon. The fact that we have achieved such good results in this environment is thanks to Infineon's employees, who now number more than 56,000.
On behalf of the management board, I'd like to sincerely thank them for their outstanding commitment, their great mutual support, and the successes that we have achieved together. We want Infineon's shareholders to participate appropriately in the good results of the past fiscal year. The dividend for the 2021 fiscal year was already increased by EUR 0.05 per share, and at the AGM in February 2023, we intend to propose a further increase of EUR 0.05 per share. The dividend for the 2020 fiscal year would thus increase to EUR 0.32 per share. The increasing momentum of decarbonization and digitalization can be seen in our target markets very clearly. Applications, especially in the field of electromobility, renewable energies, automated driving, power for data centers, and the Internet of Things, will continue to grow strongly and sustainably in the years ahead. The structural demand for semiconductors is increasing.
Thanks to its strategic orientation, Infineon will benefit disproportionately from this development. As a leading semiconductor manufacturer for power systems and IoT, our company has great potential. We're the clear number one in power semiconductors, and we are an innovation driver in the field of power systems. We offer our customers intelligent, energy efficient, and secure IoT solutions from a single source. In our target markets, we can see lasting strong growth factors. In addition, we are intensifying a focus on profitability. We can leverage the technological and financial potential of our company even better and with accelerated, more profitable growth, we can create greater value. That is why we are realigning our Target Operating Model. We're committing ourselves to even more ambitious financial targets throughout the cycle, and we're going to be measured by that.
In future, we intend to, basing ourselves on an exchange of Euro over Euro of 1.0, we intend to achieve average revenue growth of more than 10%, which compares to at least 9% this year. Electromobility, renewable energies, assisted driving, data centers, and the Internet of Things in particular will contribute to this growth. Together, these five fields of application will account for about 60% of Infineon's revenue growth over the next five years. The higher growth will also be accompanied by significantly improved profitability. In future, we expect the segment result margin to average 25% of revenues through the cycle compared to 19% so far. The main factors here are as follows. Our from product to system approach creates higher value solutions and thus added value for our customers. A fair share of this added value will benefit Infineon.
Our higher value product technology mix based on consistent portfolio management, the increasing share of our highly efficient 300 mm manufacturing, and the disproportionately low growth in research and development, as well as administrative expenses have improved thanks to digitalization and scaling effects, which are important factors. In addition, compared to the previous Target Operating Model, we're benefiting from a foreign currency effect, in particular because of the increased strength of the U.S. dollar over the euro. Instead of the investment ratio which we've used in the past, for the first time, we are setting ourselves an explicit Free Cash Flow target. Adjusted for major investments in Front-End buildings, the Free Cash Flow margin is intended to be within a range of 10%-15% of revenues over the cycle.
Raising our financial targets must not come at the expense of our environmental, societal, and corporate governance goals. We remain clearly committed to these goals. We want to keep customer and employee satisfaction at their current high level. We were one of the first semiconductor companies to commit to carbon neutrality, and we shall do everything it takes to achieve it by 2030. To reach our goals is with the right strategy. In addition to the right strategy, a success-oriented corporate culture is the decisive basis for achieving our goals. Within the company, we're working intensively on furthering the development of our corporate culture. As part of the spirit culture project, we have therefore developed and defined three behaviors that we want to focus on even more strongly in the company. We want to set ourselves ambitious targets, assign clear responsibilities, and make timely decisions and implement them consistently.
Viewers, a sturdy house stands on a strong foundation. We are systematically expanding our production capacities in order to widen the basis of our accelerated profitable growth course. In doing so, we're following our proven strategy. We manufacture in-house when it creates added value for our customers and differentiation potential for Infineon. In the field of standard technology on the other hand, we mainly work with contracted chip manufacturers when needed. The demand for silicon-based semiconductor solutions is being driven, in particular in the application areas of data centers, automotive, IoT, and renewable energies. The medium-term demand from our customers far exceeds our current 300 mm clean room capacities. These will be fully exhausted by the middle of the decade, and external contract manufacturers are not a viable alternative to in-house production here. Yesterday, we announced our plans to invest EUR 5 billion in a new plant in Dresden.
It will be the largest single investment ever in the history of our company. We want to use the additional capacities to serve our customers' increasing demand in the second half of the decade and to strengthen our position as the global leader in power systems. We are pleased with the political support for investment in Germany and are counting on adequate funding under the European Chips Act. The availability of public funding has a major influence on the implementation of the project, and we are in close contact with the relevant authorities for this reason. By expanding capacities, we want to strengthen our manufacturing base in both analog mixed-signal technologies and power semiconductors. The planned new fab thus unites the two growth themes, decarbonization and digitalization.
Analog mixed-signal components are used in power supply systems, for example, in energy-efficient chargers and small engine controllers for cars, data centers, and applications in the Internet of Things. The combination of power semiconductors and analog mixed-signal components makes particularly energy-efficient and smart system solutions possible. If we combine MOSFET power transistors with chips based on analog mixed-signal technology, we can enable, for example, highly efficient power supplies for processors. These are needed in particular for cloud computing, and they're in the field of training systems for artificial intelligence. A new architecture for vehicles is partially dependent on power semiconductors combined with analog mixed-signal components. The new Smart Power Fab can therefore make a major contribution to driving the green and digital transformation in Europe and beyond.
The planned expansion of our 300 mm thin wafer production at the existing Dresden site would enable quick implementation of the project and offers also significant economies of scale. We could start construction in the autumn of 2023. Production could then begin as early as autumn 2026, and it could be ramped up gradually depending on market development. In this way, we can minimize the risk during temporarily weaker market phases. We're already using this approach successfully at our factory in Villach in Austria. Once fully equipped, the plant in Dresden would enable Infineon to generate additional annual revenues on the same order of magnitude as the planned investment amount. Thanks to a high level of digitalization automation, the new fab would set new standards for manufacturing excellence and raise our virtual 300 mm factory in conjunction with Villach to a new level.
This would make it possible for us to increase efficiency still further and create additional flexibility for our customers. Last but not least, we'd also strengthen Europe's resilience in terms of globally growing demand for semiconductors. The new fab would be a significant contribution by Infineon to the target set by the European Commission of anchoring a 20% share of global semiconductor production within the EU by 2030. By supplying semiconductor solutions for industrial automotive applications, the fab would contribute to securing future value chains in key European industries even better. The new factory will be one of the most resource efficient power semiconductor fabs in the world. State-of-the-art equipment and processes enable a lower consumption of resources per square centimeter of processed wafer area than is the case in existing fabs.
Even today, Infineon can already avoid 33x more carbon dioxide over the lifetime of the applications than is generated in the production of the required semiconductors when our customers use our product and solutions. Our products and solutions therefore create a significant net ecological benefit. We're not standing still. We want to further reduce our own greenhouse gas footprint and further increase our contribution to avoiding carbon dioxide. A new, highly efficient fab for smart energy saving chips would play a significant role in doing this. In many applications, silicon chips are and will remain the technically and economically best solution, for example, in the field of low switching frequencies. In addition to silicon, the semiconductor materials silicon carbide and gallium nitride are playing a growing role in our markets because they complement and extend the possibilities of silicon-based solutions.
Power semiconductors based on silicon carbide and gallium nitride make particularly powerful and fast switching system solutions possible with lower power consumption. We can see a growing demand for this, particularly in electric cars, charging stations, and solar plants. In the years to come, we expect that demand for silicon carbide, and gallium nitride chips will increase strongly over the next few years. Often, a combination of materials in system solutions makes good technological and business sense. We want to strengthen our leading role across the entire spectrum of power semiconductors. For this reason, we're increasing our investments in research and development and in volume production for silicon carbide and gallium nitride products. At Villach, the development and manufacturing activities for silicon carbide and gallium nitride are being steadily expanded.
There, we're ramping up the production of silicon carbide chips at present, and we're confident that by 2025 we shall reach EUR 1 billion of silicon carbide revenue. At our site in Malaysia, Kulim, we laid the foundation for a third manufacturing module in early July. Work is progressing well and we're fully on schedule. The new module will go into operation in the autumn of 2024 and will increase our revenue capacity with silicon carbide tenfold by 2027 compared to today. Then it will be EUR 3 billion a year. We hope that with these figures, we have given you an even better idea of the scale of the planned capacity expansions. Viewers, only if the world consistently changes from fossil to renewable fuels can we change our system and ensure that the basis for life for future generations can be preserved.
With digital technologies, we can fundamentally change the way we live, work, produce, and consume. The Internet of Things, with its ever-increasing number of connected and intelligent devices, offers almost unlimited potential for this. Digital and green transformations are mutually reinforcing each other and can only succeed together. That's why policymakers now often talk about the twin transition. To make a sustainable contribution to decarbonization, we as a society must think holistically. We can only achieve global climate targets if we rigorously use all three levers available to us along the entire energy chain, and we must do that consistently. Firstly, generate electrical energy cleanly using renewable sources and create storage capacities. Secondly, increase the efficiency in generation, transmission, and the consumption of energy. Thirdly, we should electrify applications that have been dominated by fossil fuels thus far, such as cars.
In all three fields, Infineon is making a major contribution. Our semiconductor solutions are at the heart of power generation using renewable energy sources. They make domestic appliances more energy efficient. They increase the energy efficiency of data centers. They pave the way for widespread electromobility, and so they're making decisive contribution to reducing the ecological footprint of our society. What's possible with our semiconductor solutions is being demonstrated at electronica, the world's leading electronics industry trade fair. It's taking place at the Munich Trade Fair Center at present. Michaela Fink, the head of our trade fair team, presented some of our highlights for you on site this morning. See for yourselves.
Good morning from the Infineon stand at electronica 2022. Just a couple of minutes ago, the Munich Trade Show opened its doors to patrons, and we look so much forward to welcoming our customers, partners, and visitors live after a four-year hiatus. On our trade fair stand, we will be demonstrating a plurality of intelligent and energy-efficient solutions for the networked world of tomorrow. Driving decarbonization and digitalization together is our motto. This is what I'd like to demonstrate to you based on two examples. Let us take a look at the intelligent air conditioning system. It can see, feel, hear, and therefore sense your entire environment. How does it do it? Well, with the help of sensors. Temperature sensors, for example. Here you have a carbon dioxide sensor that measures air quality.
Here we have a radar sensor array that can determine the number and position of human beings at any level of a building, and therefore provide for an automated climate control system for a maximum of energy efficiency, comfort and convenience. We use our entire IoT product range for this. In addition to sensors at Infineon, these are microcontrollers, connectivity components, security components, always connected with our software packages, of course, and last but not least, our power semiconductors, which you can see here, which we use to control the compressor, to control the fans and the motors to make sure that we maximize energy efficiency. A wonderful example of how digitization can contribute to decarbonization. The second example that I'd like to showcase to you stems from electromobility, the Genesis GV60 from Hyundai. It is based on the E-GMP platform.
It's a fully electric approach driven on two axles with a system output of 320 kW. Using a small button on the steering wheel, an additional 40 kW of performance can be released, making for a 0-100 dash in just four seconds. More than 200 Infineon components are used in this vehicle, including 12 AURIX microcontrollers. What this vehicle has in terms of USP on top of that is its fast charging times. Using fast charging systems, in just 18 minutes, you can charge the battery from 10%-80% battery capacity, or in other terms, in five minutes, 100 km of range can be added. What's behind all of this? Well, of course, we would be happy to show this to you at Electronica and to our customers. Here is the entire rear axle.
What you see in the front is the drive motor, and here is the central component. It's the main inverter, which converts the energy from the battery in an energy-efficient manner and therefore drives the motor and vice versa. During recuperation, the energy is then transformed into energy that can be fed back into the battery. This module is based on our silicon carbide technology, which makes this entire procedure very energy efficient, increasing range by 5%-10%. Also, during fast charging, this product can shine. At the 400-volt charging station, the charging current goes through this module. It is ramped up to 800 volts and then fed directly into the battery. This again, while maximizing energy efficiency. I would have loved to show you a number of additional examples of how we drive decarbonization and digitization.
Please visit us at the Munich Trade Show in Hall 10-3. You cannot overlook the Infineon stand. We, my colleagues and I, would look very much forward to chatting with you there.
Oh, I think those are impressive examples and many thanks to our energetic trade show team on site. Infineon is paving way to clean and smart mobility together with strong partners. Yesterday, we announced a close partnership with the car manufacturer, Stellantis. Stellantis is one of the global market leaders in electro-mobility. The memorandum of understanding we signed provides for a multi-year supply of [guess] for our silicon carbide chips to power more than 10 million battery electric vehicles from European and American Stellantis brands in the second half of the decade. Infineon is reserving the manufacturing capacity needed for this. The potential sourcing volume and capacity reservation has a value of significantly more than EUR 1 billion. The agreement underscores Infineon's leading role as a semiconductor supplier to the automotive industry and as a pioneer for widespread electro-mobility.
Many of our target applications are becoming more and more complex. The car is a good example here. Electrification, digitalization are transforming vehicles. The number of electronic systems for driver assistance, infotainment and comfort applications is increasing all the time. At Infineon, we extend the vehicle as a system. Therefore, we can offer our customers the solutions they need to drive their mobility transformation. Our systems approach is one of our great strengths, and that is where we are successful. We shall continue to drive this approach forward to underpin our leadership in power systems and IoT. Our technological expertise is and remains an important success factor in this context, more and more in the field of software. Because with software, we can further expand our successful from product to system approach.
The interaction of hardware and software makes it possible to optimize energy efficiency, performance, and security at system level. This added value lets us bind existing customers more closely and at the same time helps us to gain new partners. You already seen our solutions like advanced cars and smart air conditioning, but also helping our customers achieve more in the field of consumer electronics by using less energy. There are more and more mobile devices than ever, and they are offering more and more functions. As a result, the need for higher charging power and faster charging is growing. This trend presents a challenge for engineers. They have to achieve higher and higher performance in smaller form factors. At the same time, the need to minimize energy losses due to waste heat. Infineon has a solution that makes highly efficient chargers and adapters with higher power density possible.
Anker Innovations is a global leader in charging technologies with whom we at Infineon are collaborating successfully. Anker has developed this charger together with us. It uses our digital power controller and gallium nitride-based power stage. The combination enables outstanding system-level efficiency. The architecture reduces energy losses by around one-fifth compared to conventional charger solutions. Anker uses our solution for fast chargers with more than 100 w, achieving market-leading power density in that way. Thanks to the high power of this device, you can fully charge certain smartphones that already support extra fast charging in less than 30 minutes, and without burning your fingers on the charger. Another advantage of this device. Thanks to multiple ports, you can charge several end devices at the same time with one charger. For example, your smartphone and your notebook.
A USB-C charger like this one that works for multiple devices helps us to avoid electronic waste. The recently adopted Europe-wide charging standard USB-C will further fuel the demand for solutions of this kind. As the number one in the market for charger and adapter system solutions, Infineon is in excellent position to drive this development and to benefit from it. USB chips, by the way, would also be produced in the planned new factory in Dresden on analog mixed-signal technology. The market for silicon carbide and gallium nitride solutions is growing strongly. As the technology leader in silicon carbide and gallium nitride, we want to be the market leader, as we have been for many years in silicon-based power systems. That's why we're expanding our portfolio for different application areas and are massively expanding our production capacities for compound semiconductors, as I already mentioned.
We have a clear strategy for value creation with silicon carbide and gallium nitride, and we are very confident that in the years ahead, we shall have great success with them. That brings us to the outlook. Microelectronics can do big things. Decarbonization and digitalization will strongly drive the structural demand for semiconductors, and thus they will support Infineon's sustainable growth. We expect that the positive market dynamics will continue in the long term. That is why we are moving forward at full speed. We've made a good start to the new fiscal year. The predictability of further revenue and earnings development, however, is severely impaired by the geopolitical and macroeconomic factors that I already mentioned at the beginning. Developments in Ukraine's war, the further events of the coronavirus pandemic, especially in Asia, as well as the extremely high inflation rates and the rising interest rates.
On top of that, the geopolitical tensions will create additional challenges for us. Our key markets have different drivers, and they have different economic cycles. On the one hand, the applications such as electromobility, assisted driving, renewable energy continue to develop well. On the other hand, several consumer-related markets such as smartphones or battery-operated devices, but also various computing applications are at present weak. At Infineon, we therefore remain vigilant. We are keeping a constant, very close eye on the early indicators for our business. We are prepared, and we shall act quickly and flexibly if demand weakens in some submarkets. Infineon is capable of staying on course even in rough seas. In the first quarter of fiscal 2023, assuming an exchange rate of EUR 1 to the dollar, we expect revenues around EUR 4 billion.
The expected slight decline in revenues compared to September quarter reflects the typical seasonal pattern. The Segment Result Margin is expected to come in at about 25%. For fiscal 2023, we forecast revenues of around EUR 15.5 billion ± EUR 500 million, which corresponds to a year-on-year growth of 9%. Infineon's key applications mostly still exhibit robust momentum. The robustness also includes pricing, especially in the areas with structural growth and ongoing shortages such as automotive and renewable energy. In our base case scenario, we expect overall growth to become more moderate in later quarters, and the consumer-related weakness will persist. In the middle of the revenue range, we expect a Segment Result Margin of about 24%. We expect that positive and negative influences on profitability will, by and large, balance each other out.
We expect favorable currency effects and favorable price effects. On the other hand, we expect cost increases for energy, materials, and wages. We plan to invest around EUR 3 billion in property, plant, equipment, and other intangible assets. The focus will be on the construction of the third manufacturing module for compound semiconductors at the Kulim site. The continuous expansion of capacity in front-end production, especially at the site in Villach and Dresden, and the plan to start a new fab there. The Free Cash Flow is expected to be around EUR 0.8 billion. Adjusted Free Cash Flow, excluding investments in large front-end buildings, is expected to be around EUR 1.5 billion. In other words, it's about 10% of the forecast annual revenue of EUR 15.5 billion. Viewers, I'd like to summarize in conclusion.
First of all, after an excellent fourth quarter, Infineon has closed the 2022 fiscal year very successfully and set new records for revenues and earnings. Secondly, the long-term growth opportunities for our company are better than ever. We're setting ourselves even more ambitious long-term financial goals through the cycle and expanding our manufacturing capacity significantly in order to take advantage of the huge market potential and to create more value on a sustainable basis. Thirdly, we've made a good start in the new fiscal year. The challenging conditions will continue to place heavy demands on us, but in view of the high structured demand on our key markets, we are nevertheless confident. As a market lead in power systems and IoT, we are driving decarbonization and digitization, and we expect profitable and sustainable growth.
Thank you for watching and listening, and together with my colleagues on the management board, we are now ready to answer any questions you have.
Okay, you can come up to the podium, and I will take my seat back on the panel. We would like to start. Yep, everything's fine, Caspar. In a couple of moments, we will start with the Q&A session. Some housekeeping remarks for the journalists who have dialed in to the live stream. They can submit their questions in written form. You will find a link to the question tool below the stream, and you can also scan the QR code to open the app on your smartphone. We already have two questions that have been posed this way, both of which are anonymous. I'd like to remind you, in keeping that in the back of our mind, to make sure that you enter your name and the media outlet that you're representing when you pose a question in writing as well.
For those of you who are present on site, that also applies. I can see that some of you are raising your hands already. That's great. Please do that so that we can hand you a roving microphone, so that you can ask your question and the question can be heard. Unfortunately, your colleagues online will not be able to see you, so perhaps you can also indicate your name and your media outlet as well. Perhaps we can start with Caspar Busse from Süddeutsche Zeitung. He was the fastest.
I'm sorry. I have two brief questions. First of all, you spoke of the single largest investment in the history of Infineon. You expect state subsidies. How big, how much these subsidies be? How far have the negotiations progressed? I don't think there's been a better time to receive state subsidies.
Second question, EUR 5 billion is a lot of money. It's a big fab. Aren't you afraid of investing in the cycle? All of the major chip manufacturers are investing in their factories. In the coming years, we might have substantial excess capacity that would be problematic. Do you think that what has happened in the past will repeat itself in the future?
Well, Mr. Busse, let me start with the second question first. If at all, at present, we believe that we will see a certain weakening in certain sub-markets. Our factory, as we have managed with Villach, by the way, will come into the market on an upturn. I've already spoken about the structural growth drivers in my report, and we have identified these in the power semiconductor area.
We believe that we will see sustained growth in this field, and therefore, we are confident that the factory can be filled. If in 2026, the market indeed weakens, we will slow down the pace at which we equip it and the pace at which we build new plants. With respect to subsidies for the Dresden factory, all I can say now is that we're in contact with the federal government as well as the authorities in Brussels. I think that you are familiar with the two instruments that are generally suitable for this. One is Project of Common European Interest and in Dresden, it is the European Chips Act. We feel that we are gaining strong support in Berlin. But as far as the details of the subsidy volume are concerned, I don't want to make any further remarks today.
Thank you. To supplement this question, I would like to read part of an online question. It just asks what the share of the 300 mm production is at Infineon today? Not necessarily in terms of volume, but of course, the volume would be a nice piece of information as well, but in terms of value.
Rutger Wijburg, would you like to go for that?
Yes. In terms of volume at present, for 300 mm, we have just under 50% this year, and we will continue to grow from this basis. In terms of revenue share, we assume it's similar.
Thank you.
Let's continue here with Mr. Magenheim from RND.
I have another question with respect to subsidization. I don't want to address the factory itself, but I've been told that factories and chip fabs in general receive 40% subsidy.
Would you say that based on your knowledge of the market, that this is a realistic assessment? The second question I have is, you have the 20% goal with respect to semiconductor production in Europe. That's an EU goal. If you look at Dresden and the Intel announcement taken together, would that shift the weight towards Europe? Or is this more or less balancing out what's happening elsewhere in the world, in the United States and in Asia, where new factories have also been announced and where new factories are under construction. Do these two major announcements from you and Intel shift the weight towards Europe? May I also ask, in general terms, what the chip market looks like? Do you have a forecast for this year?
When do you believe that supply and demand will be balanced again?
Well, at current, the European share at the production level is roughly 10%. In addition to the two projects that you just alluded to in Dresden, we have the extension and further expansion of the Bosch plant. We have a French-Italian competitor that have made some announcements in Italy. Nevertheless, we believe that more work remains to be done, and we feel that above all, in technology of between 28-12 nanometers. Here we're talking about microcontrollers. By the way, these are an essential component of the power system or systems that I presented before, in addition to the analog mixed-signal components and the actuators and power semiconductors. We still need some movement there. I think that the thrust is right.
The 20%, I believe, is a visionary target because, of course, the other regions in the world aren't standing still. Indeed, there, even more sums, are being, called up in terms of subsidies. With respect to the subsidization of our specific plant, I would like to ask of your understanding that I cannot comment on that any further at present. As far as your question is concerned with respect to chip scarcity, well, at present, as we've reported, we see that some markets are experiencing weaker demand. I enumerated computing consumer devices and smartphones. Other product areas are also strong, especially renewable energy as well as electromobility. The picture that is currently painted is as follows. In terms of power semiconductors, we're the number one in the market.
There is definitely, over the next couple of years, a possibility of scarcity becoming even tighter because electromobility and renewable energy, which resort to the same capacities here at Infineon, will collide and perhaps strengthen. With respect to the headlines, the microcontrollers from Taiwan are the hot ticket. I think they remain as such for the foreseeable future. I believe that in 2023, roughly, the situation will ease because a number of markets that are served by the foundries by then will show weaker signals. Therefore, I believe that capacities will have to be reallocated in that area. I hope that I answered all three of your questions.
Thank you.
We will continue with Mr. Reitler then. Thank you. Reitler from the Platow Brief.
I have three questions.
First of all, could you tell us how big the dollar effect was on your result? I have the impression that it played quite a significant role in your figures and the risks that you have touched upon. I don't see how they cannot have an effect on your outlook at all. We have weak demand in certain areas. You're stockpiling in certain areas. You've had cancellations. I don't know if some customers have already canceled orders. Raw materials, energy prices, all of these factors negligible at present. I have another question in terms of investment. You are now spending capital during a period where interest rates are going up significantly. Will that play a role in future financing?
In light of the major investment that you've set your sights on, are acquisitions perhaps moot in the next two, three, or four years? That's it for now. Thank you.
Let me start with the third question, and Mr. Schneider will then respond to the first two ones. When we speak about free cash flow, where we have said that 10%-15% of revenue is our target. Well, this is after investment, after investing activity. So these 10%-15% also stand for other activities or are available for other activities. I've already announced and said in public that smaller to medium-size acquisitions are also possible. Why? Well, because our portfolio is well-aligned to power systems and IoT. There is no single topic that is missing.
Of course, here and there are smaller pieces to the puzzle that we might want to look for, but here we're talking about smaller acquisitions, and they can be financed via Free Cash Flow. Now, with respect to the further topics, maybe Sven can say some words.
Well, Mr. Reike, I don't think I have that much to add, but I would like to say something about our debt and cash situation. You have seen that in recent years we have been reducing the debt burden of the Cypress acquisition. We have progressed much faster than we thought in terms of net and gross indebtedness. We have moved back into our target range quite clearly. That is the information in terms of the liquidity. You asked about raising or rising interest rates.
Now, of course, increases in interest rates come to bear when bonds mature and they have to be refinanced with new bonds. So far, we have been able to refinance at 1% or lower. Of course, going forward, that's not going to be feasible. This is why what Mr. Hanebeck said is all the more important. We need to generate enough Free Cash Flow so that we can refinance a certain portion of our maturity. That is not a problem for us at all. We have full access, and this is why I continue to emphasize our Investment-Grade Rating to all capital markets, short-term, medium-term, long-term, euro, dollar. We can tap into all of these sources. You also asked us about the dollar issue. Indeed, looking back and looking forward, there are significant currency effects.
I'm going to simplify things with respect to the dollar. The dollar is our major currency, but this, of course, presumes that other currencies, such as the Malaysian Ringgit and the Yuan, don't change. We had an average of 1.08, and now we're planning on the basis of an exchange rate of 1. This is a strengthening or improvement of the dollar by 0.08. Now, according to the new rule of thumb, and here we're talking about 25% per quarter, so that alone would account for EUR 800 million in terms of added revenues just from currency effects, and then we have a corresponding impact on the margin. Yes, indeed, the dollar represents some tailwind in terms of both revenue and the result. Now, there's an add-on question which the interpreter couldn't hear 'cause no mic was used.
Well, compared to last year, we increased revenues by EUR 3 billion. Half of this increase is due to volume, and the other half we don't break down in detail, but it can be broken down to a mix effect. Price and currency are the major two effects. This, this is the impact on revenues, and the rule of thumb is roughly slightly more than a third to 50% of that, trickle down to the result. Then you asked me about the outlook. Well, you asked me whether I was, being light-hearted about the risks, if I may couch it in those terms. I disagree. If we look at the EUR 15.5 billion, we have, a certain degree of precaution that has been factored into future quarters. Let me give you a different data point.
If you look at the EUR 4 billion that we have put into the Q1 guidance, and you were to multiply that by four without accounting for typical seasonal effects, you'd be at EUR 16 billion. Customarily, Infineon's revenues grow quarter-over-quarter. If you compare that to EUR 15.5 billion, you can see that we do have some caution that has been factored in, and rightly so, based on the issues that you addressed.
Okay, thank you.
Let us continue with Mr. Rührmair then.
Yes, hello. Christoph Rührmair from DPA. I would like to come back to chip scarcity. I'm not quite sure whether I understood you correctly earlier on. In individual areas, as you said before, computing, consumers, smartphones, we have oversupply. Is that right, or is the scarcity just reducing?
In the other area, in power semiconductors, automotive, et cetera, several years, how bad is the scarcity, and could you perhaps quantify it more specifically? Am I going up to 2025, in that assumption?
Well, first of all, we have identified weaker markets, and indeed, these markets are weak. With respect to specific semiconductors that are envisaged for these markets, there is a certain oversupply, and we have capacity underutilization costs in the income statement for this year, because of these final markets. If you will, one could speak about surplus supply, but we have to look at it in more detail.
In computing, for instance, as far as the hyperscalers are concerned, the cloud-based server farms, we still have strong demand. When it comes to automotive and the industries associated with that, as I said before, these are the end markets. The products that over the last couple of years, due to their scarcity, have taken the headlines for these end markets are the microcontrollers. These are microcontrollers that we design, but are then contract manufactured in Taiwan and elsewhere. To a certain degree, they are still scarce because the contract manufacturers or foundries do not invest as heavily because these technologies are older. It comes to power semiconductors, what I would like to say is that here end markets such as e-mobility, such as renewable energy are converging, and there is very substantial demand that is triggered by this.
Now, how this will play out is something that is not that easy for us to predict or anyone else, for that matter, because the competitive environment has to be taken into account, and also the perspective our customers has to be considered. We do expect that the situation will at least be tense. Tense in terms of offsetting demand and supply. Perhaps I can mention an additional data point. We always report on the backlog. This is the sum of confirmed and unconfirmed customer orders. It is not continuing to increase, but it is still at a level of over EUR 40 billion. If you put that in relation to our planned annual revenues, you would gain some insight into the order of magnitude we're talking about. Does this include some duplicate orders? Yes.
You can still see the difference on the nominal side, the nominal level.
There's an add-on question by the journalist again without a microphone.
Yeah.
Has the number of double orders dropped, or not?
Well, Mr. Urschitz is gonna take over now.
Well, we've learned from the experience gained in past cycles, and in this context, among other things, we have decided to cooperate much more closely with customers and to increase our visibility. The result of this is that indeed, the quality of the orders that is placed with us has increased. There's no doubt about that, and that's a good indicator. A data point historically is the cancellation rate, where jobs are canceled. To date, we haven't seen much momentum. For me, this is a strong indicator of the increasing quality of the orders. It's very high.
Yes, I'd like to add that even if the orders in hand were to be cut in half, we would all be able to sleep quite well, because if you look at EUR 40 billion as opposed to EUR 14, 15, 16 billion in revenues, this is still a very high level of order backlog. I don't wanna contradict what Mr. Urschitz just said, but this is a resiliency statement. Even if it were to be cut in half, our guidance for the full year could still be complied with easily.
I would like to interpose another question. I see that there is a list, and there are two further questions from the floor. I haven't forgotten you, but I would like to interject one or several questions from the internet, from Ridha Loukil, from L'Usine Nouvelle in France.
There are two questions.
The first one being with respect to our forecast, our medium-term outlook, 2025-2027. I can envisage what the answer may be, but nevertheless, I don't want to conceal this question. The second question that also comes from France is whether we can see any ramifications of the current or new U.S. regulation with respect to exports to the People's Republic of China for our business. Another question is what the share of the Chinese business is of our total activities.
I'm sorry, what was the first question again?
Well, the first question was whether we can give guidance for the medium-term planning. Revenue 2025-2027.
Yes, let me begin with that. We have a new Target Operating Model, which we have formulated and presented to you, and it goes through the cycle.
This is a long-term Target Operating Model where the 25% Segment Result Margin is supposed to be achieved over the cycle. We are making a conscious decision not to indicate any years because it is difficult to predict a specific development for a full year, and this is why we believe it is much better fitted to the industry. With respect to whether we can give you a forecast for 2024 or 2025, well, to be quite fair, we are the first who have started to provide guidance for the following year because our fiscal year ends on the 30th of September. Visibility is good, but not across the board.
I ask of your understanding that we will refrain from making forecasts for later years with the exception of the cycle prognosis.
Now I would like to also respond to the China question. The share of revenues in China is 29%. However, we believe that roughly half of the products will be or are re-exported.
Now to put the numbers perhaps in a. Well, maybe the numbers are the other way around. 29-30% is the business we do with China. 37-38% is assigned to Taiwan. Or includes Taiwan. The correct number would be 38-39%, including Taiwan.
Now, with respect to the restrictions that have just been published, the restrictions imposed by the U.S. government on China, well, they are basically targeting novel plant investments and also certain products, AI processors and services rendered by U.S. citizens in China, to service local plants. We don't see any effect that this has on Infineon, but we're looking at our contract manufacturers and trying to determine the degree to which they may be impacted by this in China. Well, one of the main preconditions is the such technologies below 16 nanometers. Now, of course, we're building power semiconductors and analog mixed-signal. Most of these technologies are affected by this, but the technologies that Infineon manufactures are not. Yes, we don't have a front-end factory in China.
We only have an assembly and test unit there, and because of that, our exposure is low.
Okay. Thank you.
We'll continue with people who are present in person. We'll start with Mr. Hesse.
Yes, I'm Martin Hesse from Der Spiegel. I have an add-on question with respect to location. How satisfied are you with the design and implementation of the European Chips Act in terms of speed compared to what the Americans have set up and announced? Where the figures are much higher and there's a much stronger focus on R&D. I would like to know if you're of the opinion that the European Chips Act is suitable for hitting the higher targets of European market share, or whether you believe that some additional work needs to be done. Now, adding on to the U.S. export restriction issue towards China, what influence could this conflict between the United States and China exert on the European chip sector over the long term in more general terms. Well, the U.S. Chips Act also took some time to be endorsed.
I believe that you have followed the coverage there, and it has two components, one being similar to what we can find in the EU Chips Act in relation to the subsidization of front-end production, and then a large sum is set aside for research and development.
I believe that the EU Chips Act is definitely nothing to sneeze at, especially if you do a like-for-like comparison. In Europe, we have the national governments which have to arrive at a concept which has to be adopted in political terms, and we also have Brussels, so it's a two-stage approach. In general, we do welcome this EU Chips Act because it provides for a level playing field. Otherwise, we compete with countries and players that are strongly supported in other countries.
If you don't close the gap in Europe, which would be an option, you find yourself in a situation that has transpired in the last couple of years, where in an industry that is so important and cross-sectional as the semiconductor industry, you fall farther and farther behind. We welcome the EU Chips Act, but we have to be careful with respect to the implementation regulations that things don't get too bureaucratic. I need to emphasize that we have recognized a lot of support in Berlin and at the EU level for our project in Dresden.
Now, moving on to your second question and how things could continue to develop.
It's very difficult to predict this, of course, but there are certain patterns we can resort to.
There is a pattern on the Western side, which, of course, is led by the Americans. It's basically where the development of the semiconductor industry in China is curtailed. This happened as a result of the restrictions on the most advanced plants, including ASML. Another lever is products for certain applications. Applications that are critical when systems compete against each other, be this artificial intelligence, military applications, surveillance issues and so on and so forth. If one were to continue to map out this pattern, one could well envisage that the Americans would target further end markets. At the same time, if you look at our products, we decarbonize the world with them, and at the end of the day, it's in our interests for China to decarbonize.
Therefore, I would hope that especially in our e-area, the area of power systems, we receive further free access from the Western world. Because decarbonization affects us all, climate change affects us all. It doesn't halt at any borders, it doesn't orient itself to any system, so we have to find a common solution. Now, we need to add the Chinese perspective. Of course, I can only presume things, but if you look at the statements made by Xi Jinping, well, he wants to have a two circular economy system, where there is an inner circular in China and another circular economy in the rest of the world. Therefore, he would want for China to manufacture as many semiconductors and chips locally. There are various efforts that are designed to this end.
We have always had this on our radar because we've always assumed that he would commoditize certain products more strongly, and this is why we have a stronger push towards innovation, product to system. We don't want to just sell the simple MOSFET, but rather the system solution for data centers, for instance. This is why we believe that for a very long period of time, we'll have a feature that sets us apart, and we will continue to work on this. For instance, as exemplified by our push towards more software. That would be taking a further step to set ourselves apart.
Thank you.
We'll continue with Mrs. Quadbeck. Eva Quadbeck from FAZ.
I would like to know the following. In the fall, you would like to begin construction. When would you like to have a decision on the subsidization?
This year? Next spring? I believe that would have to occur quite quickly. I'd also be interested to know whether the Dresden location could be mapped into your production network. Is it the most important production site? Why did you decide in favor of Dresden? What spoke in favor of that location over others? Thirdly, indeed, I would like to come back to China. In the summer,
I believe it was just after Mrs. Pelosi had visited Taiwan, you were rather pessimistic.
Do you believe that now that Mr. Biden and Xi Jinping have met, the situation may have moved more in the right direction? Or what is your take on the geopolitical situation?
I'll take the first and third. First question, Mr. Wijburg will answer the second one.
With respect to the subsidy, well, normally the procedure is as follows. Usually the authorities start with early measures. They allow early measures. From that period of time onwards, we could, at our own risk, begin construction of the fab. The final subsidy notification would be expected to take a while longer. From that point in time onwards, we could start to build the factory, and I hope that this notification on preliminary measures will be issued soon. Now with respect to the Dresden factory and how it stands in our network, well, why is Dresden the right location for Infineon? Well, first of all, to build such a big plant, you have two options. You either go to a greenfield or to a site where you already have activities.
The advantage of using your own premises is that you already have some groundwork that is laid. That was one of the main reasons for Dresden. It enabled us to accelerate our timeline. The second benefit is that economies of scale are extremely important in semiconductors, and we have a big factory in Dresden, and expanding it would strengthen the economies of scale in Dresden even further. That was the second advantage. Third, the competencies, the skill sets. We have the skill sets for similar technologies in Dresden already present, and therefore the skilled labor that is already on site is a third major argument in favor of Dresden. Now, a more global argument, which is also important when reaching such a decision, is, if you look at Saxony is the biggest ecosystem for semiconductors in Europe.
It's the fifth in the world and the biggest in Europe. This means that you have not only Infineon, but also other major players there. This supports us in implementing further major projects, so the ecosystem can help us when moving forward. Last but not least, going to the Villach factory, we would have to do something extra. These are the arguments for having chosen Dresden.
Thank you. This brings me to the last question, China.
In the submissions so far I have focused on mainland China. As before, I believe that the situation between China and Taiwan is critical. Now I'm only familiar with what the media have reported. I'm not sure if anything has changed. Otherwise, the intention has been formulated quite clearly.
What we're doing is because about 15%, one five percent of our manufacturing volume is sourced from Taiwanese contract manufacturers. We are looking around. Well, that sounds quite complacent. No. We are actively seeking out new alternatives. Alternatives that promise higher resiliency. This, of course, relates to the foundries. Here we expect that further projects outside of Taiwan will be announced, which we will then be able to make use of as a customer. This will all take time. If we now say that a new factory for XY, for microcontrollers, will be erected by a certain year, then, of course, it will take about four-five years for the factory to actually contribute to our bottom line.
Thank you.
We have a further question here from Mr. Winkler. Adi Winkler for Trend.
Within the scope of the CEO Roundtable at Electronica, we already were able to converse with each other, especially with respect to the EUR 43 billion volumes. 10%-20% of European chip production would not just represent a doubling, but a multifold increase. What is your assessment? To what degree would it have increased? And the EUR 43 billion, is that a first approach that needs to be adjusted upward? From your perspective, what would a desirable distribution be between research and development?
Yes. That was a series of questions.
Thank you.
If we as Infineon say that we want to post more than 10% growth, well, then it doesn't relate to the entire semiconductor market. The entire semiconductor market, based on the last predictions, is 5%-6%.
Indeed, you would have to calculate the 5%-6% market on top of that, and then the corresponding capacities so that you could arrive at the right market shares. Now, where this equation will go is very difficult for me to predict. I've already tried to express this today, that 20% are visionary as they are, but sometimes you have to set yourself some visionary goals so that you can actually get the ball rolling. The EUR 43 billion, well, right now, at present, I have the feeling that there's a lot of political will to subsidize semiconductor projects of this type. I don't have the feeling that we won't have enough Euro. We need to have projects that make economic sense. After all, we don't want to mis-invest anything. We want projects that make economic sense at Infineon.
Therefore, draw on subsidies for them so that with respect to the semiconductor industry, we can make some sustainable project progress in Europe. Now, I'm not sure whether I've answered all of your questions.
Yes. Research and investment, the ratio between the two.
Yes. Thank you for that. That's a very good point, actually. The factories are, of course, eye-catchers as far as the figures are concerned. We need to be extremely clear. We need ecosystems. This includes not just front-end factories, but also back-end factories. Mr. Wijburg, a couple of weeks ago, visited and opened one that we opened up in Hungary. I believe what is essential is the investment environment. Here, we have to look at research, and of course, we have wonderful research institutes in Europe.
In Germany is the Fraunhofer Institute, and we have Imec in Belgium and other renowned ones. From research via product development to the end, we have to strengthen the entire chain. The focus is quite strongly on factories at present. They are important, but in the long run, what's more important is to strengthen innovation in Europe. Typically, it's not as expensive as building the factories.
Yes. Although how much have we spent on research and development over the years?
Well, EUR 1.5 billion Annually. 12%-13% of revenue, so that's nothing to sneeze at either.
Thank you very much.
I don't see any further need to take any questions from the room here today. No one else has asked any questions via the Internet.
Therefore, I would like to thank everyone, including the people who have dialed into the live stream, and I therefore now can declare finish.