Good morning, and welcome to the publication of the Q2 2024 fiscal year figures. I'm the operator. We'd like to inform you that all of the participants are in listener status and that the presentation will be recorded. After the presentation, you can ask questions by pressing one star on your keypad. If you want to contact the operator, please press star zero. Recording of the presentation is not permitted. I'd now like to hand the floor to Florian Martens.
Thank you very much, ladies and gentlemen, dear colleagues. I would like to welcome you today for the first time in my role as Head of Corporate Communications and Policy at Infineon to our conference call on the results for the second quarter of fiscal 2024. This conference is being attended by the Infineon Management Board, consisting of Jochen Hanebeck, Chairman of the Management Board, and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will give you an overview of Infineon's business development.
After that, Mr. Hanebeck and Mr. Schneider will be available to answer your questions. Our conference call will end on time at 8:45 A.M. Of course, our press team, headed by André Tauber and myself, will be happy to assist you afterwards. All documents relating to today's publication, including the speech by our CEO, can also be found on our website, www.infineon.com, after the event. Having said that, I would like to hand over to CEO, Jochen Hanebeck.
Thank you very much, Florian. Hello and welcome. Dear listeners, the first half of our 2024 financial year is now behind us. On the last call, I already described it as a year of transition for Infineon. After several years of upswing as a result of the pandemic, we are currently experiencing a cyclical downturn. Overall, the market environment for Infineon remains mixed. The so-called 3 C markets, which stand for applications in the areas of consumer computing and communication, as well as IoT applications, have bottomed out, but they are not yet recovering. In the industrial sector, inventories continue to be reduced. Growth in the Automotive applications is also leveling off, which is why we are taking a cautious view of the rest of the financial year and are reducing our forecast for a second time. More on this in a moment.
Now, in this challenging environment, we did perform actually quite well. In the second quarter of the financial year, Infineon generated revenue of EUR 3.632 billion. This level meets our expectations. The segment result fell to EUR 707 million, slightly better than forecast. The segment result margin was at 19.5%, after 22.4% in the previous quarter. The decline compared to the previous quarter reflects the weaker sales, as is typical for the year, also price adjustments, as well as lower income from state subsidies. Now, our order backlog, made up of confirmed and unconfirmed orders, remained unchanged at around EUR 24 billion at the end of March. We see this as a clear sign that demand in our target markets has bottomed out. Free cash flow in Q2 reached EUR 82 million.
The amount of -EUR 1.6 billion in the previous quarter included the purchase price payment of the acquisition of GaN Systems and the payment of annual performance bonuses for the record financial year 2023. Now to the results of the four divisions in Q2. Sales and revenue in the automotive segment remained stable compared to the previous quarter. It was at EUR 2,078 million, and overall, we were able to compensate for the annual price adjustments with slight volume increases. The segment result amounted to EUR 512 million. The segment result margin was therefore at 24.6%, after 27.1% in the previous quarter. This development reflects the low price adjustments in the low single-digit percentage range that we expect, as well as product mix effects.
In the global market for automotive semiconductors, Infineon has an outstanding position. We further expanded this in 2023. We are number one in the Korean and Chinese markets, number two in Europe and Japan, and number three in North America. In China, we have grown significantly faster than the market, thanks to our broad product portfolio. With design wins in the order of several billion EUR, we are very confident that we will be able to further expand our automotive business in China in the coming years. In the key Western markets, manufacturers are postponing their timetables for the electrification of their vehicle fleets. The momentum and demand patterns are slowing down, and in the lead market of China, however, the spread of electric mobility is continuing.
In March, the share of sales of so-called new electric vehicles was at 39%, and the trend is picking up pace. The launch of the SU7 model family by Xiaomi is good news for Infineon. The drive system is based on our HybridPACK Drive CoolSiC module. In addition, we supply system solutions with over 60 different components to Xiaomi, including more than 10 microcontrollers. In total, we supply more than 10 applications in SU7, a good example of Infineon's innovative strength. Now, we assume that we will be able to further expand our automotive business this year, albeit at a much slower pace than previously expected. We now anticipate sales growth in the low- to mid-single-digit percentage range instead of the previous double-digit percentage range. Manufacturers are reducing stocks, but prices are stable. Now on to Green Industrial Power.
In the second quarter, the division recorded sales of EUR 469 million, which is a decline of 4% compared to the previous quarter, which is due in particular to weaker demand in the renewable energy sector. The decline in revenue is also reflected in the segment results. It amounted to EUR 89 million. Now, the segment result margin was therefore at 19% after 26.7% in the previous quarter. In addition to lower unit sales, a less favorable product mix for us, rising costs due to underutilization of our production capacity and the price trend had a negative impact on the margin. The market environment for our industrial business remains difficult. Companies' willingness to invest is weak and is curbing demand for semiconductors for industrial drives. At the same time, weak consumer confidence is affecting demand for household appliances.
There is also still a surplus of inventory. The expected gradual recovery will be postponed until the end of the 2024 calendar year, if not beyond. In renewable energy generation, high stock levels at customers and distributors are temporarily dampening demand, but the growth drivers remain strong. Market researchers are forecasting installations of around 500 GW of PV capacity for 2024. The same figure for wind energy is just over 100 GW. This will correspond to annual growth rates of 24% and 18% respectively. Thanks to their high energy efficiency, our silicon carbide solutions continue to be an important factor in decarbonization, both in the automotive industry as well as in industrial applications. Preparations for the expansion of our silicon carbide capacities at our Kulim site are proceeding according to plan.
However, the current demand is weaker. We are therefore revising our growth forecast for our silicon carbide business for the current financial year to around 20%. Let's now move on to the Power & Sensor Systems segment. Sales in the second quarter amounted to EUR 713 million, a decrease compared to the previous quarter of 7%. The reason for this is the continued weak demand for semiconductors for consumer applications. On the flip side, demand increased in the areas of smartphones and data centers. As a result of the decline in revenue, the segment result was also negatively impacted, which was at EUR 64 million. The segment result margin amounted to 9% after 12.9% in the previous quarter. PSS continues to suffer greatly from the persistently weak demand for consumer computing and communication applications.
The division has now recorded six consecutive quarters of declining revenue and is almost 40% below the sales high reached in September, in the September quarter of 2022. The positive thing is we have again bottomed out. Business is picking up in the current quarter. However, as the overall economic environment is likely to remain weak and the reduction of inventories will take longer, the recovery will initially be less strong than we had previously expected. In the medium term, we see the rapid spread of artificial intelligence, in particular, as a huge opportunity for Infineon. The power requirements of AI processors are many times higher than those of conventional processors. Power supply systems with outstanding energy efficiency offer decisive advantages, both in terms of server operating costs as well as in the carbon footprint area.
Infineon offers industry-leading solutions for the entire power supply of AI data centers. We have achieved design wins with the three most important manufacturers of AI CPUs, and we are also successful with providers of hyperscale data centers. With mid-double-digit growth rates, we expect our business with power supply solutions for data centers to continue to grow by EUR 1 billion in the coming years. Now on to our Connected Secure Systems segment. After declining sales in the previous quarters, a bottoming out is now emerging here as well. Turnover reached EUR 371 million, a slight increase of 1% compared to the December quarter. Demand in the consumer IoT segment and for smart card products appears to be stabilizing at a low level. The pace of inventory reduction in the sales channels is slowing. The segment result rose to EUR 42 million.
The segment result margin was 11.3% after 10.2% in the previous quarter. We anticipate that the reduction in inventories will continue and that demand will then recover moderately in the second half of the calendar year. In the meantime, we're preparing for the enormous structural growth opportunities of AI applications in end devices, especially edge AI. Our next-generation PSoC microcontrollers are optimized for machine learning applications. We support our customers with suitable systems, design, tools, and software. We also utilize two of Infineon's core competencies: power management and embedded security. This is because IoT edge devices require a particularly energy-efficient and powerful power supply. Security is also a crucial aspect. Our PSoC Edge family has been designed to meet the highest certification level of the PSA Certified Program, a framework for embedded security. Dear listeners, I will now move on to the outlook.
The economic headwind continues, exacerbated by geopolitical uncertainties. The cyclical demand weakness has now also reached automotive and industrial applications. It is true that consumer-oriented application areas have bottomed out. However, the timing and the extent of a recovery can only be predicted to a limited extent. That being said, our structural growth drivers are intact. Taking the various factors into account, we are cautious about the rest of the financial year and have revised our forecast. For the 2024 financial year, we are now expecting turnover of around EUR 15.1 billion, ±EUR 400 million, after our previous level of EUR 16 billion. This forecast is based on an unchanged US D to EUR exchange rate of 1.10. Compared to previous forecasts, we are reducing our revenue forecast by EUR 900 million.
Around half of this is due to lower growth in the automotive sector. The other half was due to the weaker industrial business and the muted recovery in the consumer computing and communications sectors. With the expected sales and revenue, we anticipate a segment result margin of around 20%. Now, in view of the sharp decline in sales, this is a robust figure. We had previously assumed a segment result margin in the low-to-mid-20%s range. As part of our cycle management, we are adjusting investments slightly and are now expecting a level of around EUR 2.8 billion after previously EUR 2.9 billion. Now on to the free cash flow.
Adjusted for major investments in the front-end buildings and the acquisition of GaN Systems, we now expect the free cash flow to be around EUR 1.6 billion, after previously EUR 1.8 billion. This would correspond to around 11% of the forecast annual revenue. The reported free cash flow is expected to be 0, after previously EUR 200 million. For the current third quarter of our financial year, we expect revenue at around EUR 3.8 billion. Based on the forecast group revenue, the segment result margin would be, should be in the upper 10% range due to rising underutilization costs. Now, dear listeners, before we move on to the Q&A session, I would like to give you an outlook on our medium-term, profitable growth course.
If we look beyond the current cyclical weakness, we continue to see major structural growth opportunities for Infineon. These continue to focus on our five core applications: electromobility, automated driving, renewable energies, data centers, including artificial intelligence, and the Internet of Things. We are broadly positioned to benefit from these major trends. We also see the potential to further strengthen our competitiveness. This is why we are launching a company-wide program called Step Up. In contrast to the short-term cycle management, Step Up focuses on structural improvements to strengthen our future competitiveness. Now, irrespective of the current market environment, we want to improve our cost structure in a targeted and sustainable manner and thus further strengthen our target business model. We will therefore also implement the program in an improving market environment. The measures relate to the areas of manufacturing, productivity, portfolio management, price, quality and operating cost optimization.
While we are thus improving our cost competitiveness, we will continue to make targeted investments in our innovative strength. With Step Up, we want to achieve a positive effect in our segment result in the high three-digit EUR million range per year. We expect to see the first result in the course of the 2025 financial year, with the full financial effect becoming visible in the first half of fiscal 2027. Dear listeners, this concludes my remarks. Together with Sven Schneider, I am now available to answer your questions.
Ladies and gentlemen, we would like to begin the Q&A session. If you would like to ask a question, please press star one on your keypad. You'll hear a tone which will confirm that you've been added to the waiting list. If you'd like to withdraw a question, please press star two on your keypad. Participants are asked to use their handsets during the call. Please limit yourself to two questions and then rejoin the waiting line if you want to ask further questions. So once again, as a reminder, press star one to ask a question. We shall now wait for the first question. The first question is from Christof Ruhrmair from DPA. Please go ahead, sir.
Good morning. I hoped to have heard a little bit more on Step Up, because when you talk about savings, people automatically think of job cuts. Do you plan to implement job cuts, and if so, in what areas? If not, how is this supposed to work, specifically Step Up, that is. Thank you very much.
Thank you for the question, Mr. Ruhrmair. I believe that I mentioned the action fields, production, productivity, portfolio management and operating cost optimization. Potential ramifications for our employees will be communicated to them in the next days and weeks.
There will be some. Is that correct? So... but you just can't communicate them right now.
Yes, there will be some impact from these five fields of action, and we will start by communicating them to our employees in the next couple of days and weeks.
Just as a reminder, if you'd like to ask a question, please press star one on your keypad. The next question comes from Christina Amann from Thomson Reuters. Please go ahead, madam.
Good morning, Mr. Hanebeck. I have some follow-on questions on Step Up. You've already addressed the action fields you intend to tackle, but in a very rough manner. What do you mean specifically? You have also spoken about weakness in demand. How does that affect your expansion plans in Dresden and Kulim? In terms of Step Up, you've also addressed portfolio management. Do you plan to hive off any business areas? And if so, in what segments are you considering such a move? I also have a follow-on question with respect to your outlook, in particular, automotive. You say that because of electrification, above all, the trend is weaker. If we look forward now, do you see a resurgence of business, or do you think that there may be a recovery that is a little bit more prolonged due to the phase-out of internal combustion engines?
Thank you, Mrs. Amann. Let me start with the last question first. I believe it's safe to say that in the field of electromobility, one needs to make a clear distinction between China and the Western markets. In China, momentum is quite strong. I think I said this earlier, 39% new energy vehicle registrations in the last month. These are plug-in hybrids and battery-powered vehicles, and in April, the figure was even higher. So the momentum is very strong in that part of the world. In contrast to that, in Europe and the United States of America, weakness is... Excuse me, growth is slowing.
We believe that in 2025, however, we'll see a revitalization of demand because the CO2 limits that the automotive industry has to comply with in Europe will mandate the use of more electric drives. In terms of supply, we also see increasingly that electric vehicles are being offered, both also in the low and mid-range price segments. So we do believe that we'll see resurgence there. The trend is there, but there is a dip in the Western markets at present. This dovetails your question with respect to Dresden and Kulim quite nicely. We continue to build at both sites, and this is because the market and revenue will be addressed in the next couple of years. Our structural growth drivers are something that we believe in. We have listed them today. It's not just electric mobility and renewables, but also AI, data centers.
This is why we need to expand these two factories, and this is why we fully back Dresden with Module Four and are pushing for this. When it comes to Kulim, in the summer, we will launch the first phase of Kulim 3. It will be inaugurated, and then it will show sales potential at the end of the year, and especially in 2025. With respect to Step Up, you asked about our plans with respect to portfolio management. Now, we're not talking about a major divestment program at Infineon. We're going to be looking at things at the project level, rather. We're going to identify which of the development projects, above all, we find to be especially attractive. We will then allocate resources to those projects, whereas when it comes to projects that are less promising, we may actually stop them.
And this is common practice in any industrial enterprise. Aside from that, price quality was an issue that was raised. We're talking here about pricing excellence, including algorithmic pricing. We want to strengthen this in the market, production, productivity. There are a number of levers, unit costs, costs in general, the production landscape and optimization of operational costs. And this goes hand in hand with increasing efficiency in support functions over the next couple of years.
May I ask a tag-on question? Can you hear me?
Yes, yes, please go ahead.
Mr. Ruhrmair previously asked about ramifications for your workforce. That would mean then that, when you optimize operating costs, you will probably affect employees. When you're talking about the production landscape, are you also talking about outsourcing or contracts, work?
Yes, operating cost optimization, of course, will have an impact, but we ask for your understanding that we'd like to inform our staff first, and that's gonna happen in the next couple of days and weeks.
The next question comes from Markus Frühauf from FAZ. Please go ahead, sir.
Good morning. Can you hear me?
Yes, we can.
Wonderful. You've had to lower your forecast for the second time in a row. Has everything bottomed out? Will you have to lower the overall forecast yet again, or are things too difficult to predict right now? The second question goes to power semiconductors. Could you be more specific about the developments, about the one major contract that you've mentioned? One last question, which is quite unusual, in closing. With respect to the factory in Dresden, it seems to have taken the limelight due to the political debate. When do you believe you'll win contracts for Dresden?
Thank you, Mr. Frühauf, for your questions. With respect to the forecast, well, in a cycle of a semiconductor market, it is always challenging for us as a German company to deal with the situation. Competitors in the United States only publish quarterly forecasts, which makes life much easier. So you're right, we did lower the forecast for the second time in a row for the reasons that we've already communicated to the public. However, the outlook has been clearly de-risked, and we now assume that we'll be able to maintain the forecast. You further asked about semiconductors, power semiconductors for AI applications. That's quite an exciting topic. The GPUs that are used for AI applications are very energy hungry. A processor, a single chip, requires 1 kW of energy.
The major challenge here is that the processor on the other side, however, can only accommodate half a volt. And if you look at the equation, power is current times voltage. 1 kV would transfer into 2,000 amperes being introduced into the chip, and it becomes even more challenging if you know from a technical point of view that these currents have to be switched at 1,000 amperes per microsecond. This is very, very challenging, and therefore, this is exactly where we want to be. This is where we use digital controllers to control the flanks and to bring the leading-edge power semiconductors as close as possible to the rest of the system in order to make sure that everything works properly. So this is a wonderful field of action. We're very successful in this area.
We're still talking about a small triple-digit EUR million amount here, but the business will expand, in the next couple of years and develop very positively. That's safe to say now already. You also asked a question with respect to Dresden. I think that, we see the development as many residents of this country, we are very worried about the developments. This is something that is really, irreconcilable, with a democratic mindset. And I personally, and we personally, have always spoken out in favor of diversity and, tolerance. Relative to your question now, whether we will be able to recruit employees for Dresden? A clear, clear answer is yes. We managed to do this in the past, and so we'll be able to succeed in doing this in the future as well. But of course, this societal, this societal development is of great concern to me.
And this is Sven Schneider speaking now. With respect to the outlook, I'd like to add on, Mr. Hanebeck already mentioned this. If you look at the quarterly forecasts that have been published by Infineon in respect of both Q1 and Q2, we met all of these outlooks. So I wanted to say that with respect to the quarterly guidance as opposed to the annual guidance. In February, we've always said that certain recoveries in markets are assumed: consumer, computing, and communications. These are being shifted. That's all. My last comment is that we're not alone here. If you look at the competitors, you will see that they have also recently repositioned themselves in terms of their guidance.
We have a new question from Wilfried Eckl-Dorna from Bloomberg.
Good morning. I hope that you can hear me. I only have two background questions. First of all, I'd be interested to know. Now, in the EU, concerns have been voiced by politicians that China may flood the European market with very low-cost chips from China, which would also affect the business of Infineon. To what extent do you believe these concerns are legitimate? Now, on another note, what does the future of Infineon look like in China? There are concerns that the Chinese auto manufacturers will move to local chip manufacturers and give them preference. If you look at, more simple chips for electric vehicles, that actually may happen. To what extent can Infineon prevail over these local suppliers? So those are the questions I had for you.
Thank you, Mr. Eckl-Dorna, for your questions. First of all, we at Infineon are in favor of free trade, as long as, of course, all rules are adhered to. Sorry, we had an echo. That's why I stopped. We're in favor of free trade, as I said, at Infineon, based on rules. That includes IP rights and similar regulations. As far as the developments in China are concerned, we believe that on the one hand, China is quite clearly a very important market, especially in the field of electric mobility and renewable energy. We will continue to participate in this market. We believe that we are well equipped here, especially in the automotive environment. I mentioned the examples. Our current track record in terms of design wins is much stronger than what you can see elsewhere in the market.
Therefore, we believe that for the years to come, we will be set up just right. We also see the Chinese competition, of course, and here and there, Chinese competitors will be successful. However, especially in the automotive sector, they have to meet extremely high quality and safety standards. We have a very, very wide product portfolio with 300 product families for automobiles alone. Therefore, if Chinese competitors are successful locally, that's something that we are going to be looking at in terms of overall growth, and we will be able to offset in terms of overall growth in other segments as well. So we do see this competition, local competition, and of course, we know that it is being subsidized quite heavily by the governments. Therefore, it is very important that the semiconductor industry, at least to a certain extent, is strengthened in Europe.
Thank you.
Ladies and gentlemen, that was the last question. I would now like to hand back over to Mr. Hanebeck for his closing remarks.
All right, dear listeners. In closing, I would like to summarize. Infineon closed the first half of the 2024 financial year with a solid second quarter. We have truly held our own. The market environment remains generally weak. The consumer computing and communication sectors have bottomed out. The situation will improve from here on out, but a turnaround is not yet in sight. The weaker demand momentum is now also affecting industrial and automotive applications.
We are therefore revising down our forecast for the 2024 financial year. But even under unfavorable conditions, our automotive business will continue to grow in 2024, and our profitability will be in line with our target business model. Our structural growth drivers are intact, and our core applications offer ample opportunities for Infineon. To further structurally strengthen our competitiveness, we are launching the StepUp program. With that, thank you very much for your interest. Goodbye, and speak soon!