Good morning, and welcome to the Conference Call on the Results of the Second Quarter of Fiscal 2025. I'm Yusuf, and I am your Chorus Call operator. We'd like to point out that all participants will be in listening status during the presentation and that the conference will be recorded. After the presentation, you'll be afforded the opportunity to ask questions by pressing star one on your keypad. Should you need the help of an operator, please press star and zero. You may not record the conference call for your own purposes. I'd like to hand the floor to Mr. Martens now. Mr. Martens, the floor is yours.
Good morning, ladies and gentlemen. I would like to welcome you to our conference call on the results of the second quarter of fiscal 2025 of Infineon.
Participating on behalf of the Board of Management of Infineon are Jochen Hanebeck, CEO, and Dr. Sven Schneider, CFO. Listeners and participants, as usual, Mr. Hanebeck will start by giving you an overview of the business performance of Infineon. Following that, Mr. Hanebeck and Mr. Schneider will be available to answer any questions you may have. Our conference call will always end punctually at 8:45, as always. Of course, our press team around André Tauber and I myself will be available for any questions you may have afterwards. And I'd like to hand the floor to Mr. Hanebeck now.
Thank you, Florian. Good morning and welcome, listeners. In the second quarter of our fiscal year, Infineon has done well. Apart from the macroeconomic and geopolitical uncertainties, the business momentum is developing largely as we expected. Most of our target markets see customers and distributors finishing the digestion of their inventories, which is a major condition for a cyclical recovery. But the conditions have changed since the last quarterly discussion. Tariff uncertainties are placing a burden on our end markets. They're not visible in the order books, but they have a negative influence on the demand in the course of the fiscal year, as we consider probable. In the current environment, we at Infineon are concentrating on the factors that we can control. We are preparing flexibly for short-term market changes.
At the same time, in the company, we're working consistently on innovations and structural improvements in order to exploit the long-term opportunities available. In short, Infineon is being prepared for the further success. Let's begin by looking back at the development of the business in the second quarter of the fiscal year, which ran as expected. Infineon achieved revenue of EUR 3,591 million, which is 5% up on the previous quarter. Positive revenue effects from higher amounts sold were partially canceled out by annual price adjustments, as we had expected. Currency effects, on the other hand, played a subordinate role. The average actual exchange rate of the US dollar to the euro was 1.05, compared to 1.07 in the previous quarter. The segment result rose to EUR 601 million, and the segment result margin remained stable at 16.7% compared to the previous quarter.
In the December quarter, there had been a compensation payment by a customer in the mid-double-digit million figures, which supported the margin. The stable margin in the past quarter shows that we have been able to compensate for the annual price adjustments quite well. Our order backlog, consisting of confirmed and unconfirmed orders at the end of March, was around EUR 20 billion, which, despite the annual price adjustments and despite the negative currency effects, remained constant at the reporting date. The free cash flow improved in the second quarter to plus EUR 174 million. In the previous quarter, it had been minus EUR 237 million. The main reason for the higher free cash flow was reductions in investments, lower taxes, and the absence of the annual bonus payments, which were paid out in the December quarter.
Now, the results for the four divisions in the second quarter of the fiscal year. The Automotive segment achieved revenue of EUR 1,858 million, which is a healthy increase compared to the previous quarter, namely 6%. This development is also evidence that the inventories of our customers are being normalized. Please note that the business of our business line, Sense and Control, which has been part of the Automotive segment so far as of the 1st of January 2025, has been transferred to the Power and Sensor Systems division. The comparative periods have been adjusted accordingly. The segment result of ATV rose to EUR 385 million, and the segment result margin was plus 20.7%, following 19.6% in the previous quarter. Thanks to higher sales and an advantageous currency effect, we were able to balance out the negative effects of the annual price adjustment, a slight increase in idle costs.
Speaking of encouragement in the calendar year 2024, we were able to strengthen our global and regional market leadership in automotive semiconductors. That can be seen from the latest figures from TechInsights. They show that in 2024, Infineon achieved a market share of 13.5% of the global market of automotive semiconductors, which means that we're not only the worldwide number one still, but we've also improved our position in all the major regions. In Europe, we're the new number one. In North America, we have been able to advance from number three to number two. In China and Korea, we have maintained our clear leading position, and in Japan, we've defended our position two successfully, which shows that we're in a good position in all our key regions. Behind these encouraging developments, we see our strong business in microcontrollers for the automotive industry.
Our market share in these products has been extended to 32%. And also very encouraging is the fact that we're not just number one on the entire microcontroller market based on all the fields of applications. Now, the current situation. Whereas the most recent business developments slightly exceeded our original expectations, the geopolitical environment has become much more volatile in the past few weeks. The recently introduced U.S. import tariffs will probably put the brakes on global vehicle production. In response to that, market researchers at S&P Global have reduced their forecast for this year to about 88 million vehicles. At the same time, with our solutions, we are very successful with our customers. And I'll give you three current examples. Firstly, a European premium manufacturer has selected our AURIX and TRAVEO microcontrollers for its leading vehicle platforms. The platform has a life cycle until well into the 2030s.
With our microcontrollers solutions alone, we achieve semiconductor revenue of several hundred EUR per vehicle on average on this platform. Secondly, our latest AURIX TC4 microcontrollers is going to be used in the next generation of a leading vehicle platform for autonomous driving. The combination makes particularly fast, reliable, and secure calculation operations in driver assistance systems. Thirdly, in the field of battery management systems, we've also achieved a leading milestone. A leading Chinese electric vehicle manufacturer has decided in favor of a new 18-channel battery management system, which means that we've achieved the first design win with this solution. The further development of the existing 12-channel design makes more compact systems possible, which is particularly important for the coming 800-volt battery systems. With this innovation, we are setting a new standard in the industry for ultra-precise sensors and smart, fast loading charging.
Listeners, where it's strategically meaningful, we are developing our business by making targeted purchases. As you will have seen from our press release at the beginning of April, Infineon is planning to take over the automotive Ethernet business of Marvell Technology. The purchase price agreed is $2.5 billion. Why did we decide on this acquisition? Marvell is a leading provider of Ethernet solutions for networks in vehicles. This technology is a central component for mobility in the future. It matches our own competencies brilliantly and our own approach to offer our customers comprehensive system solutions. With the plan to take over, we shall expand our system competence for software-defined vehicles, and at the same time, we shall strengthen our microcontroller business.
The Ethernet business of Marvell is growing strongly and is highly profitable, which means that after the integration, it will have a positive contribution to the growth and margin at ATV. Ethernet communications are key technology, not just for the future of cars, but also in the field of future IoT applications such as humanoid robots. With the acquisition, we're opening up more new opportunities. The transaction is subject to the standard approvals from the authorities, and we're confident that we shall be able to complete it in the course of this calendar year. Let's now turn to Green Industrial Power. As of the end of the March quarter, we achieved revenue of EUR 397 million, which is well up, namely 17% compared to the low revenue level in the December quarter.
All the application fields contributed to this growth because the expected gradual recovery demand in industrial applications has improved. The fact that the quarterly revenue of GIP was 15% below the level of the previous quarter shows that the recovery is far from completed. The segment result was 38 million EUR, and the segment result margin was 9.6%, falling 10% in the previous quarter. Basically, negative price effects cancel out the positive margin effects from higher sales quantities. And in addition, there was an underutilization of capacity, which caused costs. In industrial applications, we see the beginnings of a gradual recovery in demand. Customers' inventories are tending to decline but have not yet reached normal levels. Orders in the supply chain are gradually picking up, but they're not yet being reflected in the broader demand for power semiconductors. Increasing tariffs, whether threatened or actually implemented, are causing additional uncertainty.
In this environment, the price pressure is continuing, especially in standard power semiconductors in China. The price of silicon carbide in this category is developing dynamically, not least because of the reduction in substrate prices. The substrate has increasingly become a standardized buy part, and we are benefiting from the broad base and regionally diversified supplier network. The general pressure on prices and market growth will curb growth in the near future. So we're adapting our guidance for revenue in the silicon carbide solutions in fiscal 2025. On a group level, without possible tariff effects, we're expecting a low growth rate. At the same time, the structural growth drivers are unbroken. The demand for renewable energies is increasing worldwide. Investments in the energy infrastructure are continuing, for example, in China, but also because of state initiatives in Europe.
This applies both to energy transmission and distribution and storage, and also to uninterruptible power supplies. These are needed not just for expanding AI data centers and the charging infrastructure for electric vehicles. With our outstanding offer of power supply solutions, we are playing a key role in all these sectors. Now, the Power and Sensor System segment. Revenue at PSS in the second quarter dropped slightly by 1% to EUR 979 million. With our power supply solutions for AI data centers, we were able to record a lasting growth momentum. At the same time, the mobile consumer applications met the price adjustments, and the demand for smartphone components and solutions remained stable. The segment result was EUR 108 million, and the segment result margin dropped to 14.1%, falling 17.1% in the previous quarter.
But the previous quarter included the compensation payment from a customer amounting to a mid-double-digit million figure. And without this special effect, the margin has increased in the second quarter. If we look at the target price of PSS, we can see that consumer computer and communication applications have bottomed out. Short-term orders are increasing, and the cancellation rate in orders is declining. Inventories in the distribution channels are reaching normal levels. The fast spread of artificial intelligence remains a major driver for growth in our business. Setting up AI data centers and the infrastructure needed is advancing, and we can see that our business is developing as dynamically as we expected. Now, our Connected Secure Systems segment. In the second quarter, the division achieved revenue of EUR 356 million, which is an increase by 3% compared to the December quarter.
Because of the higher revenue and favored by the structural effects, the segment result rose to EUR 40 million, which corresponds to a segment result margin of 11.2%. In the previous quarter, it was 8.7%. The demand for IoT and security solutions remains weak. Macroeconomic uncertainty is putting a burden on the consumer climate and companies' expenditures, and in this environment, we expect that the innovations will form the base of future growth. Microcontrollers are the heart of modern electronics. Our broad portfolio is being continuously further developed. As of now, our PSoC 4 microcontrollers have Multi-Sense, which expands our leading sensor technology in CapSense by adding a new inductive sensor technology and a non-invasive contact-free solution for detecting liquid levels. With this technology, we offer the elements of electric devices new opportunities. This includes the waterproof touch interfaces and innovative methods for measuring liquids.
In addition, with our PSoC Edge family, we are driving the introduction of AI-supported applications. With the integration of NVIDIA TAO models in the microcontrollers, our customers can develop edge devices much more quickly, which is accelerating the market introduction of applications capable of machine learning for industrial automation in medical engineering, consumer sector, and in smart IoT solutions. Listeners, I now come to the outlook. Let's look at the cyclical dynamism of our target markets. This confirms our existing forecasts. The digestion of inventories in the semiconductor industry is largely completed in the automotive industry. Industrial applications, the trend is down, and in the markets close to consumers, inventories are reaching normal levels, which lays the foundations for a cyclical upswing. So far, we've been cautiously optimistic that there will be a slight improvement in demand in the second half of fiscal 2025.
If there's no massive changes and uncertainties in the tariff policy, then we would confirm our forecast from the last quarter, even taking into account a substantial negative currency effect. But the macroeconomic and geopolitical factors influencing our business are changing all the time. The trade conflicts have become worse, triggered by announced, implemented, and sometimes canceled tariffs and countertariffs. As yet, no semiconductor-specific tariffs have been introduced. The high level of uncertainty because of the tariff discussion is, however, putting a burden on customer demand and the end markets. Following the announcement of a 90-day pause before the introduction of reciprocal tariffs, there's no clarity about the level of U.S. tariffs or potential retaliatory tariffs. It does appear clear, however, that it will impair economic growth.
The demand for semiconductors probably also could be affected by further developments along the supply chain because producing companies need to be able to estimate the effects of tariffs, the effects on the demand for their products, the manufacturing strategy, and the locations where they supply their semiconductors, and if the potential weaker demand, there's probably going to be a further digestion of inventories in some companies, but others will build up the inventories to be prepared for geopolitical risks. We see no effects in our order books so far, but we expect in the course of the fiscal year that this will happen. The degree and duration of these indirect effects are difficult to assess, but since we consider negative effects are probable, we are adjusting our guidance. Let me now begin with our guidance for the fiscal 2025 as a whole.
With our outlook in February, we'd been expecting a stable to slightly increased annual revenue. That expectation was based on an exchange of the US dollar to the euro of 1.05. Now, we're changing our assumptions for the exchange rates for the rest of the fiscal year to 1.125. Even with this negative exchange rate effect, we would be within the bandwidth of our existing guidance, which expected a segment result margin in the mid- to high-teens %. Because of the indirect negative demand effects caused by the tariff uncertainties, we're going to bear this in mind. If you look at the announcement by a number of automotive manufacturers who've either canceled out their guidance for growth in 2025 completely or reduced it considerably. Other markets are also affected by the headwind from tariffs.
Since we cannot calculate these effects nor derive anything from changes in our customers' order behavior, we're making a global assumption on the scale of about 10% for our planned revenue in the fourth quarter of the fiscal year. Taking into account the two factors I've mentioned, like tariffs and the negative exchange rate effect for us, we assume that our revenue in fiscal 2025 will be slightly lower than in the previous year. Our reduced forecast for revenue has consequences for the profitability as follows. The segment result margin is now expected to be in the mid teens, whereas previously it had been in the mid to high teens. The idle cost, largely caused by the development of the cycle in the second half of the fiscal year, will be higher than expected. For fiscal 2025, we now expect idle costs of about EUR 1 billion.
These are likely to pull down our segment result margin by about 6 percentage points. We're continuing to make major efforts to secure our current profitability level and even to improve it. In addition, from the first positive effects of our Step Up initiative, we hope to benefit from the results, and we're making progress on this initiative as planned. In view of the changed framework conditions, we're adjusting our planned investments for the current fiscal year from EUR 2.5 billions - EUR 2.3 billion now. For the reported free cash flow, we continue to expect a level of about EUR 900 million. Adjusted to account for investment in large front-end fabs, we expect a free cash flow of about EUR 1.6 billion. Previously, it had been EUR 1.7 billion because part of the investment adjustments affect major front-end fabs.
In the current third quarter of our fiscal year, we expect revenue of EUR 3.7 billion, which corresponds to an increase in revenue of about 3% compared to the previous quarter. Adjusted for currency effects, it would be about 8% growth. The segment result margin is expected to be in the mid teens compared to the previous quarter. We expect an unfavorable exchange rate for us. There's also the effect of the annual pay increases, which take effect on the 1st of April. So, listeners, before we come to the question-and-answer session, two encouraging pieces of news. In the field of sustainability, we're continuing to make progress. We have set ourselves ambitious targets for carbon dioxide reduction by 2030, and now we're very happy that the well-known Science Based Targets initiative has validated and approved them.
A validated science-based target, which also takes into account indirect emissions from the provision of raw materials by our suppliers, is an important milestone for us. We are working closely together with our partners in order to reduce emissions along the entire supply chain. And another piece of good news: for building our Smart Power Fab at the Dresden site, we've now got the final subsidy report. The federal government has given green light for the subsidy factor in the context of the European Chips Act, and before that, the European Commission had granted its approval in February. With the Smart Power Fab, we are making a contribution to strengthening European supply chains in the field of microelectronics, and we also strengthen the position of Dresden and Silicon Saxony as the biggest semiconductor hub in Europe. That brings me to the end of my remarks.
Together with Sven Schneider, I'll now be happy to take any questions you might have. Thank you.
Wir beginnen nun mit der. We're now going to begin with a Q&A session. If you'd like to ask a question, please press Star 1 on your keypad. You will then hear a tone that will indicate that you're going to be added to the waiting list. If you'd like to withdraw a question, please press Star 2. The participants are kindly requested to use their handset. If you have a question, please use Star 1 on your keypad now. Zur Erinnerung. Just as a reminder, to ask a question, please press Star 1 on your keypad. The first question is from Hakan Ersen from Thomson Reuters.
Hello. I have two questions. First of all, will the reciprocal taxes between China and the United States have an effect on your Chinese business indirectly?
I'm asking this because U.S. competitors may fall by the wayside on the local market. The second question is this: you were quite optimistic in your statement on the power semiconductors for AI data centers. With respect to your growth assumptions, does that mean that you maintain your forecasts in this area?
Good morning, Mr. Ersen. Thank you very much for your questions. With respect to the second question, I would like to say the answer is a clear yes. The business in the power semiconductor business for AI data centers is posting very positive and dynamic development. The prognoses that I published in February are those that I would reaffirm today as well. In other words, we stand by our forecasts, and in particular, over the medium and long term, we believe that there is substantial potential for growth. Coming to your first question, the U.S.-China taxes and tariffs.
In the first phase, a couple of days ago, the Chinese tariffs on U.S. imports, and when we're talking about semiconductors, we're always talking about the front-end fabs in which the semiconductors are manufactured. Here as well, semiconductors are included, but after a couple of days, that was corrected. There are only very few exceptions where China is imposing tariffs on U.S. semiconductors. Therefore, from where we stand today, I believe that in the overall context of the great uncertainty surrounding tariffs, you cannot draw any conclusions with respect to whether any fraction of the semiconductor manufacturers may have advantages or disadvantages as a result of the situation. We have to wait for things to become firmer.
Thank you very much.
Just a reminder, if you'd like to ask a question, please press Star 1 on your keypad. Ladies and gentlemen, that was the last question.
I would like to hand the conference call back to Florian Martens for the concluding statements.
So, listeners, I'll sum up. In the second quarter, Infineon has done well and met its expectations. Our markets have bottomed out, and inventories are reaching normal levels, which means under normal circumstances, the path would be open to a slight recovery. However, the market uncertainties because of the tariff arguments are providing a headwind for the demand for semiconductors, and so we're adjusting our guidance for the fiscal 2025. Currently, we're concentrating on those things that we can control: our cycle management, our innovative strength, and the implementation of structural improvements in the company, which means we're preparing our company in the best possible way for future success. Thank you for your interest, and goodbye.