Ladies and gentlemen, good morning and welcome to the publication of the key financials for the first quarter of the current fiscal year.
We would like to point out to you that all participants are in listening mode and also that the press call may not be recorded. After the presentation, you can ask a question by pressing star one. If you need the assistance of an operator, please press star zero. I would now like to hand the floor to Florian Martens.
Thank you very much. Good morning, ladies and gentlemen, dear colleagues and coworkers. I'd like to welcome you to our conference call on the results of the first quarter of fiscal 2025 of Infineon Technologies AG. Participating on behalf of the Board of Management of Infineon are Jochen Hanebeck, CEO, and Dr. Sven Schneider, CFO. My dear listeners, as usual, Mr. Hanebeck will start by giving you an overview of the business trend of Infineon. After that, Mr. Hanebeck and Mr. Schneider would be happy to answer any questions you may have. Our conference call will end at 8:45 on the dot, and as a matter of course, our press team under Andre Tauber and I will be available for any questions after that, and now I'd like to hand the floor to Jochen Hanebeck.
Hallo.
Thank you, Florian. Hello and welcome. Welcome, listeners. Infineon is celebrating its 25th anniversary this year as an independent listed company. In that quarter of a century, we've strategically aligned our business to the most attractive fields of growth. During the transformation, there was always a question of being able to distinguish short-term and often cyclical market behavior from the long-term structural trends, and that is still the case today. At the beginning of this year, the cyclical weakness in the semiconductor market continued. In many of our target markets, such as the automotive industrial sector, inventories are still being digested. In the course of the year, we expect, as we announced in November in our guidance, that there will be a slight recovery in the demand. Irrespective of the current market weakness, our long-term growth drivers in the field of decarbonization and digitalization still offer great opportunities for Infineon.
The global trend to decarbonization and the trend to digitalization, as well as electrification. Companies are trying to reduce their emissions and to secure their power supplies in the long term and are investing in this. International Energy Agency expects that the global energy investments in 2024 will, for the first time, exceed $3 trillion, $3 trillion. That includes $2 trillion of clean energy technologies and infrastructure. In digitalization, we're seeing advances in all fields of life, which is leading to a growing demand for advanced semiconductors. I'd like to begin by looking back at the business developments at the beginning of fiscal 2025. In a weak market environment, Infineon held its ground well. In the first quarter, it was slightly better than expected.
Here, Infineon achieved revenue of EUR 3.424 billion, which is a decline by 13% compared to the previous quarter. But revenue was about EUR 200 million better than our forecast. About half of that is due to the strong US dollar, and the actual exchange rate vis-à-vis the euro was 1.07 in the first quarter. In a November forecast, we'd base ourselves on 1.10. In addition, there was a slightly better volume development than originally expected. The segment result declined to EUR 573 million as the gross segment result margin dropped from 21.2% in the previous quarter to 16.7%. The development reflects the expected decline in revenue and the high costs of the underutilization of our fabs. On the other hand, there was a one-off compensation payment, which had a positive effect on our margins.
Taking into account the positive currency effects, the free cash flow was on the same level as the previous year. As expected, the free cash flow had the same seasonal pattern. It was minus EUR 237 million, and the previous quarter was EUR 1 billion 145 million. This included payments received from various subsidies and planned customers' advanced payments and positive effects of the operating capital. The factors also included the fact that the variable remuneration was paid in this quarter. Now, the results of the divisions. The Automotive division achieved revenue of EUR 1 billion 919 million, as expected. Customers are reducing their inventories considerably. This had enhanced the negative effect on revenue, which is a seasonal effect anyway. Nevertheless, there was a decline of 11%, which was compared to the previous quarter, but that was less than expected.
The segment result was EUR 363 million, and the segment result margin declined from 25.6% in the previous quarter to 18.9%. This included the costs of the capacity underutilization and an unfortunate product mixture effect. In the short term, the digestion of inventories in the entire automotive supply chain will hamper the development of revenue. Market analysts expect that the number of vehicles produced in 2025 will remain unchanged compared to the previous year in view of the uncertainties concerning tariffs and trade. The structural trend will continue with more semiconductors per vehicle. Assisted partially automatic driving functions will advance at a healthy speed. The use of electric vehicles will vary from one region to another, and in China in particular, it remains the biggest market, and it is also very innovative for electric vehicles.
There will also be scrappage rewards and payments made for older vehicles, which means that we expect to be with growth in the mid-teen % range. We remain in the pole position compared to our competitors, and I'd like to give you some examples here. A major vehicle manufacturer from China substantially increased the number of silicon carbide modules ordered from us. In addition, we had a major design win with a new 1200-volt silicon carbide chip at the ZF automotive supplier. Thanks to this form factor, the chips can be easily and scalably introduced in traction inverters. The semiconductor will be used in cars in the premium section. The design win has a volume of the mid-three-figure million euro range. In 2024, market research data showed that we're the fastest growing company.
We grew twice as fast as the market and were able to increase our market share to about 20%. The market dynamism at present allows us to draw the conclusion that in the next year, we shall grow more quickly than other established manufacturers of silicon carbide solutions. Another success to report is excellent cooperation with the leading Chinese electric vehicle manufacturer. They have a wide range of products of ours in use, including the OptiMOS 7 power transistors, sensors and a wide range of microcontrollers. Let's then come to Green Industrial Power . Starting from a revenue level of EUR 500 million in the previous quarter, the division exhibited the expected sharp decline in the December quarter. EUR 340 million was 32% less. The weak market momentum and the digestion of inventories in the supply chain made the seasonal development even worse.
Because of the decline in revenue and the falling prices, the segment result dropped to EUR 34 million, whereas the segment result margin in September quarter had been 10%. The cyclical market weakness in industrial applications continued in 2025. The global purchasing manager index still had low values. And depending on the field of application, the digestion of stocks will depend on the demand among end users. In industrial applications, the structural demand, in view of the global demand for energy supply and energy efficiency, remains intact. Solar and wind energy are still the cheapest forms of energy production in many regions. In the field of energy infrastructure, the demand for energy storage systems and highly efficient power supply solutions are robust, which is due to the considerable expansion of AI data centers. And also in rail traffic, there is a continuous investment in infrastructure and electrification.
In the second half of the fiscal year, we expect a gradual recovery. With our leading offer of power supply solutions, we shall benefit in full from the coming upswing. Now, the Power & Sensor Systems sector. Revenue in the first quarter was EUR 820 million. That is a relatively small decline by 5% compared to the previous quarter. The consumer and smartphone business exhibited the usual seasonal weakness, but power supply solutions for AI data centers grew in an unbroken manner. In the opposite direction to revenue, the segment result improved to EUR 149 million, and the margin rose to 18.2%, falling 12.2% in the previous quarter. That includes the compensation payment by a customer which we mentioned at the beginning. Now, the organizational changes. At PSS, we have found a new business unit, which we are calling Sensor Units and Radio Frequency, or SURF in brief.
Our automotive sensor business, to put this in its context, has achieved revenue of EUR 700 million in the fiscal year. This has been transferred to the new organization at PSS as of 1 January 2025. The merging of the competencies brings many advantages, which means there will be synergies in research and development and accelerated developments and value for the solutions for our customers. Trends to green energy, clean and safe mobility, and the Internet of Things are driving demand for sensors and radio frequency solutions. This will strengthen our competitiveness and will become even more hard-hitting. Considering the target markets of PSS, we can see that consumer computing and communication applications have bottomed out in the meantime. In these fields of application, a cyclical correction began first. In the current quarter, the reduction in inventories will, however, still cause a headwind.
In silicon microphones, which are the leaders in the industry and are used in smartphones and accessories, there it looks a bit better, and in PCs, we also expect a growing demand because of new models coming to the market. As I mentioned, the power supply solutions for AI data centers cause a very robust demand. With our highly attractive market, we are in a good position. With our product portfolio covering the entire power supply from the grid to the processor, our business is growing very dynamically. Our revenue in this field will be more than doubled to EUR 600 million. That's EUR 100 million more than forecast in November. Within two years, we expect to reach the EUR 2 billion revenue threshold.
Now, Connected Secure Systems, in the first quarter, the division achieved revenue of EUR 340 million, which is a decline of 15% compared to the September quarter. Most fields of application of CSS were affected by this development. That illustrates the lasting weakness of the consumer and IoT markets because of the drop in revenue. The segment result declined. It was EUR 30 million. The segment result margin was 8.7%, and in the previous quarter, it was 15.3%. Macroeconomic uncertainties continue to affect the mood of consumers and companies, but inventories have in the meantime reached a normal level. From the ordering behavior, we can see the first positive, albeit weak, signals, and that supports our estimation that a slight recovery in the second half of fiscal 2025 can be expected. With innovations, we are preparing continuously for growth. Recently, we introduced a new family of microcontrollers for industrial applications.
The PSoC microcontrollers enable highly efficient and secure motor control and energy conversion systems. And these systems can be found in a large number of applications, including domestic appliances, industrial drives, robots, and electric vehicles and solar plants. In addition, security has become a more and more important factor. Working together with the Federal Office for Information Security, we have set a milestone on the way to quantum-resistant worlds. We are the first company to have achieved the Common Criteria EAL 6. This is a certification level for the implementation of a post-quantum cryptography algorithm in a security controller. The algorithm increases the security of SIM and smart cards, ID cards, pay cards, e-health cards, and these are protected against threats from high-performance quantum computers. Ladies and gentlemen, I come to the outlook.
The first three months of our fiscal year 2025 are behind us, and the target markets are developing as we expected in November. The reduction in inventories is continuing, especially in the field of automotive and industrial applications. The corrections are slowing down, however. In many markets close to consumers, the levels of inventories have reached normal levels in the meantime. A precise prediction is difficult regarding the further development of the cycle. There are some indications that demand is picking up again, but until it becomes stronger, we can expect a slight recovery, not a strong upswing. The early indicators for our business will be observed very closely. We'll take into account different scenarios, and we shall prepare for them.
An outstanding example of such a scenario is the escalating trade conflict with tariffs and countertariffs, which was announced by the USA at the weekend to apply to Mexico, Canada, and China, whereas the direct effects of these tariffs on our supply chain will be limited, but we'll have to take into account the indirect effects of trade conflicts on customer demand. In the second quarter, we expect revenue of EUR 3.6 billion, which is based on an exchange rate of the US dollar to the euro of 1.05, when it had been 1.10 beforehand. In the forecast revenue, the segment result margin should be in the mid-teens%.
Volume increases are having a positive effect, but the fact that the one-off payment of compensation in the first quarter will not recur means that this will be balanced out by price adjustments at the beginning of the year. For fiscal 2025 as a whole, we expect a slight increase in revenue, and in November, in our guidance, we expect a slight decline. The increase in our forecast is due to the stronger U.S. dollar than expected. The adjustment and the better exchange rate in the first quarter means that revenue expectations have been increased to EUR 450 million. Our forecast on the segment profitability in fiscal 2025 remains unchanged.
The segment result margin should be in the mid to high teens, and the stronger U.S. dollar means that the stronger it is, the more likely you are to be at the upper end of that range. In the meantime, we are making considerable efforts to strengthen our profitability structurally. We are very happy with the progress made with our Step Up initiative, and of course, the present fiscal year, we achieved the first results. As of fiscal 2026, we then expect a greater effect on the segment result margin. As of 2027, we should then feel the full effect, which will be in the high three-figure million EUR range. Investment volume in the current fiscal year remains unchanged at about EUR 2.5 billion. Investments in large front-end buildings adjusted for that. We expect a free cash flow of EUR 1.27 billion.
For the reported free cash flow, we expect about EUR 900 million. Ladies and gentlemen, before we start the question-answer session, I'd draw to the fact that on the 20th of February, the virtual AGM of Infineon will take place. The information will be found at the website at infineon.com/hv. That brings me to the end of my remarks, and together to finish tonight, I'd be happy to take your questions, and we begin.
Ladies and gentlemen, we are now going to start the Q&A session. If you'd like to ask a question, please press star one on your keypad. You will hear a tone. This will confirm that you have been added to the waiting list. If you want to withdraw your question, please press star two. The participants are requested to use their handset when asking a question. Please press star one to ask a question.
The first question comes from Joachim Hofer from Handelsblatt. Please go ahead.
Good morning, everybody. Can you hear me?
Yes, we can. Very well, Mr. Hofer. Good morning.
Thank you very much. Wonderful. I have a question. If I understood you correctly, there will be no direct effects of the trade tariff war. If there is a weakness in the economy, and I also assume that the chips will be built in Europe, in Malaysia, maybe they'll be packaged there, this seems to be quite a complex procedure that is quite difficult to predict depending on who has to pay what tariffs where. Is that roughly accurate? Thank you very much.
Well, you started with the second. I'll start with the second question first. You're absolutely right. The devil is in the detail, if you will. It will greatly depend at what level the value-added chain will see tariffs.
Will it be at the chip stage, the packaged chip stage, or the system stage? This is what makes everything so complex and difficult to make sweeping predictions or to give simple answers to a question like this. With respect to the tariffs that have actually been announced, some of which have been stayed for the time being in North America relating to Mexico and Canada, it is safe to say that this will not have or would not have had a direct impact or the impact would have been negligible, but we must assume that vehicles in the United States will become more expensive and therefore that sales volumes will drop, and this would then have a knock-on effect on Infineon via the revenue that would generate in North America in the automotive segment, and it would affect their market share. I have a second question.
I would also like to know what this means. You mentioned compensatory payments at PSS. What does that actually mean? Mr. Schneider will be happy to answer that question. Mr. Schneider?
Yes, good morning, Mr. Hofer. This is Mr. Schneider now. We have a customer order with a major client where specific investments and expenditures were incurred, and the customer canceled this order, which of course is legally permissible. The contract envisaged that in such an event, we would receive a compensatory payment from the customer in the mid-double-digit range. And we appropriated that compensatory payment in the first quarter, and it will be reflected in cash flow in the second quarter.
Thank you very much. The next question comes from the reporter from Thomson Reuters, Mr. Hakan Ersen.
I'm asking a question with respect to your elevated forecast with the business in semiconductors for data centers.
Is the ascent of DeepSeek playing a role here? And if so, what influence does this have on your business expectedly? If similarly to DeepSeek, very low-cost AIs enter the market that use much less computing power than ChatGPT and the others that are already on the market.
Thank you, Mr. Ersen, for the question. Mr. Hanebeck here now. In the interim, we have achieved a very strong position with respect to power semiconductor solutions. We're talking about controllers and the like, as with all relevant GPU manufacturers and operators who develop their own GPU chips and deploy them. Therefore, we are in a very good position in this respect. With respect to DeepSeek, on the one hand, of course, this is a great piece of progress where more efficient models are now appearing on the market.
In the dissemination of simpler models, this should have an effect, but it is also to be expected that in the next leading major models, a performance jump will be made. Now, perhaps this may slow down infrastructure expansion. On the other hand, if model costs drop, usage may well increase, and therefore, in turn, demands on infrastructure may be accelerated. This will remain very dynamic, especially given the fact that it's not just this effect via models that has to be factored in, but as you could see very well at CES, we have this in the cloud and in the edge in microcontrollers, in our microcontrollers for automobiles and industrial applications, but that there's a new class of on-premise AI, such as PCs, the type of which were presented at the CES, and this, of course, will also shift the markets.
So we will continue to see a very dynamic environment. This is not going to be a linear movement, but the fundamental trend actually plays into our cards, especially with respect to power supply solutions.
Thank you very much, says Mr. Ersen. Just a reminder, if you want to ask a question, please press star one on your keypad. The next question comes from Christina Kyriasoglou from Bloomberg News. Yes, hello. Can you hear me? Yes. Very well. Thank you very much. Now, this is quite an exciting new tool here. I'd be interested to know whether you can say why you believe you are faring better than the competition because they have been rather disappointing with respect to their outlooks in the last days and weeks.
Yes, Hanebeck here. This is a very good question, and I'd be happy to answer that for you.
There are three factors that I can offer up to you, which then you perhaps can apply to the individual competitors yourself. First, we have seen especially strong growth drivers such as AI that we just spoke about. Second, we're talking about market share here. Last year, in the spring, we conducted the debate around having gained wonderful market share in automotive microcontrollers, whereas others, perhaps in general, in the general microcontroller sector, lost market share compared to the competitors, and then there are other effects. If you focus too much and rely too much on the key accounts, then of course, they can have a stronger effect on revenue trends, whereas here at Infineon, we have a very broad customer portfolio. Third and last, in these times where the market is weaker, under certain circumstances, you may be tempted to offer customers more goods than they actually need.
This isn't anything that we do, but we have observed this in the market. So you can apply each of these factors to the competitors.
What do you mean when you say that you supply more to the customer than they need? Well, says Mr. Hanebeck, you can offer customers maybe rebates so that they actually buy more product than they need. Okay, thank you very much. The next question comes from dpa-AFX from Christoph Rohrmeier. Yes, good morning. Christoph Rohrmeier from dpa-AFX. I wanted to maybe get some more specific information with respect to tariffs. Could you give us a ballpark, perhaps? Should there actually be a trade war? How much demand is at risk? Would you be talking about something in a decimal range, or would it be worse than that?
Well, says Mr. Hanebeck, right now, it would not be very responsible to throw some figures out there. It will depend greatly on the region, the percentage, the manner in which the tariffs are to take effect, etc. This can result in a big range from negligible to significant. And I ask of your understanding that we would not like to make any other statements at this point because they'd be too speculative. I'm happy with that. Thank you very much, says Mr. Rohrmeier. Ladies and gentlemen, that was the last question. I'd like to hand the floor to Mr. Hanebeck, please.
Ladies and gentlemen, I'd like to sum up finally. The market environment remains weak, but Infineon's stood its ground well, and the first quarter was slightly better than expected. The digestion of inventories in the automotive sector is continuing.
Strong momentum can be seen in power supply solutions for AI data centers. Also, the demand for electric vehicles with semiconductors in China has remained unbroken. Looking ahead, we can expect a slight recovery in the second half of the fiscal year, and because of the stronger dollar, we're increasing our forecast for 2025 compared to previously to from stable to slightly increasing. In the current environment, we're concentrating on the factors that we can control, our cycle management, innovation, and the structural measures to improve our competitiveness. That is how we are preparing for the coming upswing. Long-term growth drivers are intact. Decarbonization and digitalization continue to offer Infineon great opportunities for growth. Thank you for your interest, and goodbye.