Welcome to the conference call for analysts and investors for Infineon's 2020 fiscal Q2 results. Today's call will be hosted by Alexander Foltin, Corporate Vice President, Finance, Treasury, and Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded. This conference call may contain forward-looking statements based on current expectations or beliefs, as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control, that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these statements, and they should not put undue reliance on them.
For a detailed discussion of important factors that could cause actual results to differ materially from the statement made on this conference call, please refer to our quarterly and annual reports available on our website. At this time, I'd like to turn the call over to Infineon. Please go ahead.
Yes, thank you, and good morning. Welcome, ladies and gentlemen, to our 2020 fiscal Q2 earnings call. As all the other 80 before, we are doing it in a completely safe way, virtually. We are not sitting all in the same room today, but you do have the entire management board of Infineon present. Reinhard Ploss, CEO, Helmut Gassel, CMO, Jochen Hanebeck, COO, and Sven Schneider, CFO. No doubt these are special times, in our case, not only due to the coronavirus, but also since this is our first call after we closed the Cypress acquisition. As you might have seen, we already put out our results and guidance last night in accordance with German disclosure rules. Reinhard and Sven provide, as usual, introductory remarks. The slides to illustrate them are available at infineon.com/slides. After the introduction, we will be happy to take your questions.
Kindly asking you that you restrict yourself to one question and one follow-up. A recording of this conference call, including the aforementioned slides and a copy of our 2020 fiscal Q2 earnings press release, as well as our investor presentation, are also available at our website at infineon.com. Reinhard, over to you.
Thank you, Alexander, and good morning, everyone. 20 years ago, this month, in May 2000, Infineon hosted its first analyst call as a publicly listed company. Two decades later, we are having a very special call again. This is our first quarterly call after closing the largest and most transformative transaction in our history. Infineon and Cypress are now one company. With joint forces, we will become the leading provider of system solutions for linking the real and the digital world, and a top 10 semiconductor player. Besides this, the outbreak of the coronavirus has come to influence all of our lives. We are doing this call sitting further apart from each other than usual, with some colleagues dialing in from home. The pandemic is causing economic disruptions, which are in many ways unprecedented.
We will talk about the impact on Infineon, about what we know, and about what we do not know, about scenarios and how we are preparing for them. It's hard to predict how exactly Infineon is going to look like in another 20 years' time, but we have every reason to be confident that it will have grown in size, be in good financial health, and continue to shape its target markets. Integrating Cypress and managing the COVID-19 pandemic are no small tasks. In doing them right, our company will emerge stronger than before. Another telling example of our long-term thinking was the commitment that we gave at our AGM in February for Infineon to be a carbon-neutral company by 2030, with 70% of that target to be reached by 2025.
Given that we have quite many topics to talk about, and that looking into the rear-view mirror may be less important these days, we will structure the call a bit different than usual. First, I would like to provide an up-to-date status of how Infineon is coping with the COVID-19 situation from an operational point of view, especially regarding our supply chain and manufacturing operations. I will proceed with a review of our fiscal second quarter, keeping it brief. This will be followed by comments on the Cypress closing, on how the Cypress business did in March quarter, and how we will go about integrating Cypress into Infineon, and our view on synergies. Sven will keep these financial remarks on fiscal quarter two also short, spending instead more time on the refinancing of the Cypress transaction.
Lastly, I will lay out possible scenarios, the indicators we use to assess their probabilities, and our responses to them to frame the outlook for H2 of our 2020 fiscal year. Three months ago, we had talked about stabilization, as the semiconductor environment appeared to be normalizing. After a challenging 2019, the inventory correction was nearing completion, and the demand outlook was improving. We entered our fiscal second quarter with a steadily increasing level of business activity. In February, the outbreak of the novel coronavirus started to cause severe market disruption in China, with several provinces going into lockdown, factory shutdown, and extended Chinese New Year's holidays. Throughout March, COVID-19 started to turn into a pandemic, leading to an unseen collapse in activity in many economic sectors and geographies. The operating conditions for our businesses quickly became, and continue to be challenging.
With health and safety of our employees and business partners being the number one priority, we went into task force mode to ensure continuation of our operations. This is something Infineon is particularly good at. Thanks to the phenomenal job done by our manufacturing, procurement, and logistics, IT and other teams, we have been able to largely maintain our supply chain and other activities in recent weeks, despite all difficulties such as lockdown regulations, tight raw material supply, limited air freight capacity, and quarantined employees. We have adapted quickly to the new situation. Take Malaysia as a case in point. In the second half of March, both our important sites there, the front-end fab in Kulim and the back-end in Melaka, had to stop production to comply with the movement control orders imposed by the government.
Based on a very constructive dialogue with the authorities and by putting in place strict distancing and hygiene measures, we were able to stepwise bring our workers back and re-ramp capacities. Meanwhile, we are back to full operation at both sites. More generally, all of our major manufacturing plants worldwide are up and running to the extent required. We are adapting loading levels primarily in front-end to the current demand picture we are seeing, which on average means something like 70%-80% utilization. We are shifting capacity corridors between business segments to best be able to ensure supply continuity for our customers. Outside manufacturing, all other functions like R&D, sales, marketing, and administrative remain, let's call it operational, thanks to working from home. Our IT department enabled virtual collaboration from the first day of lockdown for more than 10,000 employees with excellent performance.
Now to our performance in the March quarter. Against a substantially reversing backdrop, we finished a solid quarter with revenues of EUR 1,986 million, up 4% sequentially. The stronger U.S. dollar helped a bit. At a constant exchange rate to the euro, the quarterly growth rate would have been 3%. Year-over-year, our revenues stayed flat in euro terms. At a constant U.S. dollar exchange rate, they declined by 2%. The segment result came in at EUR 274 million, equivalent to a segment result margin of 13.8%, in line with our expectation. In the December quarter, the segment result margin had amounted to 15.5%, positively influenced by a one-time methodology change related to inventory valuation, which contributed around two percentage points. Given that the March quarter is always burdened with the bulk impact of annual price negotiations, we view the achieved profitability level as solid.
Our book-to-bill ratio stood at 0.9 for the March quarter, but we should not read too much into it, as order push outs and cancellation are to be expected. To our divisional business overview. Automotive revenues in the second quarter of our fiscal year came in at EUR 846 million. The 2% increase against the first quarter was mainly driven by microcontrollers and body power components. The segment result of ATV was EUR 51 million, equivalent to a segment result margin of 6%, compared to 8.1% in the prior quarter. This pattern of higher revenues in the March quarter, together with a declining segment result margin, applies also to the other divisions, with the exception of DSS. The main explanation is related to inventories. Whereas we had positive one-off effects in the December quarter, we recorded negative inventory valuation adjustments in the March quarter.
In general, content growth continues to be a stronger driver of automotive semiconductor than car units. Currently, however, global car markets are facing strongly declining volumes as the coronavirus pandemic leads to a combined supply and demand shock. China was hit first in February. Production levels there collapsed by over 80% compared to one year earlier. As the virus spread, European and American markets also saw severe contractions from March onwards. Factory shutdowns, disrupted supply chains, closed dealerships, and consumer confined to their homes, all these factors contribute to a historic automotive crisis. Market researchers and brokerage houses appear to be in a race to lower their predictions. The main variables for these predictions are the length of the lockdowns and the impact of potential stimulus programs.
Current prediction for car production number range somewhere between -15% and -25% for the 2020 calendar year. Effects of a drop in car production typically become visible at the semiconductor manufacturing level with a two-month delay. As a consequence, we are currently witnessing sudden and steep deterioration of order volumes and withdrawal from consignment stocks, pointing to a weak quarter. Visibility into timing and shape of a recovery remains relatively low. In China, activity levels appear to surge back fairly quickly. Factories are being restarted. Sales volumes in some April weeks were actually up on a year-over-year basis. Specifically with regards to electric vehicles, subsidies have been extended by two years to 2022, signal a clear policy commitment to electric vehicles. Current discussion around the enforcement of European CO2 regulations lead to the conclusion that the EU will, in principle, stick to its commitment.
In any case, Infineon continues to be a prime supplier to the automotive industry. The market researchers from Strategy Analytics have just released their number for 2019 and confirmed our global number two position with an overall market share of 11.2%. This means we organically brought down the gap to the first-ranked player to just 0.1%. Joining forces with Cypress will mean that we will become the number one automotive supplier with an even broader portfolio, offering superior structural growth opportunity once the industry recovers. Moving to Industrial Power Control. IPC printed revenues of EUR 358 million, an increase of 7% compared to the previous quarter, and of 3% year-over-year. For wind power, we recorded an all-time quarterly high. Home appliances and drives saw a seasonal upswing.
The segment result for the March quarter amounted to EUR 62 million, resulting in a segment result margin of 17.3% after 18.6% in the previous quarter. The outbreak of the coronavirus had hit industrial applications hard. Global manufacturing got disrupted. Sharply falling outputs reverberated through supply chains and business confidence contracted to record lows. GDP estimates for 2020 have been revised down considerably, with recession being forecast in many regions. Against this picture, we expect our target application to follow different paths. For major home appliances and photovoltaic, we expect a short, but short-lived deterioration. For industrial drives, we expect the impact to be less severe, starting from an already reduced level. For wind power and traction, we even foresee some growth based on our industry-leading product offering dedicated to these areas.
Overall, IPC will feel the pinch, but with its diverse set of target application, strong market position, and exposure to resilient pockets of demand, the segment should fare in a reasonable, stable way. Now to Power Management and Multi-Market, or as I should rather say, Power and Sensor System, or PSS for short. We renamed the segment effective 1st of April. The new name better reflects our approach to offer our customers a holistic portfolio and systemic portfolio to address mega trends like digitalization, smart everything, and the Internet of Things. It also shows the continuous evolution of our offering. In our second fiscal quarter, PSS recorded revenues of EUR 617 million, a sequential increase of 4%. Growth was mainly carried by strong demand for server, data center, and communications products, both on the infrastructure as well on the device side.
On the other hand, demand for AC/DC power supply components was negatively affected by the prolonged Chinese New Year. The segment result of PSS amounted to EUR 138 million, resulting in a segment result margin of 22.4% after 24.6% in the previous quarter. Overall, the picture for several applications is comparatively bright these days. The corona pandemic forces large parts of population in many countries to stay at home, leading to a surge in data traffic for online collaboration, remote working, education, streaming, e-commerce, et cetera. This drives demand for laptops, as well as servers for data centers and telecommunications infrastructure. In addition, we continue to see strong momentum for our industry-leading MEMS microphones that enable noise cancellation earbuds, which are growing increasingly popular.
All in all, we expect a positive revenue trajectory for PSS in the near term with a delayed impact of macro weakness. One remark on medical equipment.
Also, the business impact might not be large. We are very pleased that we can support overcoming the coronavirus crisis by delivering Power MOSFET for medical ventilators. Going to Digital Security Solutions. The segment recorded revenues of EUR 162 million in the March quarter, a 3% sequential increase and practically flat year-over-year. All major product areas contributed to the quarterly increase. The segment result was EUR 23 million, corresponding to a segment result margin of 14.2% compared to 13.9% a quarter earlier. We have not seen substantial effects from the coronavirus pandemic in major smart card segments like payment solutions and government identification. On the other hand, we expect a stronger impact in markets for embedded security business like automotive. There is currently a backlog of unconfirmed orders, which we aim to serve as good as possible, given that we face some supply constraints from our external subcontracting partners.
For our solutions related to cybersecurity, working from home requirements actually provide a certain tailwind. Let me now address the successful acquisition of Cypress, which is clearly showing that Infineon takes a long-term perspective and continues to further improve its strategic business setup, even in difficult times. On April 16th, after all required regulatory clearances were obtained, we were able to close this landmark transaction. Cypress has become part of Infineon as of that date, and the first weeks of working together, albeit remotely, have already shown great positive spirit and enthusiasm about finally being able to join forces. Therefore, we are happy to confirm the strategic rationale of the deal. Together, we offer our customer the industry most comprehensive portfolio for linking the real with the digital world and shaping digitalization, one of the most important global trends.
Infineon is evolving from a leader in components to a leader in system solutions for the automotive, industrial, and IoT markets. Cypress adds a differentiated portfolio of general-purpose microcontrollers, connectivity components, software ecosystems, and high-performance memories. All this is highly complementary to Infineon's leading power semiconductors, automotive microcontrollers, sensors, and security solutions. Combining these technology assets enables advanced solutions for high-growth applications such as assisted and autonomous driving, IoT, and 5G infrastructure. The addition of Cypress's strong R&D capabilities and its foothold in the U.S. and Japan strengthen Infineon's connection with the customers around the world. The consequence of the strong strategic motive will be financial value created. The acquisition is expected to be accretive to earnings already in the 2021 fiscal year. The growth dynamic and profitability of the combined company is expected to rise while capital intensity will decrease, leading to an improved free cash flow.
We continue to expect annual cost synergies of EUR 180 million. For reaping these, we will follow a stringent integration script based on the proven track record from the International Rectifier acquisition. In few of the limitations imposed by the coronavirus pandemic, however, we are starting this process step by step. The cost synergies will ramp up gradually over approximately the next three years. On the revenue synergy side, the complementary portfolio will enable the offering of additional chip solutions with a revenue potential of more than EUR 1.5 billion per annum in the long term. Bringing everything together, this will lead to a new and superior target operating model for Infineon as the integration progresses with true cycle average growth of 9%, plus a segment result margin of level of 19% and an invest to sales ratio of 13%.
In its last quarter as a separate company, Cypress continued its strong execution, demonstrating the attractiveness of the business even under these adverse market circumstances. We are currently reviewing and adopting Cypress financial figures for the purchase price allocation and first-time consolidation. This involves, among others, the conversion of U.S. GAAP to IFRS numbers. Therefore, we can today only give indications. In the March quarter, Cypress revenue came in slightly above $500 million, about two-thirds from the Microcontroller and Connectivity Division, MCD, and about one-third from its Memory Products Division, MPD, with an operating margin level consistent with that of the recent prior quarters. Free cash flow of a bit above $100 million was strong again. We will make some details available shortly via our investor relation channels.
Going forward, and from the presently running quarter onwards, we will integrate Cypress business into our segments in the following way. Automotive Microcontroller and Memory Solutions, the hitherto MPD business, will go to ATV. Wired connectivity, mainly USB-C products will be integrated into PSS. Industrial microcontrollers and wireless connectivity products, which is Wi-Fi and Bluetooth components, will come under the responsibility of DSS. By this allocation, we will establish clear entrepreneurial responsibilities to facilitate cross-selling and the creation of new system solution. At the same time, collaboration across segment will be intensified so that Infineon as a whole can benefit from that. I will now pass the call over to Sven, who will from his home office comment on our key financial figures and especially focus on the Cypress refinancing.
Thank you, Reinhard, good morning, everyone. Indeed, these are special times and I can only echo what was said about the agility and the resilience of the Infineon organization. Similar to Reinhard, I will keep the looking back short and rather spend some time on the way forward. Let's start with the March quarter again. The gross profit was EUR 686 million. This corresponds to a gross margin of 34.5%, down from 37% in the previous quarter. Excluding non-segment result effects, the adjusted gross margin stood at 35.6%. Besides the inventory-related effects already explained, our gross margin continues to be burdened by underutilization charges. After around EUR 130 million in the December quarter, these idle costs amounted to around EUR 110 million in the March quarter. Research and development expenses and selling general and administrative expenses were essentially stable at EUR 241 million and EUR 214 million respectively.
The net other operating expenses amounted to minus EUR 5 million. The non-segment results for the quarter stood at minus EUR 48 million, EUR 21 million thereof hit our costs of goods sold, EUR 2 million R&D and EUR 18 million SG&A. Additionally, we recorded minus EUR 7 million in net other operating expenses. Our investments in property, plant, and equipment, intangible assets, and capitalized development costs in the second quarter of the 2020 fiscal year were EUR 247 million. Depreciation and amortization, including non-segment result effect, amounted to EUR 249 million. Included therein are EUR 15 million related to the amortization and depreciation of fair value step-ups almost entirely from the purchase price allocation from International Rectifier.
Going forward, this amount will go up considerably as a result of the acquisition of Cypress. We are currently working on the purchase price allocation, as mentioned earlier. The financial result for the March quarter was a negative EUR 27 million.
This included EUR 10 million of costs we incurred by putting in deal contingent interest rate hedges. The purpose of these hedges is to lock in rates for future refinancing for the purchase of Cypress. Income taxes expense in the second quarter decreased to EUR 21 million, leading to an effective tax rate of 11%. The cash tax rate was 16%. Our free cash flow from continuing operations was EUR 108 million, more than offsetting the negative EUR 86 million for the December quarter. It goes without saying that in these challenging times of coronavirus impact, there's a special emphasis on liquidity preservation and cash flow generation. Our reported after-tax return on capital employed, ROCE, came in at 9.2% in the March quarter.
Excluding bookings related to the acquisition of International Rectifier, in particular goodwill, fair value step-ups, and amortization effects from the Cypress transaction as well as deferred tax effects, the adjusted ROCE stood at around 12%. Let me provide you more details about the initial funding of the Cypress acquisition and how we think about its further refinancing. We settled the transaction on the 16th of April, and let me mention that this is then also the start of the consolidation, which in other words means that in this coming quarter, only approximately ten out of 13 weeks of Cypress revenues can be included, whereas in our quarter four, the full quarter of Cypress will be consolidated. In settling the transaction on the 16th of April, we used a combination of cash on hand and our available acquisition financing facility provided by a consortium of 20 national and international banks.
As you will recall, the total enterprise value was €9 billion. In order to maintain a sufficient liquidity buffer on our balance sheet, we drew down the entire acquisition financing facility. For the remainder of the enterprise value as well as for transaction-related expenses, we used existing liquidity. To the intended refinancing. In line with our conservative financial policy, the acquisition facility provides ample time and flexibility for long-term refinancing measures to arrive at the target capital structure. Its bridge component of €3.9 billion is available until March 2022. In addition, there are three term loan tranches of $1.1 billion U.S. each, with staggered maturities from September 2022 to June 2024. There are no financial covenants in the acquisition facility. We do have one leverage covenant in our existing U.S. private placement, which is still coming from the International Rectifier acquisition.
In autumn of last year, in line with our prudent financial policy, we agreed with the holders of this instrument to adapt the ratio to the Cypress refinancing, which gives us sufficient headroom even in adverse macro situations. The starting point for our refinancing is our unequivocal commitment to our investment grade rating. S&P Global Ratings, on the day of closing of the acquisition, lifted the credit watch and issued a BBB- rating with stable outlook for the newly combined company. Unchanged from our initial announcement, Infineon intends to ultimately finance approximately 30% of the total transaction with equity. With the share placement and the issuance of the hybrid bond, both in 2019, we have already done significant steps towards achieving the desired quantum. Apart from equity, we intend to tap various debt capital markets for further refinancing and achieving a well-balanced maturity structure.
In this respect, we find it encouraging that fixed income markets have reopened very quickly and that central banks are providing additional liquidity to support issuances over a broad rating spectrum. Given the disruptions caused by COVID-19, a solid balance sheet and a strong liquidity position are key. To this end, Infineon will keep liquidity corresponding to its target level of EUR 1 billion, plus at least 10% of combined sales. Currently, we are comfortably exceeding this target as our gross liquidity post-closing of the Cypress acquisition and netting out the pending repayment of some of Cypress previously existing debt is almost EUR 3 billion.
Furthermore, a consistent deleveraging path will be pursued in order to bring the ratio of gross financial debt to EBITDA back to its target value of maximum two times over the midterm. I will now pass back to Reinhard again, who will comment on our outlook.
Thank you, Sven. We live in a moment of heightened uncertainty and the situation remains fluid. Developments of both COVID-19 as well as societal and economic policy responses to it are dynamic and complex, leading to low visibility. There is no playbook for the current crisis. We can take a look at the lessons from previous crises, but this only gets us so far as the coronavirus pandemic is causing challenges that are in many ways unprecedented. For our industry and for Infineon, key questions are. When are lockdowns going to be eased? How quickly will disrupted supply chains, for example in the automotive industry, be up and running again? What are about consumer confidence in the face of rising unemployment? Which pockets of demand will be materially affected and which just delayed? What will be public spending in the form of stimulus programs be targeted at?
Will regulations be aimed at the near-term resurges of the economies, or rather at mid and long-term structural changes, the need for which is underscored by the crisis? The answers will be different for different application areas, and the picture clearly is not uniformly bleak. China appears to have seen the worst and recovering is starting to become visible there. Other countries, like Korea, seem to have the spread of the virus under control. European countries are cautiously testing reopening measures. Against this volatile background, we have to think in scenarios and work in task force mode. At the same time, we have to look beyond and through the current crisis and prepare for the future, since we view semiconductor growth as structurally unbroken. Infineon is crisis tested and is doing both these things right now. We monitor events daily.
We talk to customers regularly and check the order backlog, push-outs, and cancellations. We successfully keep our manufacturing footprint and our whole organization up and running. We schedule and reschedule production, balancing fab loading with inventory levels. We had initiated cost containment measures already in autumn 2019. We'll extend and intensify them to the extent needed. For some of our production sites, this will mean that we will deploy short-term work schemes. At the same time, we are very confident that our business is resilient and future-proof. The addition of Cypress will strengthen us already in the near, but much more in the mid and long term. As you will recall, we withdrew our outlook for the 2020 fiscal year on the 26th of March, indicating negative impact of the coronavirus situation on our revenues and profitability.
For our hitherto existing scope business, including Cypress and based on an assumed USD exchange rate of 1.1 to the EUR, we now expect to generate total revenues of around EUR 7.6 billion in the 2020 fiscal year. This would correspond to a decline of about 5% compared to the previous fiscal year. Cypress will be consolidated from 16th of April onwards, and expected to add about EUR 0.8 billion of revenue throughout the remainder of the current fiscal year, bringing total revenues for Infineon, including Cypress, to about EUR 8.4 billion, ±5%. The midpoint is based on the assumption of a slowdown of global infection rates and a gradual revamp of economic activities starting in the summer months. Should global shutdowns persist for longer, or in contrast to this, should a recovery set in sooner, the outer bounds of our forecast could be reached.
For the anticipated revenue level of 8.4 billion EUR, we expect a segment result margin of about 12% for the 2020 fiscal year. The former Infineon and Cypress businesses should contribute proportionate to this profitability level. The effect of synergies will be limited over the short term as the ramp-up to the run rate of 180 million EUR per annum will successively happen over the next three years. With regards to the segment result margin, we assume that underutilization charges, including those from idle capacities resulting from COVID-19 related temporary shutdowns, will amount to approximately 600 million EUR. Assuming cyclical idle costs are around 450 million EUR thereof, the impact is equivalent to five percentage points of segment result margin.
From a segment perspective, Automotive will be the hardest hit by the COVID-19 pandemic, with revenues, prior to contribution from Cypress, expected to shrink significantly compared to the previous fiscal year. For the segments Industrial Power Control and Digital Security Solutions, a mild revenue decline is forecasted. Revenue in the Power & Sensor Systems segment is expected to come in a bit above the level of the 2019 fiscal year. In each case, prior to contributions from Cypress. Investments in property, plant, and equipment, intangible assets and capitalized development costs are planned to be between EUR 1.2 billion-EUR 1.3 billion for the 2020 fiscal year. This applies for the combined company. In other words, the expected investment for the combined company is slightly below the so far guided number before the acquisition, as we are reducing expenditure for our former business.
Our future-oriented investment into our new 300-millimeter fab in Villach, Austria, continues to run in these challenging times. The building will be weather-tight in a few weeks, and we are sticking to our target of being ready for production at the end of calendar year 2021. Depreciation and amortization are expected to be in the region of EUR 1 billion. This amount, however, excludes amortization resulting from the purchase price allocation of Cypress, as the purchase price allocation has not been completed at this point in time. Our reported free cash flow will of course, be negatively affected by the acquisition of Cypress and related transaction cost. Excluding these effects, we reckon that we will be able to keep free cash flow positive and for the yearly figure to come in between EUR 100 million and EUR 300 million.
For the running Q3 of our fiscal year, again, based on an assumed dollar exchange rate of 1.1 to the EUR, we anticipate revenues of between EUR 1.9 billion and EUR 2.3 billion for the newly combined company. Please remember that Cypress will contribute for 10 out of 13 weeks within the quarter. These divisional dynamics are similar to the ones commented for the remainder of our fiscal year. The segment result margin for the combined company is expected to be a positive mid-single-digit percentage at the midpoint of the guided revenue range. Ladies and gentlemen, let me summarize the key points. We finished the second quarter of our 2020 fiscal year with revenues up 4% sequentially and a segment result margin of just under 14%. The impacts of the coronavirus pandemic are in many ways unprecedented.
Infineon is not immune to the crisis. As a company, we have shown several times in our 20-year history that we can adapt quickly to changing conditions. There is no playbook for the current situation. Further developments are hardly foreseeable and we have to think in scenarios. We will continue to do our utmost to keep our operations running and continue to serve our customers. Near-term market conditions are challenging, in particular for automotive. Pockets of resilience for PSS and partly also IPC support our business. We have stepped up cost-saving measures through instrument like short-term work. We are facing a noticeable revenue decline in our 2020 fiscal year pre-Cypress. We will keep our segment result margin clearly double digit on an annual base without a loss-making quarter.
Our gross liquidity post-Cypress closing is almost EUR 3 billion and our organic free cash flow for the 2020 fiscal year is projected to remain positive. The acquisition financing facilities give us a sufficient time and flexibility to achieve our long-term target capital structure. Our refinancing will follow our proven track record of balancing shareholder interests and doing decisive and prudent steps to use available market opportunities. The pandemic is fundamentally changing the way we live and work. The digital transformation is receiving an additional boost. Our key growth drivers like electromobility, renewable energy and IoT stay in place. In fact, the COVID crisis is poised to accelerate them. We warmly welcome our new colleagues from Cypress. We feel well prepared for a smooth integration even under difficult conditions. Together, we will continue to write the Infineon story of profitable growth. Infineon takes a long-term perspective.
The crisis will pass, and in combination with Cypress, we will emerge from it stronger. Ladies and gentlemen, this concludes our introductory remarks, and we are happy to take your questions.
Operator, please start the Q&A round.
Thank you. Ladies and gentlemen, our question and answer session will be conducted electronically. If you would like to ask a question, simply press the star key followed by the number one on your telephone. If you're joining us today using a speakerphone, please ensure that your mute is turned off. Once again, to signal for a question, please press star one. Thank you.
Can we get the first question please, operator?
Yes. Thank you. Please go ahead. Our first question is from Mr. Andrew Gardiner at Barclays.
Hi. Good morning, guys. Thank you for taking the question. If I could focus in on some of the comments you were making on the Automotive market. I'm just wondering if you can give us a bit more detail in terms of the order patterns, the behavior you're seeing from the customers as we come through the early parts of the quarter. How things have changed over the last couple of weeks as some of the OEMs and tier ones are trying to prepare for a recovery in manufacturing activity. Just around that, what's giving you the confidence in this recovery ramping into the September quarter? It looks like you're calling for about a mid-teens recovery overall in terms of the group revenue. Can you help us specifically on the Automotive piece there in the September quarter?
Perhaps contrast that with the statements you've made, I think rightly so, in terms of the pressures we see on the end market there. It just feels that there's a little bit of a disconnect in terms of how you're framing the guidance relative to some of the end market forecast at the moment. Thank you.
Thank you, Andrew, for your questions. They did not come over so clearly. We hope that we answer your questions accordingly. Here I will ask Helmut to take over to give the market pattern. One point which I think here in general I want to remark, as Sven has already done. Some of the recovery comes from the fact that there is a, I would say, difference in the effect of the Cypress being integrated now as a partial quarter versus the quarter four as a total quarter. Some of the recovery comes from that point. Please don't over interpret these numbers. Helmut now will give you insight on the market figures and the sentiments.
Yes. Hello. Good morning, everybody. First, I want to reiterate two statements that Reinhard just made in the intro already. Number one, the analysts range decline in the car production is between 15% and 25% year-over-year decline. We look at this rather, say, in the midpoint of that. We see a substantial decline to happen for the automotive market. It has started in China already in the first quarter, and as we have already seen in the first weeks of April, it has strongly come back in China already. It appears, at least in China, a strong V shape, I would say. Of course, not to full pre-crisis levels, but it's coming back strongly. It was hit in Europe and lastly in the Americas, and therefore we expect a later return there as well.
The second statement that Reinhard has made is that there is about a two-month delay between what happens in the car production level to what is seen at the semiconductor level. With that, we also have seen a decline in orders coming in March, starting from China and then now going over to the other areas as well. We do expect some of a recovery in the later part of the fiscal year of that, but not to the full extent. As Reinhard mentioned, there's a secondary effect coming from the Cypress acquisition in Q4 .
I hope we answered your questions there. Just one remark, in general, for the Automotive business. Overall, we currently have not seen any effect on cash-saving measures at our customer sites, which has been affecting our business in 2008-2009 significantly. If this would take place, of course it would change the behavior, how people are restocking. Currently, we have not seen any behavior which would limit this. I also made a remark on that we cannot calculate, especially in Europe, the broken supply chains, which are most likely being affected from supplies from Northern Italy. Currently, we have no indication that this will affect, in Europe, the slow ramp-up which we are facing. In U.S., we expect a more, I would say, homogeneous ramp-up as the total value chain goes back to work. With this, please back to operator.
Thank you.
Thank you, sir. Our next question is from Mr. Matt Ramsay. Please go ahead, sir.
Yes, thank you very much. Good morning, guys, and all the best to everyone at Infineon during these interesting times. A couple of questions from my side. The first one, Reinhard, you talked a bit in your prepared remarks about the CO2 standards in Europe and just a general push towards electrification and efficiency in the customer base. I guess there's been some debate in the investor community as to whether, I guess, cars being pushed toward EV, which I guess would be artificially a bit more expensive in the short term, is going to be something that governments stick with, given the likely recession, particularly in Europe, or if this is something that the governments might lean into and push further, given the crisis. You guys might have better visibility than most into those trends. Any big picture comments?
Just quickly for Sven, one of the questions I get most often is around the potential need for another equity raise to fund Cypress. I know there's obviously a lot of moving parts, but if there is something like that on the offing, if you could give us some sort of boundaries as to how big or how material an equity portion of the remaining financing might be, that would be really helpful. Thank you, guys.
Thank you, Matt. Definitely special and challenging times. The CO2 standards in Europe. It is very difficult to interpret the current discussion. Our take here is a mixture. I think, of course, that the governments will push most for the CO2, at least in Germany. If there is a support by government for the purchasing new cars, the debate goes into the direction that these cars with lesser CO2 footprint will be, I would say, preferred. On the other side, we also have to think about the overall production capabilities. If there is a push, I think the hybrid, the full electric and the plug-in hybrid production volumes may not be yet at a level in order to take all of these pushes. Therefore, the discussion on Euro 6 is, I would say, going up.
I think it's also because we see that the consumers, at least in Germany, but also other parts of Europe, are still deciding for combustion engine cars because the convenience it brings. The discussion is not yet over. There's today the Automotive Summit with German Chancellor today. We will see what happens there, and we can read it. For us, while I think here we might see a little bit of an effect, of course, for electric cars, we benefit from it as we have a significant market share in Europe. I'm not so sure how this will go. Even if there is a, I would say, an outcome today, the discussion will not end. My expectation is we will have a certain push to electric, but kind of as we can manage it.
There's a lot of criticism, at least in Germany, also that the car companies are sitting on a pile of cash and could do this by themselves. Maybe what we see after some announcement from today's Auto Summit, that parallel to this, the car companies will take action by themselves in order to give rebates. Please give us some time to read the numbers, and we will share this at least as far as we understand what's going on. With this, I want to hand over to Sven answering the money question.
Thank you. Yeah, Matt, on the equity piece, I want to start by saying that we are really pleased that we did big parts of it and did the equity portion and the hybrid in good times. That's always prudent. Considering the enterprise value of EUR 9 billion and a 30% equity component, which we have reiterated also when the Standard & Poor's announcement came out, it can be concluded that there will be a third equity steps. No decision has been taken. We have not decided on instrument nor on timing, as we have explained to you, hopefully well in the introductory remarks, that given the maturity of the acquisition facility, gives us a lot of time. It would be a mid-to-high triple digit EUR amount, relatively moderate, especially if you consider that the hybrid equity credit was a non-dilutive step because no shares have been created.
Also to be fully transparent here with you, after the AGM in February, we have all approvals in place. Basically we could do all kind of transactions authorized as well as contingent capital. I would say a rights issue for such a small anticipated amount doesn't make too much sense. The more interesting instruments, depending on market availability, would be another accelerated book building, a mandatory convertible or a hybrid bond. Everything is possible. As I said, in these times where visibility is low, where markets are a bit softer, I think it's even more prudent to do what we have said all along the last quarters. Thank you.
Okay. Let's take our next question.
Thank you, sir. Next, we have David Mulholland from UBS. Please go ahead. Your line is open.
Hi. Thanks, guys. Just one in terms of your visibility and what you're saying. Obviously you seem to be getting pretty resilient signals, if I can put it that way, from particularly the Industrial Power Control market. Have you tried to calibrate or quantify whether there's any risk there that demand level is holding up just because customers are concerned about the semiconductor supply chain's ability to supply? Have you worked it through in terms of end demand and do the numbers you're seeing make sense? Secondly, just a couple of quick financials. One, what are you planning in terms of inventory over the next couple of quarters? Are you expecting to build? I guess it seems like a little bit given the utilization rate. Finally, in terms of your commitment to CapEx that's holding up.
Is that something being encouraged by customers given where they see demand levels when we do recover into 2021? I guess I was thinking you might cut it a little bit more than you have in terms of the CapEx or the investment guide for this year.
Thank you, David. First about the markets and how the customer behaves. Of course, we are looking very clearly if the customer is now putting orders in order to build up stocks and having security for supply chain interruptions. Here we have set up, as far as we can look into all of these very clear KPIs in order to monitor it. This will be highlighted by Helmut. Regarding in-house situation and so on, Jochen will comment later on and the finance will be answered by Sven. Here as you ask on industry, look, the industry segment is pretty difficult to look into in detail because the value chain is pretty long and fragmented, especially when you look into automation and fabrication equipment. Quite some of the value chain, especially on finished goods, are not so transparent to us.
What we are doing, which we are monitoring the end market, as far as we can see it. In between, we have quite some end markets which have a very good visibility, which is in the solar, in the wind, in the household equipment. Maybe Helmut can add to that.
Yes, very happy to. Besides the breadth of applications that also include renewables and home applications, there is an underlying current, which is, we have come out of a rather slow year, have seen inventory corrections all over the place ending already by the fourth quarter of last year. There is a demand rising that is now suppressed by the crisis. That is one factor that is important. The other is that, yes, I do agree that very likely customers have increased their stock levels in light of risks of supply interruptions. These have already passed, I would say. This is already done. Therefore, I believe overall, we have a resilient setup with some underlying current positive, not just in like wind and traction, that is supporting our overall figures for IPC.
Thank you, Helmut, and before I hand over to Sven, maybe Jochen can give some highlights on how we manage inventory, because I think here this is a non-usual situation to manage this.
Yeah, this is Jochen Hanebeck. Hello, good morning. Inventory we manage in the following way. We, of course, reduce now the loading in the front ends. We have here the instrument of short-time work in the middle of Europe, Germany, and Austria. In terms of back end, we also reduce the loading. This is obviously mainly done in Asia. With the effect on the reaches, you will see for the next two quarters probably the reaches increasing, even though because the effect of the reduction in production volume will take some time. We are here steering towards a point towards the end of the year where we want then to be ready for a recovery in 2021. This is the point of control. On terms of CapEx, you asked whether this is supported by customers. Well, we do not here ask customers directly.
In any case, the majority of the budget this year is geared towards building topics like our Villach plant, which we continue because this is revenue in 2022. Also we have structural and quality and innovation invest. The capacity invest has been already done, so reversing this is not a meaningful tool. We have adjusted to the extent possible without jeopardizing our ability to ramp then towards into 2021 and especially 2022. Thank you.
Now, Sven, your call.
Yeah, I think there's little to add here. You mentioned it nearly all. I think in broad terms, what Jochen just has explained is if you forecast a quicker recovery, and I think we are well underway in the strategy of preparing for servicing our customers. If you forecast a long recovery period, it would make more sense to have a lower inventory. I think everything else has been said, and we are monitoring that closely on a very regular basis to be flexible in our answer to a limited visibility in the current markets.
Yeah, back to operator.
Thanks very much.
Thank you, sir. Next up we have Mr. Sandeep Deshpande from JP Morgan. Please go ahead, sir. Your line is open.
Yeah. Hi. Thank you for having me on. Good morning. I'm just trying to understand some of the points you've made in the earlier questions. Again, can we understand how your order book looked in March and in April? Of course, in February as well, because the crisis started hitting in China in February. Has the order book changed February, March, and April? Does that have any predictive element to how it will look in May as Europe opens up? My question there is, if you remember 2018, Reinhard, that the crisis in autos in 2018 started in June, but Infineon did not really face it till October, November as such, really. Whether you will see further impact from this much further down the road or whether you have already seen them in your order book? I have one big follow-up.
Thank you, Sandeep, and welcome back again, after being blocked. While we are not running our business against the order book. If we would run it against the order books, we would have given you a completely different guidance. Yes, the numbers we have seen in 2008 and 2009 were different, we also have to be self-critical at that point. The orders have already slowed down much earlier than the Lehman crisis kicked in, we were sitting at a pretty high inventory, which forced us to take back production much more than the crisis itself at the very beginning showed. The next point is, at that time, we were not only facing a weakness in car market, which don't forget, it was between -15%--25% in car production.
The bullwhip effect of the total value chain kicked our revenue down to 50% of a normal in ATV. I mentioned this before. We not see any measures taken by our customer to do this again, and they are also wise not to do it, because that was followed by a two years allocation which were hitting them as hard as the downturn itself. Therefore, we can share some numbers on our order book, but I think these are in some, especially for automotive, not so relevant, and we are seeing that the expectation which we derive from the car production numbers, which we range between the -15% - -25%, are now kicking in. We have already prepared and Jochen could elaborate, but I think here he did already quite nicely.
On the manufacturing, we anticipated drops there quite significantly and shifted production to the extremely high demand and service as far as possible from the manufacturing structure. Sandeep, this time I think we are anticipating this situation in the car market much better than we anticipated in 2008 and 2009. On the other side, the current order book is definitely adapting to the situation in car, and Helmut has given insight on the China, where we see already the reverse numbers. Very hard to say how this will be, I would say, becoming effective. I think we have to watch this, and we will have a better view next time we talk. We prepare for a short and deep decline in our current revenue in automotive. Otherwise, I think the guidance would have been different.
Thank you. One quick follow-up. A lot of German automakers have now released hybrid electric in their portfolio. Has that begun to make a change in the order books from those companies for your EV-related products?
Hard to say. What we can state is that within automotive, despite the general weakness, everything which is driver assistant and autonomous driving is still holding up. The order book and EV, I think it is a little bit, I would say, mixed picture. What we see, there is a good acceptance in company cars, which typically have higher horsepowers, and the company require low CO2, as we do too. This is definitely holding up for the rest. As I said before, it's not a matter only of the customer demand, it's also a matter of supply chain and batteries and electric drivetrains. Very difficult to forecast on that. On this compact and smaller cars, we see not so much effect on this. I hope that answers your question.
Thank you very much.
Thank you, sir. Next up, we have Mr. Johannes Schaller. Please go ahead, sir, and please be brief. Thank you very much.
Yeah, thanks for taking my questions. Just two on margins, if I could. Firstly, if we look into the Q3 guidance, the mid-single digits. You've kindly provided us a view on your idle costs for the full year. When we look into the fiscal Q3, just how much of those idle costs will be at play there? Is most of that hitting automotive? Maybe you can discuss a little bit the margin picture also for the other segments, to give us a better understanding, how that is shaping up and where that big drop is coming from, and then if it's really indeed more the automotive side. Secondly, just on the full-year guidance, do I understand it correctly that you also expect Cypress to be at around 12% segment result margin here? Do I misinterpret the comment here?
If that's correct, maybe you can discuss the drivers here a bit, because I would've thought maybe that's a slightly higher margin business, even if we translate US GAAP into IFRS, and that they should probably have less negative operating leverage compared to the Infineon standalone business in this downturn. Thank you.
Thank you, Mr. Schaller. Right away, I hand this over to Sven.
Thank you. Mr. Schaller, I think the first question on idle, just high level. We have incurred, give or take, EUR 250 million of idle costs in quarter one, quarter two. If we now guide for EUR 600 million for the full year, there's another EUR 350 million to be split over two quarters. I would say it's hard to predict, given the visibility. If you ask me today, I would say there's a little bit more idle anticipated in quarter three than in quarter four. Yes, your assumption is right. The biggest part of idle traditionally goes to Automotive. Rule of thumb is 60% go to Automotive, give or take. Your question to Cypress. Here, please bear with us. We own the company since two weeks. As Reinhard has mentioned, we are now doing the adjustments from U.S. GAAP to IFRS.
The 12% segment result margin is the average margin for both legacies, so to say, on the anticipated EUR 8.4 billion. I don't want to now guide the legacy margin for Infineon and the legacy margin for Cypress for the next quarters, but we will give you much more clarity on all that when we really give you full Q3 IFRS numbers for Cypress, then also show the segmentation where the Cypress businesses, as Reinhard mentioned in the introductory remarks, will be allocated to the divisions. Thank you.
No, thank you. That is understood.
Thank you very much. Next up, we have Mr. Amit Harchandani from Citigroup. Please go ahead, sir. Mr. Harchandani, can you hear us?
Good morning. Can you hear me?
Yes, we can. Thank you. Please go ahead, sir.
Thank you. Good morning, all. Two questions, if I may. The first question goes back to the guidance for free cash flow. Could you help us understand the different puts and takes, whether the EUR 100 million corresponds to the low end of the sales guidance, for example? You talked about emphasis on liquidity preservation and cash flow generation. If you could kindly help us better understand the puts and takes around the free cash flow guidance, please. I have a second follow-up.
Thank you, Amit. The question of free cash flow, Sven, can you please take it?
Yes, Amit. This is another range, I would say. You can also interpret it differently by saying it's EUR 200 million in the midpoint, ±EUR 100. Again, the visibility is difficult. Therefore, this is the corresponding free cash flow number which is forecasted to be achieved in the midpoint of the revenue. It corresponds to the EUR 8.4 billion total revenue. That is how we came to that number. On cash flow preservation, as we just mentioned, I think we are pulling all levers. As already mentioned, we are reducing in the former Infineon legacy business investments, which are still postponable or stoppable for this year. Of course, we are thinking about next year, but that's too early to say. Yes, this is a very important focus for all the divisions and the company itself.
Thank you. Secondly, if I may, with regards to the newly named PSS business. You talked about some of the demand drivers which are holding up well. How sustainable do you think some of these drivers are, such as smartphones, for example, or spending on data centers going into the second half of fiscal year? If you could talk about maybe some of the assumptions around PMM, which you used to come up with the range for full-year guidance. Thank you.
Amit, regarding smartphone, I will do it brief. We see currently the trend from the high-end to the mid-performance smartphones. Regardless of this, they also need more of the microphones. We believe that as we are not, I would say, in a standard or, I would say, average situation in this area, we believe that especially on the MEMS microphone, which is driving the smartphone revenue at the biggest portion, that has a good chance to continue longer term and all the accessories like the earbuds. We do not expect there is a significant change, and we have seen this trend being continued over the time. Therefore, I think here, we all call it a structural growth driver, which does not go with the average market. The other portion on the service.
Look, we believe that there has been initiated a certain change in how we are working and how we are living, and this may last for quite some time. After last year, where we have seen a dip in the server market because there had been an overinvestment in the time before, we now see a recovery. The recovery is, I think, at least we do not see that it is an overshoot again. Therefore, we believe this can be a more constant and longer-term driver. We also believe that with all the 5G communications, where also a lot of power supplies are required, this can be good for further out. This is something which we, I would say, watch and deal with as we work. Very clearly said, there in many areas, we are in deep allocation.
I think with this, I hope we have answered your question.
Thank you, Reinhard, and thank you Sven.
Thank you. We'll take our last question for the call today from Mr. Jerome Ramel. Please go ahead, sir.
Yeah. Good morning. Thank you for taking my question. Just the first one is concerning if I want to reconfirm your Q3 guidance and your full-year guidance. It seems that we have a strong acceleration of the decline in Q4 versus Q3, also the segment profit margin from mid-single digit to anywhere between low teens and mid-teens, I would say. So I appreciate we're going to have the full quarter of Cypress in Q4, which is about three weeks more, 20%. I would like to understand the dynamic there. My follow-up is how should we model the financial charges per quarter or full year going forward following the addition of Cypress? Thank you.
Thank you, Jerome. Sven, can you please take it?
Very quickly, Jerome. We are guiding for EUR 2.1 billion in the midpoints for Q3 revenues. If you look at what is already in our books, which is close to EUR 4 billion, in order then to achieve the EUR 8.4 midpoint full year, we need another, give or take, EUR 2.3 for the Q4. You said it already. If you have Cypress in for a full quarter, not only 10 out of 13 weeks, that gives you probably half of the increment already. The rest comes from some growth, it's not a spectacular recovery, as we have mentioned a couple of times. On the profitability, I think in line with my previous comment, if my assumption is correct that idle costs are a bit more leaning towards Q3, that also explains the profitability.
On the financial charges, here we have to differentiate into the current state of play, where everything is financed through the acquisition facility and the banks. Here I would say please take 2% as interest. On the EUR 7 billion, it's EUR 140 million interest per annum. Once we refinance part of that, be it with equity or debt, of course, we have to make then changes to the assumptions.
Thank you.
Okay, as we are running already a little bit into overtime, I would like to wrap up at this point in time, thanking everyone for the questions. There is a small queue of additional questions. We will hopefully be able to address those later from the IR team here in Munich. Thank you very much for dialing in. Stay safe and healthy and talk to you latest in three months again, but most probably very much sooner. Thank you. Bye-bye.