Good day, ladies and gentlemen. I'd like to welcome you to our conference call on the results of the Q1 of fiscal 2023. Participating at this conference of Infineon are Jochen Hanebeck, CEO, and Sven Schneider, CFO. Ladies and gentlemen, Mr. Hanebeck, as usual, will start by giving you an overview of the business performance of Infineon. After which Mr. Hanebeck and Mr. Schneider will be happy to answer any questions you may have. I shall hand over to Mr. Hanebeck for his statement.
Thank you, Mr. Hobbs. Good morning and welcome. Listeners, Infineon is still on track in difficult times. Macroeconomic burdens and geopolitical uncertainties are giving us a volatile and challenging environment, even though there are signs that the macroeconomic development is turning out less bad than had been feared some weeks ago. The semiconductor market is basically divided into two groups. On the one hand, there are markets which are driven by structural growth, especially the energy transition and the expansion of electromobility, ensuring that we've got a lasting strong demand for our solutions for industrial automotive applications. On the other hand, there are sluggish markets where the development is driven by cyclical fluctuations in demand. The need for semiconductors in the field of such applications as consumer electronics, computing, and communications is declining. This includes smartphones, computers, televisions, gaming consoles, and data centers.
Infineon is undeterred and continuing along the route it that we announced in November. We are focusing on long-term growth opportunities which result from decarbonization and digitalization for Infineon. Leading position in the field of power systems and the Internet of Things, IoT, is being expanded. In financial terms, this must be reflected in profitability and resilience throughout the semiconductor cycle. In the Q1 of our fiscal 2023, we have clearly satisfied these expectations. Infineon achieved revenue of EUR 3,951 million, which is decline of 5% compared to the previous quarter. Which means that we have achieved our guidance almost on spot with EUR 4 billion. The deviation due primarily to the change in the exchange rate of the US dollar from 1 to 1.02.
Our profit has continued to grow positively, and in the Q1, exceeded our original expectations. The Segment Result rose to EUR 1.107 billion. The Segment Result Margin improved substantially to 28%, following 25.5% in the previous quarter. The improvement is mainly due to the development of prices, advantageous product mix, and a slight decline in the pressure of prices on the energy and material side. Our order books, composed of confirmed and unconfirmed orders, declined as expected. It reduced from EUR 43 billion at the end of September to EUR 38 billion at the end of the year. This development is due to currency effects and certain normalization in the order behavior of our customers. There is a reduction in supply bottlenecks and the general availability of products has improved.
However, the picture varies according to product type and application, and I'm going to deal with that in more detail. First of all, look at the development of free cash flow. In the Q1, and this wasn't unexpected, it declined substantially from EUR 709 million to EUR 25 million. Three major effects played here. First of all, in December, the greater part of the annual variable remuneration is paid in December, and then there was an increase in inventories. There was also a decline in trade accounts receivable compared to the previous year. In Automotive, we saw a decline of 3% compared to the previous quarter, with revenues of EUR 1.872 billion. This is mainly due to the weaker US dollar exchange rate.
On year-on-year basis, revenue, however, rose by an excellent 35%, and the exchange rate here has a positive effect. The development is showing that the strong demand in all product groups in automobiles is continuing. This is reflected in a positive development of profitability. The segment result improved from EUR 532 million, and the segment result margin increased substantially and reached 28.4% from 26.2% previous quarter. The increase is due to price effects and also the advantageous product mix. All in all, supply disruptions, material shortages, and market uncertainties are having less of a burden on automobile production. According to the information service S&P Global, the number of cars produced worldwide in 2022 was 82 million vehicles, which was still below the level before the coronavirus pandemic. For 2023, S&P is forecasting about 85 million vehicles.
We think that is optimistic since some of the pent-up demand could be impaired by the weaker consumer confidence. Far more important than development of the unit numbers is in any case the structurally growing demand for semiconductors and vehicles, which is important for Infineon. That's the driver of our business. From talking to our customers, we know three things. First of all, the two mega trends, electromobility and automated driving, are intact and irreversible. Secondly, there is a clear willingness on part of the manufacturers to increase transparency and visibility in purchasing behavior using the supply of semiconductors, which they wish to secure with long-term agreements. Thirdly, we see a strong trend among manufacturers for power semiconductors, for example, for electric vehicles and microcontrollers to be purchased via directed buys. Here, our AURIX microcontroller is a central component for manufacturers.
In this product, demand still exceeds supply, that even though we are increasing our sales rates this year to about 1 million AURIX microcontrollers per day. The automotive business of Infineon is in a good position, it is well-placed to remain successful, which is influenced by the latest design and innovation activities. Our customer, Hyundai, has placed an order for traction inverters for future vehicle platforms for the brands Kia, Hyundai, and Genesis with a volume in the three-figure million EUR. In the field of drive assistance systems, we had a design win for our new 28 nanometer CMOS radar sensor for a leading tier one manufacturer. With outstanding resolution, the radar sensor is being used in the lorry platform on Level Four for autonomous driving. The agreement has a volume of the lower three-figure million EUR range.
Finally, I would like to mention another innovation highlight. We developed the prototype of a hydrogen sensor. This is based on our MEMS technology certified the automotive industry, and it can measure the hydrogen constitution on the basis of thermal conductivity. One possible application of the sensor is that the degassing of lithium-ion batteries can be measured, which can help to avoid battery failure in electric vehicles. Another field of use is fuel cells. There, the sensor can detect leaks as they occur. The sensor can be used to equip the hydrogen infrastructure, such as storing, transporting hydrogen, or at fuel stations. We presented the sensor to about 20 potential customers, and the first responses are very positive. With this solution, we want to support the hydrogen economy to make a further contribution to decarbonization. That brings me to decarbonization itself, which is Industrial Power Control.
Here, the division earns a considerable part of its revenue with solutions for a climate-friendly world. In the Q1, IPC achieved revenue of EUR 500 million, which has declined by 8% compared to the record revenue in the September quarter. In all fields of application, there were seasonal declines, with the exception of electrification of commercial vehicles. The most powerful was seen in larger domestic appliances, and with the exception here, we see heat pumps, which, for which Infineon supplies important semiconducting components. Renewable energy solutions for electricity infrastructure is showing robust dynamism in general. Despite the decline in revenue, IPC increased its profitability. The reason is the better product mix and an advantageous pricing system. The Segment Result was EUR 144 million, and the Segment Result Margin thus leapt to 28.8%, following 25.1% in the previous quarter.
Looking ahead, we see a mixed picture. In domestic appliances, we expect that the weak demand will continue. In the market for industrial purpose drives, there are first signs for a slackening demand. Nevertheless, this development is being balanced out by our high order books. Even more important is that we're in a position to switch manufacturing capacities so that we can instead produce solutions which are in demand for renewable energies and the associated infrastructure. All in all, we expect in the months ahead, the industrial business will remain very, very resilient. This resilience is supported by a leading position in silicon carbide for applications such as photovoltaic inverters, energy storage systems, and the charging infrastructure for electric vehicles. In the past quarter, we also took a further step in order to secure our supply of silicon carbide materials.
We've come to an agreement with Resonac, formerly Showa Denko from Japan. With that company, we're expanding our cooperation. We've signed a supply and cooperation agreement covering many years, supplementing an agreement from 2021. In the initial phase, the question of supplying 6-inch silicon carbide material, and in coming years, the agreement will be extended to wafers with an 8-inch diameter. In return, we provide Resonac with expertise in the field of silicon carbide material technologies. These and other agreements that we're concluding at present will enable us to expand our manufacturing capacities for silicon carbide for our automotive and industrial business. Our new manufacturing module for the volume production in Kulim, Malaysia is supposed to go into operation in autumn next year.
As I explained in November, we shall increase our revenue capacity with silicon carbide up to 2027 tenfold compared to 2022. Let's turn to Power & Sensor Systems. Revenue was EUR 1.043 billion in the Q1. Compared to the previous quarter, that is a decline by 11%. There were the standard seasonal effects. In addition, there was the weakness in the markets for consumer computing communication applications. A bright spot, however, was the demand for charging stations for electric vehicles, solar panels for residential buildings, USB components. Here, the demand remained high. The improvement in the supply situation has enabled us to expand and deal with some orders from our inventories. Despite the decline in revenue, PSS maintained its profit on a high level.
The Segment Result was EUR 301 million, and the Segment Result Margin was 28.9%, which was stable compared to the previous quarter. Regarding the months ahead, we expect the most targeted applications of PSS will be in a phase of weaker demand. After almost two years of strong growth, which was partially driven by additional expenditure by consumers because of the pandemic, the macroeconomic and cyclical headwinds are increasing substantially. The subdued consumer confidence is depressing demand for products like smartphones, televisions, PCs, and gaming consoles. In the field of data centers, we expect things to slow down and also with corporate servers. We've also seen a reduction in investments by hyperscale computer centers. We expect that there will be a longer phase of reducing inventories here.
On the other hand, there are applications connected with decarbonization which are going through a good development. These include solar panels for residential buildings, charging stations for electric vehicles, and onboard charging units. Summing up, the short-term conditions are challenging, but the long-term trends remain intact, especially the brisk demand for solutions based on gallium nitride. Our Connected Secure Systems segment. The division recorded record revenue of EUR 531 million in the Q1. That's about 8% more than in the previous quarter. This positive development is supported by an improved supply situation by our contract manufacturers. Above all, security solutions for payment transactions, government documents increased substantially. Our Bluetooth solutions, which saw a sharp downturn in the previous quarter, were much in demand again.
The segment result improved to EUR 112 million. The segment result margin was 23.5% compared to 17.5% in the previous quarter, which is a substantial leap upwards. The main reasons were the higher volumes and a positive price development. All in all, the medium long-term opportunities for growth in applications in the Internet of Things remain good. The development is not immune to the macroeconomic uncertainties. The demand for IT solutions for the consumer industrial sector is declining and is covered partly by the order books. On the other hand, the business with security controllers where Infineon is still the number one remain resilient. It's driven by the trends for contactless payment and for the further recovery and demand for electronic passports. High speed in design wins and product introductions is being maintained with CSS.
With our Wi-Fi, Bluetooth combinations, we have got an order from a major Asian automotive manufacturer for the next generation of the connected cockpit platform. For industrial applications, we have launched the XMC7000 microcontroller family, which is suitable for industrial drives, charging stations, and robots. We've also introduced the new PSoC family for applications in human machine interaction, which supports our CAPSENSE touch sensors. Finally, we're the number one in the market for security controllers for payment applications based on the future of 28 nanometer technology. This offers much more flexibility in procurement, but also more efficient, energy efficient and environmental products. That leads me to the outlook, ladies and gentlemen. At the beginning of 2023, macroeconomic, geopolitical, and sector-specific factors ensure that there's continuing volatility.
Some indicators, such as the Purchasing Managers' Index, indicate that the economic development might improve, but we're still in an early stage. The semiconductor end markets at present are developing differently, both on the demand and on the supply side. On the one hand, the market conditions for automotive applications, especially electric mobility and automated driving, remain positive. The same applies to industrial applications, especially renewable energies, which are based on underlying intact growth trends. On the other hand, the consumer-related applications are weakening. Companies are reducing the expenditure on IT infrastructure such as data centers and communication networks. From the supply point of view, the general supply situation is improving, bottlenecks are declining, and delivery times are becoming shorter. Whereas in some product categories, there are certain excess supply becoming visible, there are still others where supply is short.
When it comes to inventories among our distributors, we have mixed picture. All in all, in the December quarter, they only increased slightly to about nine weeks of inventory. The average, however, covers a range between standard products where dealers and downstream customers have built up their stocks again and other products which remain very much in demand. The latter include, in particular, microcontrollers for the automotive industry, IGBT modules for renewable energy, and compound semiconductors and analog mixed-signal components. In our own inventories, we see a similar development. This is why we have begun in manufacturing to reduce the intake of certain products. At the same time, there are other fields of application we remain in allocation. As far as technically visible, we shall switch over available production of corridors. Prices in the current environment are remaining stable.
Of course, the customers are pleased with the secure, reliable supplies in different phases of the cycle. Since electromobility and renewable energies are in competition for manufacturing capacities, the supply situation for power semiconductors could remain tense for some time. Regarding the prospect of the Q2 and fiscal 2023, we have changed our guidance under the assumption of an exchange of the US dollar to the euro from the earlier parity to 1.05. This means that we expect a headwind in the Q2, where we expect revenue of about EUR 3.9 million. With unchanged revenue in the Q1. The development revenue in the divisions will present different pictures. ATV and IPC can see an increase in revenue in the mid-single-digit percentage range.
CSS is likely to remain stable, PSS is likely to see a substantial decrease in revenue because of the market weaknesses. This will influence profitability. For the Segment Result Margin, we expect about 25% Q2, the decline takes into account a certain level of expected idle costs compared to the Q1. Therefore, all in all, adjusted for currency, we are maintaining our guidance. We expect revenue of 15.5 billion EUR ± 500 million EUR, that figure is the same as we communicated in November. However, we are implicitly including 40 million EUR revenue from additional volume structure and price effects.
This is due to the fact that for the remaining 3 quarters, we are applying a less favorable exchange rate of the dollar to the euro of 1.05 instead of 1.00. According to rule of thumb, every cent change in the exchange rate has EUR 25 million effect on the quarterly revenue. We expect, however, that we can balance out the negative currency effects because Infineon remains robust and dynamic in the most important applications. This means that, for example, our capacities in the Automotive division are completely booked out for fiscal 2020 through. In view of the macroeconomic uncertainties and the weakness in consumer markets, we expect that inventories will be reduced in the field of co-data centers, for example. The same time, our existing order books in some fields will contribute to cushioning some of the effects.
All in all, for the second half of our fiscal year, we remain cautious and have calculated a certain slowdown in the dynamism which has been taken into account in our guidance. We've only got one strong Q1 on in our books. We're expecting a Segment Result Margin of about 25% for fiscal 2023, following 24% previously. The weaker US dollar is causing a certain burden. Because of the higher volumes and the positive pricing and a smaller increase in cost in materials energy than initially feared, we'll be able to compensate for the weaker dollar. For the fiscal year, we're planning investments in tangible and intangible assets, including development costs of about EUR 3 billion. That's unchanged. This includes investments in the third manufacturing module at the Kulim site and the new plant in Dresden.
We're convinced of the value of future-orientated investments, and we're preparing for further growth. We expect free cash flow will remain at EUR 0.8 billion, including EUR 700 million for the building of the front-end building in Kulim, Dresden. Without these investments, the adjusted free cash flow would have probably been about EUR 1.5 billion, which is about 10% of the forecast annual revenue. Listeners, with that, I come to the end of my remarks and together with Sven Schneider, and I'll be happy to take your questions.
Thank you, ladies and gentlemen. In order to ask a question today, please press star one on your keypad. Once again, star one to ask a question. We're going to wait a moment. Unsere erste Frage heute. Our first question today is from Mirko Reipka from Platow Brief . Please go ahead. Good morning. I actually just have 1 question with respect to the EUR to USD exchange rate. Aren't your forecasts for the current year outdated? I think that we're at 1.10. You are assuming 1.05. The Fed and the ECB are diverged on this. Might this not have further potential for impacting the result? Thank you.
Well, Sven, would you like to answer the question?
Gladly. Hello, Mr. Reipka. Well, Mr. Reipka, I have stopped believing that I can predict the USD. I'll be quite candid with you. Of course, you're right.
We have issued guidance on the basis of 1.05, and that changed from 1 in the Q1. We had 1.02 on our books. Should the dollar continue to move in its current direction, we won't be far off. If it gets weaker to 1.15, 1.20, which can't be ruled out, then usually we'd be talking about EUR 0.25 per euro revenue, and you can then do the math. It remains to be seen how far the dollar moves away from our guidance. In the analyst call earlier today, I said that 1.05 to 1.07 or 1.08 isn't going to be mind-shattering in terms of our forecast. If the difference becomes greater, we'll have to review things. Okay. Thank you. Thank you.
Our next question comes from Stefan Kroneck from Börsen-Zeitung. Please go ahead. Good day, everyone. I have three questions. The first one being with respect to the margin development in the past quarter, the Segment Result Margin, 28%. In Infineon's corporate history, is this a record for a quarter? That was one question. I have two questions with respect to the global chip market and strategy. The U.S. government has teamed up with Japan and Holland, the Netherlands, so that they can slow down developments from China in power semiconductors and research and development. What is your assessment on this against the backdrop of the fact that a large portion of your revenue is generated from China? Third and last question now is the announcement of Wolfspeed and ZF Königshofen to open a plant in Saarland for silicon carbide applications. This might affect you.
How would you assess this against the backdrop of the current situation on the market in the chip segment and against the backdrop of the momentum that competitors have? Thank you.
Thank you, Mr. Kroneck, for your questions. Let me start the other way around. I will answer the 3rd and 2nd question. Sven, perhaps you can then make a statement on the margin of the past quarter. Wolfspeed.
Now, generally, I don't comment on individual moves from our competitors. However, Mr. Kroneck, what I can tell you is our manufacturing strategy. According to that strategy in Europe, if we build new fabs, then they'll be rather 300 millimeters because they're highly automated.
When making decisions on factories, you must take into account not only the next 5 years, but such factories actually, in order to pay off over the long term and generate a good ROI, have a horizon of 20 to 30 years. Therefore, we are building 8 inches silicon carbide at our Kulim site, and here I'd like to refer you to our press release, which was issued just about 1 year ago, and we have enough available room in Kulim for further expansion. With respect to your second question, yes, this next step that the U.S. government is ushering in with the Dutch government and the Japanese government, with whom they've agreed on export restrictions to China, it's basically the continuance of the de-globalization trend, especially in the semiconductor industry. The situation isn't changing fundamentally.
What is happening, however, is that it is leading to a situation where regionalization will definitely be the sweet spot of where we are or where we were, where the division of labor played to our benefit. We're going to be moving out of this sweet spot, and reactions are being done regionally. Our revenue in China, you know that these figures are rounded. I'm talking about mainland China amount to 30%. We assume that approximately half of this goes into re-exports. These are global enterprises which only assemble products in China. Here we see signs of some major customers building production lines outside of China and therefore establishing alternatives. We would like to continue to serve our customers in China, of course, we're also increasingly looking around for growth possibilities outside of China.
For instance, in Japan, Korea, as well as the United States of America. Having said that, I would now like to pass on to Sven for his answer on question one.
Mr. Kroner, I haven't been around in this capacity for that long, but in 2019, I joined Infineon. Since then, this has been the largest margin by far. I believe this applies to the period ahead of that. In the past years, I don't think we saw a Segment Result Margin of this order either. I believe that you might actually be right. It might be a record. If you look at Infineon today in its current constellation, then it's probably safe to say that it's an all-time high, based on the product focus that we currently have.
Okay. Thank you so much. Goodbye.
Thank you.
Thank you. Once again, just as a reminder, please press star one to ask a question today. The next is Marco Engemann from dpa-AFX. Please go ahead. Good morning. Thank you for allowing me to ask a question here. I have a question with respect to the automotive segment. You've said that unit figures of global auto manufacturers aren't that decisive and content growth is more relevant to you. What would interest me is how much in terms of production decline you can buffer in view of the rise of manufacturing. How does your over-performance affect you? With respect to the margin in the automotive segment, in the last four quarters, it has risen by almost 10 percentage points. What does this actually mean? Can you maintain this in a sustainable fashion at this level?
Is this an effect of the scarcity of chips on the market? How do you believe this will continue to develop? Is this peaking, or can this level be maintained? I have a knock-on question. Interpreter apologizes, but there was a big gap in the sound transmission. Are you asking whether we're completely full in terms of orders in automotive? Yes, that's correct. Let me try and start answering that. Yes, our order books are full for automotive in this fiscal year. The change in margin in automotive, I believe, can be traced back to a number of different reasons. Of course, if a business grows this strongly, certain cost structures become diluted. This is basically the windfall profit that you achieve from growing. On top of that, we have a good mix, and of course, we have pricing as an issue.
We've said before that compared to the competition, we have moved prices toward market prices a little later than they have. Having said that, this is a wonderful performance by this segment. I believe that the prices are more stable in the automotive environment than they are in a pure consumer segment. Therefore, I do believe that this level is an indication of things to come. In terms of growth, well, we're not going to lose the plot there because we have electromobility and ADAS, and therefore we have further growth prospects. Your last question, I believe, if I remember correctly, the unit figures in automotive manufacturing relative to growth and growth of the semiconductor sector.
Well, it's not that easy to answer that question, but I believe if you look back into our past, we had a bill of material growth in auto of 5% to 6%. We see this percentage increasing now, especially due to e-mobility. This is an area where we've always said that the semiconductor portion is increasing substantially relative to the portion in an IC car. 80% of this rise is accommodated or accounted for by power semiconductors. Material growth is accelerating, and therefore the effect is much stronger than any ramifications the auto manufacturers may have in terms of the unit figures. Now, if we look at the math, we have about 82 million total units. This can give you a feeling for the share of Infineon in the total market.
One big effect is that electro-mobility is becoming more visible in our figures, and it's substantial, and the bill of material growth is accelerated as a result. I hope that I've answered your question with that statement. Otherwise, please go ahead and ask again. Yes. No, indeed you have. Thank you so much. Thank you. For the moment, there don't seem to be any further questions, and therefore, I'd like to hand the floor back to Mr. Hobbs. Thank you. There are no further questions. If you have any follow-up questions, please don't hesitate to contact our team at Infineon, the media relations team. They'd be happy to answer them. Therefore, I'd like to end the Q&A session and hand back over to Mr. Hanebeck for his concluding remarks.
Thank you, Mr. Hobbs. Listeners, Infineon started fiscal 2023 strongly. With challenging framework conditions, we have completed the Q1 profitably. Bifurcated development in the semiconductor markets will continue in the months ahead. Demand, especially in the automotive industrial applications and also security solutions, remains high. At the same time, consumer-related markets have been faced with a pronounced weakness of demand and expenditure of companies for IT infrastructure is developing more weakly. In this challenging environment, we are continuing to navigate with circumspection and adjusting rapidly and flexibly to the market dynamism. Infineon is in a position to cushion declines in certain markets when they're temporary. Annual guidance for revenue and profitability has been increased slightly, and respectively can cushion the negative currency effects. The major drivers for our business remain there, and we expect that the positive market development will continue in the long term.
Decarbonization and digitalization will support the structural demand for semiconductors and sustainable growth for Infineon. Thank you for your interest, and with that, goodbye.
Ladies and gentlemen, this concludes today's conference. Thank you for participating.