Good morning, welcome to the conference call on the results of the second quarter of fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator. We would like to point out to you that all participants during the presentation will be in listener status and that the conference call will be recorded. After the presentation, you will be afforded the opportunity to ask questions by pressing the star one key on your keypad. Should you require the assistance of an operator, please press star zero on your keypad. The conference may not be recorded for publication. I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead.
Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers. Welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon management board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management, and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the management board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 A.M. Of course, our press team, led by Andre Tauber and I, will remain at your disposal afterwards. Having said that, I'll hand the floor over to Jochen Hanebeck now.
Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis II mission returned to Earth about three weeks ago. Four astronauts landed back safely on Earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations, even under the extreme conditions of space. From critical power supplies and control systems to data communication, our technologies and radiation-hardened components made a significant contribution to the electronic backbone inside the Orion capsule. My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. We're also seeing some success on our planet. A broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets.
While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rates, and inventory levels are showing a significantly improved picture. This picture continues to vary by application area. In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing. Now, let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations.
Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis, as the US dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects on the one hand, the positive effects of rising volumes. On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high voltage business in the automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second.
The recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%. The order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters. Let's turn to the results of our four business segments in the second quarter, starting with automotive. Before we look at ATV's quarterly performance, let's take a brief look back.
We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-over-year from 32%-36%. Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.83 billion during the reporting period. We were able to offset price declines in the low single-digit % range with higher unit volumes. Segment earnings amounted to EUR 331 million.
The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors, charges related to our businesses with high voltage power semiconductors for electric powertrains, as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds. Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm S&P Global revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth, driven, for example, by the rapid proliferation of software-defined vehicles, is more important than actual vehicle sales figures. The trend toward electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected.
Market pressure is particularly pronounced for high voltage power semiconductors for the electric powertrain. Intense competition, driven in part by the significant expansion of the manufacturing capacity in this sector and the shift in attitudes toward e-mobility promotion, has led to prices and volumes falling faster than expected. The result of this? The profitability level in our automotive high voltage business is unacceptable to us. That is why we are fundamentally realigning it. In addition to the restructuring of our back-end production of automotive power modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. This is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply.
Let me now take this opportunity to emphasize two important points. First, Infineon is committed to electromobility. We will continue to drive it forward. We will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors, and sensors in any way, not even MOSFET transistors. Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. In the meantime, Infineon is driving the adoption of software-defined vehicles.
The combination of powerful computing power, fast and secure connectivity, and intelligent power management forms the foundation of these vehicles. Infineon is a leader in all of these areas. A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, Ethernet connectivity from the BRIGHTLANE family, our power management ICs, as well as smart power switches and eFuses. Of course, it has an electric powertrain. This just demonstrates how closely the two structural trends in the automotive sector, software-defined vehicles and electromobility, are actually intertwined. We are also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands.
The successes underscore the strong value proposition that Infineon offers to its Chinese customers. Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC, and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories. The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery.
Inventory levels in the supply chain are reaching low levels. As a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution. The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. In some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for our semiconductor based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density, and improved scalability. As a result, they will increasingly replace conventional transformers. We are already generating initial revenue in this area in the current fiscal year.
We have also built up a robust design and pipeline, our business with solid-state power switches is developing well. We have a solid foundation for future growth. Let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.26 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solutions for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They arose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter. Another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions.
Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. Currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We therefore confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year, as well as EUR 2.5 billion in fiscal year 2027, despite a weaker U.S. dollar. With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out thanks to deep system understanding, quality, and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures.
A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers, and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance. Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players. The semiconductor value per kilowatt of installed power ranges between $100-$250. The average has now risen further to around $175.
This semiconductor value per kilowatt of installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion-EUR 12 billion by the end of the decade. The background of this, gigawatt installation plans are growing rapidly. They're also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic. Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the government documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter.
Now, the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity, is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum and design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems. Another positive impact of AI adoption for Infineon is growing demand for our Secure Element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data. Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon.
Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely Automotive, Power Systems, and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems. Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. We aim to meet these demands by further enhancing customer value, reducing complexity, and thereby becoming more agile. These guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it.
Automotive, of course, remains responsible for the key trends in the automotive sector, software-defined vehicles and e-mobility, as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI, from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure. In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is therefore formed from the combination of GIP and the power business of PSS. Edge Systems, or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity, and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation, and smart home applications.
ES brings together the current Connected Secure Systems division as well as Power & Sensor Systems' sensor, high frequency, and USB business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter. With three divisions and clearer responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts, and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS, and 20% ES. The new divisions can thus also leverage economies of scale. Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely.
We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the automotive sector, we see manufacturers replenishing their semiconductor inventories to reasonable levels. On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are therefore raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the US dollar and the euro from 1.15 to 1.17.
For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit % range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth. For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is of course a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue.
The ATV business unit is expected to post slight revenue growth driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high voltage business on the other hand. To put this in perspective, excluding our high voltage business and the Ethernet business, which is being consolidated for a full year for the very first time, and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. For the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions. For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising.
The segment pro-profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. The planned reduction of inventory levels is having a dampening effect here. These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy, and freight due to the war in the Middle East. We also have factored in these direct impacts.
However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions. To our investments. In the current fiscal year, we continue to plan our CapEx of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our Smart Power Fab in Dresden on July 2. We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies.
Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles, as well as robotics and Edge AI in the coming years. Finally, here are expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously. Ladies and gentlemen, this concludes my remarks. Now, together with Sven Schneider, I'm happy to answer your questions.
[Non-English content] We are now opening the Q&A session. If you'd like to ask a question, please press star one on your keypad. You will then hear a sound which will confirm that you have been added to the queue. If you'd like to withdraw a question, please press star two on your keypad. Participants are asked to use their handset when posing a question. If you have a question, please press star one on your keypad now. The first question comes from Hakan Ergun from Thomson Reuters. Please go ahead, sir.
Hello, Mr. Hanebeck. Earlier, you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year?
No, this doesn't generally translate into that message. In some areas we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There we are doing all we can to continue expanding our capacities. Whether this will be sufficient for everyone and everything isn't something I can say today.
Okay. Thank you. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct?
Yes, that is correct, confirms Mr. Hanebeck. Especially the 300 millimeter fabs really have a very high capacity utilization. That I can tell you.
As a reminder, to ask a question, please press star 1 on your keypad. The next question comes from Joachim Hofer of Handelsblatt. Please go ahead, sir.
Good morning, everyone. I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion. That is roughly 10%. Is that correct?
Yes, that is correct.
Okay, great. Thanks. The second question, because a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials?
Sven Schneider will answer that question.
Yes, good morning. Indeed, we see that, it is safe for you to assume that the industry has learned its lessons from the past crises in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. We see that, but we can always work around such problems. From our current standpoint, we don't have any material effects. As Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about, for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook.
Thank you very much. The third question I have is this. Perhaps you can give me a more detailed explanation of what you want to do with the high voltage business, because it was rather complex in your presentation. What you're doing is thinning out the portfolio, if I understood it correctly. What are you doing above and beyond that?
Yes, that's correct. Let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. There's one area, the high voltage products, and here we're talking about the inverters in particular, which take the current from the battery. They turn the AC current into DC current. In the past, this was done by IGBTs, and now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure. IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide, in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China.
This coupled to a drop in worldwide volumes, because you mustn't forget that the market in the U.S. has basically collapsed. It is growing in Europe, but not as fast as anticipated. China, as a local market, is running into a phase of stagnation. Unit figures are going down, and therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities, can be repurposed or rededicated quickly, for instance, into AI applications if needed. When it comes to assembly, we need to adjust capacities. This is why we are taking the measure in Warstein, which we announced in November. Above and beyond that, we're taking a look at our portfolio to figure out where in the future when new price points are formed, we can generate customer benefits.
Here in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise, we have the right manufacturing footprint, and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or may be put on the back burner. What we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do.
Thank you very much.
TI hereby close the Q&A session, and I'd like to ask Mr. Hanebeck to make his concluding remarks.
Dear listeners, I summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area. Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from four to three business divisions. With a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory. Thank you for your interest, goodbye.