Earnings Call: Q4 2020

Nov 9, 2020

Thank you, Simon, and good morning, and welcome, ladies and gentlemen, to our 2020 fiscal year end earnings call, digital and safe as ever. The entire management board is on the call Reinhard Ploss, CEO Helmut Gassel, CMO Jochen Hanebeck, COO and Sven Schneider, CFO. Following our usual procedure, Reinhard will start today's call with some remarks on group and division results, market developments and business highlights. Sven will then comment on key financials, followed by Reinhard again updating you on our guidance for the 2021 fiscal year and its Q1. The illustrating slideshow, which is synchronized with a telephone audio signal, is available at infineon.com/slides. After the introduction, we will be happy to take your questions, kindly asking you to restrict yourself to one question and one follow-up. A recording of this conference call, including the aforementioned slides and a copy of our earnings press release as well as our investor presentation are also available at our website, infineon.com. Reinhard, the stage is yours. Thank you, Alexander, and good morning, everyone. Today, we are reporting on our 2020 fiscal year, which we concluded a little over a month ago, and we venture a look into 2021. 2 main themes shamed our 2020 fiscal year: the acquisition of Cyprus and the coronavirus pandemic. We have managed both well, thanks to the agility of our organization and the resilience of our business. Since our last earnings call at the beginning of August, the picture in several of our key target markets has brightened considerably. Areas that were most impacted by COVID disruptions initially, such as automotive and industrial, have rebounded more strongly than most anticipated. Some structural trends like electromobility and renewable energies received an additional boost. At the same time, work from home tailwinds supporting data centers, communications infrastructure and IT equipment have proved more sustainable than expected as digitization is irreversible. Hence, we experience an ongoing demand recovery in conjunction with improving supply dynamics. In recent months, suppliers, distributors and end customers have been forced to rapidly adjust to changing supply chain issues and market conditions. In our view, this has worked reasonably well and not at the expense of excessive buffer stocks. Therefore, the near term environment looks positive. However, strongly rising infection rates in Europe as well as continued U. S. China trade tensions remind us of the risk ahead. I will comment a bit more on those in my outlook section, but let's first look at our actual numbers. The September quarter was the first in which we consolidated Cyprus for a full 3 months period. Revenues came in at €2,490,000,000 Former Cyprus contributed almost 1 5th to this figure. Compared to the midpoint of our guidance, we achieved higher sales of €40,000,000 despite slight currency headwinds. The average U. S. Dollar euro exchange rate for the quarter was 1 point 17% compared to the 1.15% as had assumed. The segment result amounted to €379,000,000 equivalent to a segment result margin of 15.2%, a bit above our organizational forecast, mainly driven by slightly higher revenues. In addition, some COVID related extra charges could be reduced somewhat quicker than thought. Our book to bill ratio at the end of the September quarter stood at 1.2. Meanwhile, the integration of Cyprus is following its script. Despite travel bans, we are consistently growing together as a company. More and more customers start to benefit from our enlarged product and solution offering, and we are making progress on our synergies road map. Before we go into the divisional overview, let me quickly summarize our annual figures for the 2020 fiscal year. Revenues amounted to €8,567,000,000,000 including 5.5 months of Cyprus contribution of around €850,000,000 The segment result came in at €1,170,000,000 corresponding to a segment result margin of 13.7%. Organic free cash flow amounted to €911,000,000,000 All in all, these figures clearly demonstrate a solid level of business and margin resilience in a highly challenging year. But now to our divisions and their performance in the September quarter. Beginning with Automotive. The segment revenues surpassed the €1,000,000,000 mark within the quarter for the first time and came in at €1,052,000,000 A bit over 20% was contributed by the former Cyprus businesses. Even considering that Cyprus had only been consolidated for 10th out of 13 weeks in the previous quarter, the sequential increase in revenue is very significant and confirms that the June quarter had marked the low point. Since then, car markets around the world recovered more or less strongly. This positive momentum has helped ATV return to the black in terms of profitability. The segment result amounted to €62,000,000 resulting in a segment result margin of 5.9 percent after minus 2.9% in the quarter before. The margin improvement was somewhat dampened by the fact that to a large extent we used inventories on hand to satisfy customer demand. This has caused stock levels to normalize, but underutilization charges have stayed fairly stable. The book to bill ratio for the September quarter was 1.3, following 0.2 in the June quarter, a clear sign that the market picture is substantially brightened. Core markets in China and also South Korea started their recovery early and showed V shaped snapbacks to monthly levels higher than a year ago. We also noted strength in the auto sales in U. S. And in Europe. For both regions, September was the 1st month with year over year growth after the pandemic struck. Even more important than such near term improvement is the acceleration of the long term structural trend towards electromobility, in particular in Europe since summer, following the introduction of sizable EV subsidies in countries such as Germany or France. Here, the share of plug in hybrid and full battery electric vehicles among car registration has more than doubled in the 1st 9 months of 2020 compared to 2019 to levels of 6% to 7% on average. Clearly, government actions like stimuli, the onset of CO2 regulations and charging infrastructure investment pushed the markets. But recently, genuine customer sentiment appears to be improving as well. Also in China, EV momentum is gathering steam again with almost 150,000 new energy vehicles sold there in September. In addition, China has joined the U. K, France and California in announcing plans to ban the sale of combustion engine vehicles in 2,035 to 2,040 time frame. Having said this, we are still in the early innings of EV penetration and this bodes well for Infineon. With our unrivaled portfolio of power components, be it discretes, modules, power ECs, microcontrollers or sensor, we offer our customers fully capable solutions for all types of vehicle electrification. This, of course, includes silicon as well as silicon carbide component, and it is the breadth of our offering, together with our reputation to deliver superior automotive quality that makes us successful in the marketplace. Especially regarding silicon carbide, we have started to ship CoolSig modules for our customer CB volume production. Furthermore, and as already mentioned in our divisional update at the beginning of October, we will be able to secure a triple digit €1,000,000 lifetime design win with a new EV OEM with our hybrid PAC drive platform of IGBT and silicon carbide for main inverters. A comparatively new field for us are battery management system. With our recently introduced cell balancing IC, we are beginning to see good traction, being now able to offer comprehensive solution. Besides XCV, we feel well placed to participate in and benefit from any ongoing automotive recovery. The road ahead can well be bumpy, with IHS Markit currently predicting an overall production level of 83,000,000 light vehicles for 2021, which would be around 6,000,000 below 2019. Still, the content opportunities for us are undiminished, as are the possibilities for growth and margin expansion. Now to Industrial Power Control. IPC has been quite resilient throughout the crisis, but as anticipated, did not see the seasonal upswing that is usually typical for a September quarter. The segment booked revenues of 3 €49,000,000 5 percent less compared to the previous quarter. The decline was mainly driven by traction, partly offset by a revenue increase in Industrial Drives coming from a low level. In spite of lower revenue, the segment result improved to €69,000,000 from a €63,000,000 in the quarter before, which had been burdened by some additional COVID-nineteen related charges. The segment result margin correspondingly increased from 17.2% to 19.8%. Book to bill stood at 1.1% at the end of the September quarter, reflecting an overall improving market backdrop. Microdata points like purchasing manager index readings have rebound sharply from their lows initially led by China, but now broad based. The headline PMI increased to 52.3 percent in September, remaining in expansion territory for the 3rd straight month after the 5 straight months in contraction before. All geographies are now above or knee pre COVID levels. Against this back ground, we expect to continue to benefit from our broad portfolio with leading positions in attractive markets. This setup is making our industrial business highly resilient. Take our 2020 fiscal year as a case in point. In our global crisis of historic dimension, our revenue was stable compared to the 2019 level. We were able to compensate declines in areas like drives or home appliances with strength in other parts such as wind and solar. Going forward, we expect to enter growth territory again. This is based on continued uptake of renewable energy, structural opportunities like electrifying commercial and agricultural vehicles or expanding the charging infrastructure for electric cars and recovery across our target areas. In the case of home appliances, shipment run rates are back to their seasonal pattern. Growth will be driven by the air conditioning energy efficiency program in China, partly offset by channel inventory levels still being on the high side. Other areas like drives and traction are expected to follow with a delayed recovery throughout 2021. With respect to silicon carbide, where we have established a leading market position for industrial application and where we are seeing automotive rapidly following, we are happy to report an expansion of our supply base. As you might have seen from our separate release this morning, we have signed a supply agreement for silicon carbide bulls with GT Advanced Technology. The contract has an initial term of 5 years and supports ambitious silicon carbide growth plans for the IPC and ATV divisions, making use of our existing in house technologies and core competencies in thin wafer manufacturing. Turning to Power and Sensor Systems. Despite headwinds from the weaker U. S. Dollar, the segment saw strong sequential growth and recorded revenues of €759,000,000 The former Cypress business of USB Connectivity Solution contributed less than 10% to this figure. Components for smartphones, accessory and wearable witnessed strong positive momentum, including MEMS microphones. 24 gigahertz automotive Friday benefited from recovery in global car markets. For products going into service, computers and gaming console, all areas that received a boost from stay at home regulations in spring summer, we saw different dynamics. Whereas AC DC demand slowed down, DC DC components grew yet again. Here, some COVID-nineteen related supply constraint vanished that had affected us in the June quarter. A smaller positive impact also came from customers willing to build certain inventory cushions in the face of potential future supply constraints and U. S.-China trade tension. PSS posted a segment result of €209,000,000 resulting in a very strong segment result margin of 27.5%, driven by strong operational performance in manufacturing and the fall away of COVID related additional charges. The book to bill ratio stood at 1.2 at the end of the September quarter. As a consequence of the coronavirus pandemic, digitization has pulled in by several years, providing a tailwind to several of the application areas that PSS serves. Cloud IT infrastructure spending is one example, driven by a rising number of connected devices, a proliferation of cloud services for enterprise and consumer, and accelerating AI usage. Another example is communication, where on the infrastructure side, long term drivers from 5 gs deployment are intact. However, trade tensions are generating some uncertainties around the rollout speed in China. On the handset side, we expect a strong rebound driven by economic recovery and the migration towards 5 gs enabled phones. Furthermore, battery powered tools continue to show strong momentum. And with the USB controllers from Cyprus, we are significantly strengthening our position in the area of chargers and adapters. Our high precision sensor solutions give IoT devices human senses, enabling them to react intuitively to their surroundings. Going forward, we will more and more combine our large selection of power semiconductor, radio frequency and sensor components with Cypress Connectivity and Control Products into system solutions to make electronic devices smaller, smarter and above all, more energy efficient. Now to Connected Secure System, where a bit more than half of the business is coming from the former Cypress area of general purpose microcontroller and wireless connectivity. In the September quarter, the segment recorded revenues of €326,000,000 Several end markets like identification documents or ticketing continue to suffer from travel bans and people reluctance to use public transport. On the flip side, COVID restriction lead to increasing demand for applications like home health and home fitness, remote controls, gaming consoles and also contactless payment. The segment result of CSS amounted to €39,000,000 equivalent to a segment result margin of 12%, the same as in the previous quarter. The book to bill ratio improved to 1.1. The secular trend towards even more connected devices continues unabated on the automotive and industrial as well as on the consumer side. Consequently, connectivity is becoming a core competency, and we are encouraged by key design wins in this field. Our Wi Fi Bluetooth combo chipsets have been selected for our next generation smartwatch and for printer devices from leading OEMs. Additionally, we have won the socket for a new generation of variable devices at a major player with our Bluetooth Blue Tooth Low Energy solution. Furthermore, in car WiFi is seeing good traction and is poised to benefit from the ongoing automotive recovery. Connectivity has to go hand in hand with processing and security. Infineon has launched a new solution combining PSoC64 Secure Microcontrollers with trusted firmware M Embedded Security, the ARM Embedded IoT operating system and the ARM PALLION IoT platform to securely design, manage and update IoT products without the need for custom security firmware. The solution makes it easier for device manufacturers to connect, manage and upgrade their products by integrating state of the art security with open source firmware, thereby accelerating time to market. Now over to Sven, who will comment on our key financial figures. Thank you, Reinhard, and good morning, everyone. In my part, I will focus primarily on quarterly numbers but in some occasions also comment on full year figures. Let me start with some details on the margin development in the Q4 of the concluded 2020 fiscal year. Gross profit amounted to €793,000,000 Correspondingly, the gross margin improved to 31.8% from 27% in the previous quarter. Excluding non segment result effects, the adjusted gross margin came in at 36.6%, 70 basis points up compared to the previous quarter. Included therein are underutilization charges of around €150,000,000 bringing the total for the fiscal year to around €570,000,000 As you will recall, these figures square well with what we had guided as our fab loadings were, as expected, in the 75% range. At the same time, our revenue for the September quarter came in somewhat better than anticipated, especially when adjusting for a slightly unfavorable U. S. Dollar movement. From this, you can infer that we saw a meaningful expenses as well as selling, general and administrative expenses each amounted to €308,000,000 in our 4th fiscal quarter. R and D expenses included €11,000,000 of non segment result charges SG and A expenses €68,000,000 The net other operating income was €5,000,000 Overall, quarterly OpEx were a bit lower quarter on quarter despite the fact that Cyprus was consolidated for an entire quarter for the first time only in our Q4. The main factors behind this were lower expenses related to the Cypress acquisition on the one hand and higher received R and D funding on the other hand. The non segment result for the quarter amounted to minus €197,000,000 significantly better than the minus €313,000,000 we had recorded in the previous quarter. The key difference pertains to Cypress inventories that were stepped up to fair market values as part of the original purchase price allocation. In the June quarter, the effect of such step ups for those inventories that were sold had amounted to about €170,000,000 where in the September quarter the figure went down to about €45,000,000 By now, all Cypress inventories that had existed at the first time consolidation in April are sold. Therefore, we expect a quarterly run rate of non segment results impacts coming from the Cypress acquisition, including PPA related depreciation and amortization of around €120,000,000 The financial result for the September quarter was minus €28,000,000 after minus €79,000,000 in the previous quarter. This significant change is due to several onetime effects. On the one hand, the June quarter was burdened by the impact of unwinding interest rate hedges for Cyprus related refinancings as well as the effect of the early repayment of our acquisition bridge facility. On the other hand, the September quarter saw the release of a deferred tax liability and the reversal of interest accruals related to it. Talking about taxes, income tax expense amounted to €33,000,000 for the Q4 of our fiscal year. As it is typical for year end, the amount is influenced by adjustments to deferred tax assets and liabilities. Therefore, a look at the annual figures is much more meaningful. Income tax expense for our 2020 fiscal year was €52,000,000 equivalent to an effective tax rate of 12%. Cash taxes amounted to minus €94,000,000 resulting in a cash tax rate adjusted for PPA effect of 11%. For the next fiscal year, we expect this rate to be around 15%, primarily as a result of the existing German tax loss carry forwards. We expect to benefit from these tax loss carry forwards for another 5 years. At the end of that horizon, the cash tax rate should be close to our expected long term effective tax rate of about 20% to 25%. Following my remarks on various P and L items, I will now focus on our free cash flow, starting with inventories. As indicated by Reinhard, we took the positive business momentum as an opportunity for inventory management and brought down stock levels, both our own as well as those in the channel. Our own inventories came down by around €160,000,000 quarter over quarter, the DIO now being a healthy 109 days. In distribution, thanks to strong sell through, stock reach came down by around 2.5 weeks to under 10 weeks overall. All regions and all segments contributed to this positive development. Free cash flow correspondingly benefited from inventory depletion. Our investments into property, plant and equipment, other intangible assets and capitalized development costs in the September quarter were €332,000,000 after €266,000,000 in the quarter before. This brings the total for fiscal 2020 to €1,000,000,000,99,000,000 inside of our last guidance of around €1,200,000,000 also helping our cash flow generation. Depreciation and amortization, including non segment result effects, amounted to €379,000,000 for the quarter, the annual total being €1,260,000,000 Free cash flow from continuing operations for the September quarter was €387,000,000 The annual figure amounted to minus €6,700,000,000 containing the purchase consideration for Cyprus. Adjusting for it and related cash outs as well as cash acquired, the figure goes to plus €911,000,000 evidence of strong organic cash generation in challenging times. Our reported after tax return on capital employed, or ROCE, stood at 3.5% in the 4th quarter, the annual figure being 3%, excluding bookings related to the acquisition of Cypress and International Rectifier, in particular goodwill, fair value step ups and amortization as well as deferred tax effects, The adjusted ROCE for the Q4 is around 20 for the 2020 fiscal year around 16%. At the end of my section, I would like to talk about liquidity and financing. The pillars of our capital structure management remain firm and clear: investment grade rating, strong liquidity position and a clear commitment to deleveraging. Walking the talk regarding the letter, in September, we repaid US555 million dollars a part of the term loans from our acquisition financing 2 years ahead of the original maturity, taking advantage of the strong free cash flow generation. After this, our gross debt position at the end of our 2020 fiscal year amounted to €7,000,000,000 Using illustrative figures for last 12 months EBITDA for the combined company, our gross leverage is equal to 3.7x, which we intend to bring down to below 2x over the midterm. Our gross cash position corresponded to €3,200,000,000 The resulting net debt of €3,800,000,000 corresponded to a net leverage of 2x. Preserving liquidity and retaining financial flexibility in times of heightened macro uncertainties is paramount for us. We live in exceptional times. The coronavirus pandemic had considerable negative impacts on our markets and our profitability, and substantial risks remain going forward. Taking all this together, we plan to exceptionally deviate from our dividend policy, which normally calls for at least a constant amount year after year. To our next Annual Shareholders Meeting in February, this first virtual one in our history, we will propose a reduced dividend of $0.22 per share. Our view is that this fairly balances the burden of the corona year 2020 among all affected stakeholders also considering that our share count has increased by a bit over 4% over the year. I will now pass back to Reinhard again who will comment on our outlook. Thank you, Sven. The current and near term recovery of key markets and our assessment that inflection points for several of our structural drivers are moving closer give us reason to be optimistic. Take the risk of rising COVID infection rates ahead of winter in the Southern Hemisphere and geopolitical uncertainties such as trade tension or Brexit into consideration, we come out cautiously optimistic. Starting with the currently running Q1 of our 2021 fiscal year. Typically, we would expect a sequential downtick, in line with our usual seasonality. For the actual December quarter, however, we anticipate revenues to slightly grow compared to the September quarter and to come in between €2,400,000,000 €2,700,000,000 based on an assumed U. S. Dollar exchange rate of the €1.15,000,000,000 to the euro. For our ATV segment, we expect a quarter over quarter revenue increase of a mid double digit €1,000,000 amount, whereas for the other segments, IPC, PSS and CSS, we expect an essentially flat revenue development. At the midpoint of the guided revenue range, the segment result margin is expected to be around 16%. The increase in profitability will be mainly driven by gross margin expansion due to improving utilization of manufacturing facilities. Current business momentum points to some upside to the profitability level, but uncertainties around rising COVID infection rates, especially in Europe, remain. For the full 2021 fiscal year, any outlook is framed by considerable macro uncertainties and has to leave some room for unforeseen turns of events. The coronavirus continues to pose massive challenges for global economies and societies. And even if we have found ways to live with the pandemic, there may still be negative repercussions. Nevertheless, the call for reconstruction, for making a new story with greater sustainability is loud. Sustainability has long been in the DNA of Infineon, and we see a number of structural opportunities coming closer. The shift towards electric vehicles is accelerating. The proportion of renewables in the energy mix will continue to increase. Digitization has been giving a tremendous boost in all areas of life. A far wider range of IoT applications will be enabled with an accelerated expansion of communications infrastructure and data center capacity, demand for data protection and IT security is increasing. In front of us is an exciting year. 1, following our acquisition of Cyprus, the additional product and competencies are already greatly strengthening us. In any case, it will be essential to stay vigilant and quickly adapt to fast moving market developments. For our 2021 fiscal year, assuming in particularly there will not be blanket lockdowns disrupting entire economies again, we expect revenues of around €10,500,000,000 plus or minus 5 percent based on a U. S. Dollar euro exchange rate of 1.15. This revenue level would be about €2,000,000,000 higher than in the 2020 fiscal year. Considering the 1st full year consolidation of Cyprus. Of this incremental amount, we expect more than half to come from ATV. The remainder will be contributed by PSS and CSS, with roughly an equal share coming from each. For IPC, we expect a small amount of additional revenue. The strong increase in automotive revenues is taking the mentioned IHA's production forecast of 83,000,000 cars in 2021 as starting point. Additionally, we expect continued semiconductor content growth, driven especially by accelerating XCV penetration. At the indicated revenue level, we expect a segment result margin of around 16.5%. Let me put this into perspective. In the light of improving business momentum, we expect that fab loadings will increase step by step. Therefore, cyclical underutilization charges should go down over time. For fiscal 2021, we expect improvement in the area of 300 to €350,000,000 The addition of Cyprus for a full year is a further margin tailwind. In addition, we expect cost synergies to increase compared to the previous fiscal year to a high double digit million amount. In contrast, we deployed rigid cost saving measures like hiring freeze, keeping salaries flat and short term work throughout the 2020 fiscal year. The savings linked to a number of these measures will not be recurring, and we expect a headwind of around €100,000,000 to €150,000,000 However, we will need to strengthen our development resources now in order to create the system solutions underpinning the expected revenue synergies from Cypress acquisition in the future. We stand by those, admit to long term targets as well as by our target operating model. We are seeing highly attractive future growth opportunities, especially once COVID is behind us. Therefore, we plan investments in property, plant and equipment, other tangible assets and capitalized development costs in the 2020 fiscal year of around €1,400,000,000 to €1,500,000,000 Included therein is equipment we will bring into our new 300 millimeter facility in Fila. Depending on the market conditions, we expect the start of production there at the end of the 2021 calendar year. Depreciation and amortization are expected to be between €1,500,000,000 1,600,000,000 including amortization of around €500,000,000 resulting from the purchase price allocation for Cyprus and to a lesser extent, still related to international rectifier. Free cash flow, we estimate to come at more than €700,000,000 Ladies and gentlemen, let me summarize the key points. The Cypress acquisition and the coronavirus pandemic made the 2020 fiscal year a historical one for Infineon. We concluded it successfully with just under €2,500,000,000 of revenue and a 15.2 percent segment result margin in the Q4. Annual organic free cash flow amounted to over €900,000,000 allowing us to pay down some acquisition debt swiftly. Retaining financial flexibility in difficult times is critical. Hence, our proposal for a measured dividend reduction to €0.22 per share. At present, we are benefiting from the recovery of some of our key end markets, most notable, the automotive sector. However, with rising COVID cases globally, uncertainty remains around the pace of recovery. With the resilience of our business proven and the Cypress integration progressing, we feel well positioned to perform even under challenging conditions. Furthermore, several of our structural growth drivers established ones like electromobility, new ones like IoT are receiving a boost from accelerating adoption rates. With our outlook, we are cautiously optimistic and remain conscious of risk. We do not foresee the usual seasonal dip in the December quarter. And for the full 2020 fiscal year, we expect revenues of around €10,500,000,000 with the segment result margin improving to around 16.5%. Margin expansion will be driven by lower idle cost and harvesting synergies, to some degree, offset by the reversal of cost containment measures. Infineon is future proved for the 2020s and beyond. Ladies and gentlemen, this concludes our introductory remarks, and we are now happy to take your questions. Thank you very much, sir. We'll now move to our first question over the phone, which comes from a Johannes Scheller from Deutsche Bank. Please go ahead. Your line is open. Yes, good morning. Thanks for taking my question. I mean, a lot of the growth in automotive next year is slightly coming from the electric vehicle market. And you kindly break out the EV contribution in your auto business. Can you firstly give us a quick update how big the EV exposure ex EV exposure is in your non auto divisions, including also charging infrastructure? And then secondly, just as we think about 2021, how should we expect that aggregate XEV business to grow? And what's your underlying assumption on XEV units? And then I got a follow-up on the GT Advanced deal. Thank you, Mr. Schaller. So first of all, yes, EV is a dominant element, and Helmut will go into more details on this. On the other side, the always mentioned elements of assisted driving and the basic electronic element in the car is still ongoing. So we see momentum from all areas of application. But now a little bit more details to the EV section. Helmut, please. Yes. Let me first comment on the question on nonautomotive electromobility revenue. It's basically in the IPC area on the charging infrastructure, whereas in the PSS on the for the onboard charger. I don't have that figure perfectly on top of my head. I would say it's somewhat in the lower percent mid lowtomid percentage range of those divisions. So I don't know, we'll probably have to add maybe €100,000,000 in 2021 for total. Now to EV, very strong pickup again in China for coming up right now, but even stronger in Europe. Definitely high double digit growth rates for 2021 as compared to 2020. If you include even mild hybrids, where we see tremendous growth, even more than doubling from 2021 to 2020, that leads to a significant growth opportunity in 2021, predominantly driven out of Europe and China. So the question about the PSS and IPCs content? But I gave you some hint as to it's not being super significant. I think it is I can give you a flavor. It's each single digit percentage. So it is on a very on a lower range, but we have to consider it in total. So you had another question, Mr. Schaller? Yes. Just on the deal you signed on silicon carbide pools. I mean, there wasn't really maybe that much of a market silicon carbide pools historically. So just generally speaking, how should we think about this going forward? Do you expect more other suppliers also to should boost to you? And given you have a lot of in house technology on cutting and splitting, how should we think about the cost structure for you if you purchase a bull and do the splitting in house? And what could that do to the profitability of your silicon carbide business if we really think a bit longer term? So Helmut Jochen will take the question mainly, but one short comment on it. We definitely expect that the supply of the in the wafer area of silicon carbide will grow and broaden. We might not see the same competition as on silicon, but this was always the expectation, especially as the demand from automotive is something which fuels a lot of expectations. Jochen, you might please take the rest. Yes. Mr. Schaller, you are correct that the bull market is, to our belief, now opening up. And with our splitting technology, which we intended to use for both wafer twinning, so making 2 out of 1 wafer as well as the rule splitting. We have now a way to use this technology to very efficiently cut the individual substrate wafers from a bull. And therefore, we are pretty excited about this partnership with GTAT. For the foreseeable time, we will, of course, also buy substrate wafers from the regular market. And we believe this way, we can reduce costs or reduce the waste by making this slicing more efficiently significantly over time. And should we expect that to have a significant impact on your cost structure on the silicon carbide side? Over time, it will because you get a lot more wafers out of a bull. But we said that we will industrialize these technologies in 2022, 2023, and we are on this road map. But Mr. Schallerhorn, short addition to it, we believe that our advanced technology capability of trench based silicon carbide MOSFETs yielding to slower smaller chips is also a significant portion of our, I would say, strengthening our silicon carbide position and we are moving on with technology. So it's not only the substrate, but both contributes. Thank you very much. Thank you very much. Ladies and gentlemen, just due to time, would you mind please refraining from asking more than one question? Thank you. We'll now move to our next question over the phone, which comes from Achalas Sultania from Credit Suisse. Please go ahead. Your line is now open. Hi, good morning. Just a question on the how should we think about seasonality beyond December quarter. If I look at your December quarter guidance of €2,550,000,000 that just it kind of assumes that there is very little seasonal growth into the March, June September quarters to get to the full year guidance. So just trying to understand how much caution or conservatism is already built into that full year guidance And should seasonality be very different this year from what we have seen in the past? Thank you. Yes. Achal, thank you for your question. The reason for the different than usual seasonality is that we have a pretty strong December quarter, which normally would be quite a bit lower than Q4. But this year, it's moving forward and is stronger than the Q4 we have seen. From there, we expect, I would call it in a certain way a typical pattern. You should not forget that we have seen in some of the quarters in the last fiscal year extremely strong push from digital. So we are cautious on the further development of the following quarters. Maybe if I can just add, Hallead speaking. Thank you. That makes sense. You asked for the revenue side, but I mean this was the answer to the revenue seasonality on the profitability seasonality, although we don't want to guide now for Q2, I mean, you are all aware of the typical pattern that, for example, repricing always happens in Q2, just to give you one additional information. Yes. We'll now move to our next question over the phone, which comes from David Mulholland from UBS. Please go ahead. Your line is now open. Hi. Thanks for taking the question. Just to follow-up on the margin point on fiscal 2021. Just looking at the guidance you're giving for fiscal Q1 where it's essentially a 16% margin, but then essentially very limited pickup through the year to get to the 16.5% for full year 2021. I understand there's some headwinds to that, but can you possibly clarify what the net synergy will be from Cypress, either considering some of the potential reinvestment you'll need to make? And then on the back of that, can you explain really why there's not more leverage through the year end margins even with some of those cost headwinds coming in given how big the underutilization recovery as such tailwind will be? Thank you, David. Sven will take that question. Yes. David, thank you. I mean you mentioned already a couple of elements which are very important. So in this quarter, if you look at the underutilization charges, they went down from €150,000,000 to €70,000,000 already. We are now guiding for a, let's say, give or take, €250,000,000 number for the full year. It could be €220,000,000 It could be €270,000,000 but let's call it €250,000,000 You see we are already on a nice run rate in Q1. That's one answer. Secondly, as I mentioned in the previous answer to Achal's question, please do not forget about the seasonality for Q2. And yes, then we expect some uptick in Q3 and Q4 coming from various trends, revenue side. Also from the synergies, as you mentioned, you asked for the net synergies. If we follow the pattern which works according to our plan so far, we said €180,000,000 of synergies should be achieved 3 years after closing, which would be end which would be mid of 2023. So this means €60,000,000,000,000 100 20, 180,000,000. So if you want to go year over year, you can add, give or take, €60,000,000 I think that's a reasonable assumption for the time being. Thanks very much. We'll now move to our next question over the phone, which comes from Adithya Metuku from Bank of America. Please go ahead. Your line is now open. Yes. Good morning, gents. So two questions. Firstly, I just wondered if you could talk a bit about how you see automotive Tier 1s and OEMs using second sources for silicon carbide. There were some one of your competitors recently made some comments around second sources being unlikely. So any your thoughts around this would be helpful. Secondly, you have had a lead in trench silicon carbide MOSFETs for some time now and your main competitor here STM is moving to trench as well. Can you talk a bit about how you see your lead in trench as you started with that architecture earlier than competitors? Any color around this would be helpful. Thank you. I think here this topic of customized silicon carbide. I think silicon carbide products arrive, of course, between the various suppliers. But it is not too difficult to adopt to it. We have seen this in the normal IGBT module and MOSFET area, and we are very confident this will also be in the silicon carbide area. We ourselves also stated that the IGBT and think here the competitor also said there will be, I would say, changes in the market shares based on second supplies. Most likely, it will more start that the Tier 1s and OEMs use for various platform, various MOSFETs. But from a certain size on, it is most likely that they will choose various suppliers, especially when you consider car platforms. So the question is how we lead in trench. Well, the answer is pretty simple. We have it. Others don't have it. And the advantage of a trench MOSFET is that you have a lower chip size. And we have seen that there is a significant technology learning required in order to make it happen. And basically, we are the 1st in the market with these type of trench MOSFETs besides it's a Japanese supplier, and we believe that we are very strong positioned with our broad portfolio here. Understood. And maybe just a quick clarification on that. So you when you talk about lower chip sizes, one of the things I've had is that from again one of your competitors is that this chip size is not particularly relevant at this stage, but they may become more relevant going forward. So can you talk a bit about how your customers see chip sizes, the relevance of chip sizes? Are they particularly focused on this at the moment? Thank you. Not sure if I understood precisely the question. The question here, it is very clearly the 1st generation cool sick, as we call it, have the lowest losses. And you can see it in the press release edit also at the slides. The customer fuse here is, I would say, very different. But after some time, where they were using silicon carbide as a leading technology, everybody wants to have very reliable silicon carbide product. And we believe that we are the supplier of the most dependable solutions here. And it is more and more of relevance that this is a feature also required. And we see that competition has also modified the specification towards our position as obviously there were some needs in order to go from the extreme overly extreme edge into the normal specification area and achieve reliable. IR is, of course, happy to follow-up in more detail. Understood. Thank you. We'll now move to our next question over the phone, which comes from Matt Ramsay from Cowen. Cowen. A couple more questions on the automotive market. I think the first one from me is there's been some discussion on this call about the importance of the development of your silicon carbide roadmap going forward. I might I wonder if you might also touch on, how you see the importance of, what we've referred to a little bit as hybrid modules that combine silicon carbide and IGBT into the same type of modules, whether specific modules or combining the 2 modules in a solution for the customer and how what that might mean to your business going forward? And are you maybe better positioned than competitors into that angle? And then just a quick clarification, I think Reinhard, you mentioned 83,000,000 light vehicle units as sort of an industry number. If you guys have any detail on what you're assuming for hybrid and full EVs within that number for 2021, that would be helpful. Thank you. Great. Thank you, Matt. The EV and the other numbers Helmut will comment on, I talk about briefly on the technology. We see that depending on the way the customer is doing its solution and where the customer is positioning in relation to efficiency, reach of battery capacity and so on. The ways how to solve it is extremely different. Some Japanese OEM even go for the most comprehensive silicon based technology. So here, various mixtures of, I would say, can be observed. Some people, boost type when you have a 4 axle boost type when you have a 4 axle drivetrain, a 2 axle drivetrain, a 4 wheel drivetrain and for standard, the silicon. This gives you a cost advantage without losing a lot of efficiency. Currently, the majority is using the silicon, and we see various approaches to more effective overall drivetrain. The hybrid way is that typically you use IGBTs together with silicon carbide diode, which already gives you quite some advantage of the system. So you can choose like from, I would say, the biggest catalog in town for such type of products, where you position. And we also see that silicon will continue to develop, and the supply base here in silicon is also very substantial. Currently, we see that the more and more OEMs are deciding. And here, please keep in mind, the announcements on Tier 1 decisions are not reflecting the real use case on the car level. And Helmut, what's about the car use case? So the battery electric vehicle, you were asking about share in the $83,000,000 total car. Market for 2021 is going to be about €5,400,000, €5,500,000 BEVs and plug in hybrids. If you add the mild hybrids, you're ending up at more than 10%, so about €9,000,000 roughly total globally. Of course, there's a big difference between mild hybrid and batteryplug in hybrids in terms of technology and value content. We'll now move on to our next question over the phone, which comes from Sandeep Deshpande from JPMorgan. Please go ahead. Your line is now open. Yes. Hi. I have a question on your automotive business again. I mean, when you look at your margin in automotive, it is much lower than it has been prior to 2018. Is this because of the mix driven by EV or is this something else driving this automotive margin, which is substantially lower? Clearly, there is this underutilization impact this year, but this has been a continuing effect, which was not there to the rest of your division, Dasa, really. And then, I mean, just overall in the automotive business going forward, I mean as this EV goes up as a percentage of your revenues, would this be a continuing drag? So that's my question. So Sandeep, the first answer is automotive has a substantial manufacturing base and power and the underutilization charging is, of course, hitting ATV quite significantly, which over the time with the increased amount of outsourced chip production will become more advantageous, but that is a major reason. The other one is the question about the EV. Will this continue to go up? Well, at least this is the assumption. There had been an ATV call with Peter Schiffer in October and there is a 17% share for ATV in 2 years. So we believe it will continue. But we have seen in 2019, everybody expected China to grow, but then it stalled. Nevertheless, the number of incentive schemes and the drive for CO2 related reduction, we believe that this will continue with varying speed. What's interesting as a charging infrastructure increases the cost, consumers acceptance also rises. So we believe, yes, but it is very difficult to say at which speed. Thank you. We'll now move over to our next question on the phone, which comes from Yandaran Menon from Liberum. Please go ahead. Your line is open. Hi, good morning. Thanks for taking my question. My question is more on the IPC division where you have you're guiding at a flattish trend or slight growth in this fiscal year, fiscal 2021. I'm just wondering what are your assumptions there for the various parts of that business in terms of if I could break it up as your drives business, renewable energy traction. What could you just break it down as to where you're seeing you expect weakness versus growth? And if I could quickly slip a follow-up, where exactly would you be spending the SEK 1,400,000,000 to SEK 1,500,000,000 of CapEx in this fiscal year? Thanks. Okay. So IPC, we see a very small recovery from low levels for factory automation. We see continuous weakness in trains. The area of the white goods is, I would say, still characterized by a reasonably high inventory, and it will take time until this comes back. Most likely, it will come back through the air conditioning segment. The, I would say, renewable area, solar will continue to be strong on the other side. I think also here, we have seen strong growth in the last fiscal year. So it's very difficult to estimate how this will move forward and invent we have seen a little bit of soften more soft and trend, but it's more related to installation than basic technology. The I think with this, Sven, the investment, please. Yes. Just to add to that, and maybe also Jochen can comment on the investment as well. So as you are now used from us, we have included in the full investor presentation 1 page per division where we show the end markets and the growth expectations. So you can look at that as well on top what Rainer just said. And on the investments, I mean, Jochen will comment, but I think majority, as in the past, goes into the front end. Jochen, maybe some details from you. Yes. Thank you, Sven. So out of this SEK 1,400,000,000 to SEK 1,500,000,000 in terms of CapEx into the factories, it's around SEK 1,100,000,000. And out of that, half of it goes into 300 millimeter, whether filler or Dresden, Dresden equipment, filler, of course, finishing the building and the initial equipment set. Understood. And would your would this investment take Dresden to sort of full capacity? No, not yet. With this capacity step, we think that we will be, in 1 year's time frame, around 70% of the capacity in terms of clean room area when then, in addition, fillach kicks in. I understand. Thank you very much. This is a great opportunity because that allows very much production flexibility and adding capacity in the various fab longer term. Ladies and gentlemen, due to time, we have time for one last question. If you do have any unanswered questions at this time, please follow-up with the IR team. Our last question today will come from Andrew Gardiner from Barclays. Please go ahead. Your line is now open. Good morning, gentlemen. Thanks for taking the question. I just had 2 quick follow ups really. Firstly, on the industry forecast you've referenced for the automotive market, as you said, IHS, I think, are $83,000,000 now. I'm just wondering whether your underlying assumption, your guidance is based on that or given the recent level of improvement in the automotive market that has come ahead of the industry analyst forecast, are you now assuming a slightly more optimistic underlying market for auto? And then a quick one for Sven. On the FX assumption of 115, normally, if I remember rightly, Infineon has normally taken a more conservative approach when thinking about the FX implied within the budget, meaning you would set it at an area where if the spot remained, it would be a tailwind. Today, spot is above what you've guided to. It looks like a slight headwind. So I'm just wondering why you've taken that approach for this coming fiscal year? Thank you. Yes. The first question will be answered by Helmut and the exchange rates, when we'll take. Yes. You're absolutely correct, Andrew. The forecast is based on the €83,000,000 as reported by IHS. Yes, we do see good momentum into the running quarter on our orders buildup, but it's the beginning of the year. So I think we're very well set with the SEK 83,000,000. Yes. And I think it's a very good question, and I don't want to pretend that I can forecast the dollar rates. It's hard, and we have seen this huge volatility. Hopefully, the biggest volatility we have witnessed from Q3 to Q4 moving from 110 average to 117. Now there is some U. S, I would say, vola post the election. It was a debate internally, but instead of going now to 1.175, we said we'd do either 1.15 or 1.20, we decided to go to 1.15. And you are right, the rule of thumb is €14 now per €0.01 on the revenue side and €4 on the profitability side. So yes, currently, that would be a headwind if we would come out with a weaker dollar. Ladies and gentlemen, this does conclude today's Q and A session. I would like to turn the call back over to Infineon for any additional closing remarks. Yes. Not much to say. Just time to wrap up. Thanks very much for all the questions. We are aware that we couldn't answer all of them within the call. Please feel free to contact us in the IR team here in Munich. Other than that, stay safe and optimistic, and have a good day. Thank you very much. Bye bye. Thank you, Simon, and good morning, and welcome, ladies and gentlemen.