Earnings Call: Q2 2021

May 4, 2021

Everyone, welcome to the conference call for analysts and investors for Infineon's 2021 Fiscal Second Quarter Results. Today's call will be hosted by Alexander Fulton, Executive Vice President, Finance, Treasury and Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded. This conference call may contain forward looking statements based on the current expectations or beliefs as well as a number of assumptions about future events. We caution you that the statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control that could cause actual results to differ materially from these described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipation or projected in any of these statements, and there should not be undue reliance on them. For a detailed discussion of important factors that could cause actual results to differ materially from the statements discussed of important factors that could cause actual results to differ materially from the statements made on this conference call. Please refer to our quarterly and annual report, which are available on our website. At this time, I would like to turn the conference over to Infineon. Please go ahead. Welcome, ladies and gentlemen, To our 2021 fiscal 2nd quarter earnings call on, as fans know, Star Wars Day. The entire management board of Infineon is on the call. Reinhard Ploss, CEO Helmut Gassel, CMO Jochen Hanebeck, COO. For the first time in our round, our new Board Member and CDTO, Constanze Hufenbeacher and of course Sven Schneider, our 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. This time, Reinhard's summary will come after the Q and A, so please stay tuned until the end of the call. The illustrating slideshow, which is Synchronized with the telephone audio signal is available at infineon.com/slides. After the introduction, we will be happy to take your questions, [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] 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 on our website at infineon.com. Now Reinhard, over to you. Thank you, Alexander, and good morning, everyone. Before starting with my commentary, me welcome Konstant Zuoffenbecker, who has rejoined Infineon a couple of weeks ago and is now for the first time in this round as a board member Taking responsibility for the digital transformation of Infineon going forward. Great to have you with us, Constanze. Now to our quarterly results. Starting with an outlook into the rear mirror. At the same time last year, the world, the semiconductor market and Infineon were in a quite different place. A new virus had quickly turned into a pandemic, leading to an economic disruption at an unprecedented scale. Major end markets declined rapidly, Lockdown regulations caused severe supply chain uncertainties. Amid these challenging times, we had just closed the largest acquisition in our history With a lot of the refinancing and the integration lying ahead of us, 12 months later, the virus is still prevalent, But also vaccines have been developed and are being rolled out, albeit at different speeds. Aetio common economic recovery is well underway. Some market trends have even accelerated, stretching supply chains and resulting in chip shortages. As a consequence of COVID, Two secular themes have received a massive and irreversible push. 1 is the electrification, the other is the digitization. Both call for systemic thinking and holistic semiconductor solutions, and both can be comprehensively addressed by Infineon, especially of the Cypress acquisition. These structural tailwinds currently coincide with a strong cyclical backdrop. Demand patterns remain strong across nearly every end market due to a persistence of work from home trends, coupled with an acceleration in broad economic activity. However, this environment also highlights the vulnerabilities The global supply chain that arise from a combination of demand volatility, just in time ordering In parts, conservative inventory management. Unfortunately, weather incidents and other hazards affecting the semiconductor industry In the last quarter, we have made an already precarious supply situation worse. In the situation in the case of Infineon, An unexpected winter storm hit our factory in Austin in mid February and caused triple power outage of grid power, gas and diesel. Production was re ramped swiftly by our operations team, but We expect it will be June until we reach pre shutdown output levels. Due to the tight market conditions In resulting fully loaded facility, the recovery of lost production volume will not be possible. In general, apart from the Austin incident, We expect the imbalance between supply and demand to persist for a couple of quarters with a risk to extend into 2022, Given the strength and diversity of demand drivers, extended lead times and generally lead inventory levels, The picture looks brighter for product that we manufacture in house. In the light of structural growth, our strategy to invest early and persistently into our capacities is playing out well. Let's take a closer look at the quarter under report. We recorded revenues of €2,700,000,000 in the March quarter, 3% more Then in the previous quarter caused almost entirely by automotive. There was no significant movement in the average U. S. Dollar exchange rate. And one more time, we have to state that a year on year comparison is not meaningful given the consolidation of Cyprus since 16 April 2020. Our segment result came in at €470,000,000 resulting in a segment result margin of 17.4%. Cost effects associated with the Austin shutdown The negative impact of around 1 percentage point, which was partly offset by smaller positive one off effects. Also, annual price declines that usually cause a margin dip in our March quarter were less pronounced this time. The combination of strong demand and tight supply resulted in a book to bill ratio at the end of the March quarter of 2.1%, further up from the 1.6% at the end of December. Now To our divisions, beginning as usual with Automotive, which saw a 6% sequential growth, driven by the continued rebound of global car markets and recorded revenues of €1,219,000,000 in the March quarter. Almost all our product areas contributed to this uplift, in particular components for electric vehicles. The segment result amounted to €197,000,000 equivalent to a segment result margin of 16.2%, In essence, the same level rise in the previous quarter. The negative impact of the Austin power outage and the annual price adjustment were compensated by lower underutilization charges. The current automotive market situation is characterized by acute supply chain limitations across the industry. And we see the typical implications such as increased lead times, Higher share of expedited orders, decreasing inventory levels and double ordering. As a consequence, Our book to bill ratio stood at a staggering 2.3 for the March quarter. Manufacturing capacities, in particular at foundries and subcons, are limiting the speed of the automotive recovery. Generally speaking, this is a less severe issue in case of our in house capacities, But incidents like the one in Austin could hardly have come at a worse moment. We are committed to supporting our customers in the best way possible and expect supply constraints to gradually ease in the second half of twenty twenty one with the most of the ability to make up for lost volume now moving into 2022. Apart from prolonged cyclical strength, The 2 main structural automotive trends, EV and ADAS, remain very robust. As discussed already in our last earnings call, the adoption of electric The share of battery electric and plug in hybrid vehicles of new car sales keeps increasing. Sales of battery electric and plug in hybrid vehicles were up 147% in March quarter compared to last year. China and Europe continue to lead. The U. S. Is so far a laggard in terms of EV penetration. However, the Biden administration focus on decarbonization, Combined with increased commitment by automakers will give vehicles and infrastructure electrification a boost. Infineon is a key beneficiary of electromobility with an industry leading portfolio of fully scalable solution. These comprise automotive silicon carbide components, which we have started shipping and for which we are seeing volumes slightly ahead of our expectations. Mornsiliconcorbate in the IPC section. Before that, quickly to a good example of our system approach and cross divisional collaboration. 3 weeks ago, We launched the 1st MEMS microphone qualified for automotive application as part of our extensive sensor family. The microphone has an increased operating temperature range to enable various use cases in harsh automotive environment. It can be used both for in cabin applications such as hands free system, emergency calls and active noise cancellations as well as for exterior application as siren or road condition detection. These features enable the use of sound as a complementary sensor for advanced driver assistance systems and predictive maintenance. Now Moving to Industrial Power Control. IPC stayed at the level of its unusual strong December quarter and recorded basically flat revenues of €361,000,000 Another sequential decline in transportation was compensated by increases in practically all other application areas. Of note, Renewable Energies again past €100,000,000 quarterly revenue mark. Stability was also seen in the segment result, which amounted to €59,000,000 after €61,000,000 in the quarter before. The segment result margin slightly declined to 16.3% from 16.9%. Book to bill went up to 1.6% at the end of the March quarter, Partly demand term, partly a reflection of tight supply as also evidenced by channel inventories moving gradually down by being at a healthy level overall. Market conditions for industrial applications continue to brighten. Macro indicators point to a sustained recovery in 2021. Demand for industrial drives is getting more dynamic, in particular in the Greater China region. Forecasts for renewable energy installations in 2021 are continuously corrected upward, Underpinned by significant policy support as governments around the globe make net zero commitments for the middle of the century. Also, energy storage system and EV charging infrastructure are related to the energy transition and electrification theme talked about in the beginning. Home appliances benefit from pent up demand and energy efficiency regulations. Investment into trains and e buses remains subdued, hampered by low travel activities. Overall, we are optimistic with respect to demand momentum and revenue development, and this is supported by a quite positive silicon carbide trajectory already alluded in the automotive section. We now expect our silicon carbide business to double compared to the last fiscal year to a level of around €170,000,000 adjusting our previous assessment of around 70% year over year growth, upwards. Our solutions are getting more and more customer traction in automotive as well as in industrial and applications. On Thursday, Peter Waver, the Head of IPC Division, will provide more detail in a speech at our IPC business update call, complementing the PCIM Europe 2021 Fair. Moving on To Power Sensor Systems, defying its usual seasonality, the segment increased its revenue from €779,000,000 in the 1st fiscal quarter to €787,000,000 In the second, further upside was kept by supply constraints. These related to external contract manufacturers as well as to our Austin fab and affected predominantly server power stages and USB controllers. In contrast to this, we could further increase our in house MOSFET manufacturing to serve strong demand from multiple end markets, From power tools to telecom service overcompensating the usual seasonality decline in smartphone components. The segment result of PSS came in at €884,000,000 resulting in a segment result margin of 23.4%. The decline compared to the previous quarter was due to impact from the Austin power outage and product mix effects. Continued strong ordering momentum, coupled tightness and a very low channel inventories led to a book to bill ratio of 1.9 at the end of the March Currently, everything that is being built is getting shipped and sold to end customers. COVID induced working from home and stay at home started to benefit areas like notebooks, PCs, gaming consoles and battery powered do it yourself tools about 1 year ago. Data found out around these end markets remain persistently strong even as vaccine campaigns are progressing and offices and school are reopening in several countries. More fundamentally, digitization is increasingly affecting aspects of everyday life and is bringing disruptive innovation to industrial as well as consumer applications. Smart and sensorified devices, Edge Computing, 5 gs Networks and Cloud Data Centers are key enablers and offer attractive growth opportunity. By way of example, in data centers, several underlying trends lead to increasing power semiconductor demand. Next generation CPUs, ASICs and SoCs are more power hungry, driving increased DC DC power conversion content. AI accelerator modules, mainly used in hyperscale servers, are requiring best in class high density power solutions. AC DC power supply is trending towards higher power classes and needs to meet higher levels of efficiency. At the same time, the processor landscape is rapidly diversifying from classic CPU vendors to GPU specialist. In house developments by hyperscalers and AI start ups. Our unrivaled offering of high density, High efficiency power flow architectures supports all processor requirements, including leading edge AI claims. As a consequence, CAS recorded a slightly a slight quarterly revenue decline from 3 €35,000,000 to €329,000,000 as we were not in a position to fully cater to vibrant demand for general purpose microcontrollers, Wi Fi and Bluetooth components due to scarce foundry capacities, An increase in security solutions for areas like contactless payment and embedded solutions like eSIM and device authentication The segment result of CSS amounted to €30,000,000 equivalent to a segment result margin of 9.1%, down from 13.4% in the quarter before. Factors leading to this decline were charges relating to the Austrian weather incident and the conversion of the former Cyprus remuneration To Infineon's standard, as discussed in our last earnings call, this refers to adjusting the composition of cash and equity based parts within an overall constant salary. Furthermore, CSS is prefunding the development of Systems solutions combining connectivity, control, low power and security. Demand for such solutions is currently hitting Severely restricted supply capacities, resulting in a book to bill ratio of 2.6. The power outage in our Austrian fab is adding to the tightness of already highly limited foundry capacities. Meanwhile, The proliferation of smart and connected devices is leading to an ongoing design win momentum. Our Wi Fi Bluetooth combo chips have been selected for a new connectivity platform of a major home appliance manufacturer. Additionally, we have won key sockets at automotive infotainment and printer manufacturers. Our major variables OEM has selected our Bluetooth Bluetooth Low Energy module chip for a next generation smartwatch. In microcontrollers, we have achieved key design wins at leading OEMs in the industrial and home appliance sector, especially with our human machine interface offerings. On the product side, we have expanded our speed of wireless connectivity offerings under the new Airoc Brand launching the 1st industry's Wi Fi 6E and Bluetooth 5 point 2, combo system on chip for IoT, multimedia and industrial applications, delivering robust performance and coverage, Video and audio streaming application and those that require an instant response like security system and Industrial Automation. Now over to Sven, who will comment on our key financial figures. Thank you, Rainer, and good morning, everyone. Let me start with our margin development. Gross profit in the Q2 Of our 2021 fiscal year amounted to €972,000,000 resulting in a gross margin of 36%. Excluding non segment result effects, the adjusted gross margin came in at 39.3%, 100 basis points down from the previous quarter. Whereas underutilization charges sequentially declined once again, the impact of annual price resetting and the charges of just under €30,000,000 related to the Austin power outage mentioned by Reinhard already had a contrary effect. Research and development expenses went up to €341,000,000 from €333,000,000 in the previous quarter. Selling, general and administrative expenses increased to €328,000,000 from €311,000,000 R and D expenses included €4,000,000 of non segment result charges, SG and A expenses, €58,000,000 The net other operating income was €11,000,000 containing a couple of smaller positive one off items Included were also minus €5,000,000 of non segment result charges. In total, the non segment result for quarter amounted to minus €156,000,000 virtually flat compared to the preceding quarter. The bulk of the amount related to the Cypress acquisition, mostly depreciation and amortization from the purchase price allocation. The financial result for the March quarter was minus €42,000,000 after minus €26,000,000 in the previous quarter in which we had recorded nonrecurring positive effects. Income tax expense amounted Contained therein are onetime effects related to the integration of former Cyprus legal entities. Cash taxes amounted to €47,000,000 resulting in a cash tax rate adjusted for PPA effects of again 12%. For the current fiscal year, we expect this rate to be around 15%, primarily as a result of the existing German tax Loss carry forwards. Our investments into property, plant and equipment, other intangible assets and capitalized development costs in the March quarter increased to €332,000,000 from €283,000,000 in the quarter before. Quarterly depreciation and amortization, including also acquisition related non segment result effects remained flat at €368,000,000 Free cash flow from continuing operations increased noticeably and came in at 4 0 €7,000,000 compared to €313,000,000 for the December quarter. Positive working capital effects contributed to this favorable development. Our reported after tax return on capital employed, OROSI, stood at 6.3% for the Q2. Excluding bookings related to the acquisition of Cyprus and International Rectifier, In particular, goodwill, fair value step ups and amortization as well as deferred tax effects, the adjusted ROCE was around 24%, Clearly exceeding our cost of capital. At the end of my section, I very much like to address the Successful continuation of the refinancing of the Cypress acquisition. We tapped the U. S. Private placement market, As we have done already, 2016 in connection with the International Rectifier acquisition and signed a USD 1,300,000,000 deal At the beginning of April, the transaction comprises 4 tranches with maturities of 6, 8, 10 12 years, helping us to smoothen and to extend our maturity profile. The placement was significantly oversubscribed, allowing us to achieve attractive conditions and diversify our financing sources. Funding will occur in June. The proceeds will be used to repay existing U. S. Dollar bank term loans related to the acquisition of Cypress well ahead of maturity. Talking of it, our gross cash at the end of March stood at a bit above €3,400,000,000 A slight quarterly increase given that the free cash flow exceeded our dividend payment. Our gross debt amounted to €6,900,000,000 Up against the previous quarter solely due to the change in the U. S. Dollar exchange rate on the respective closing dates. As a consequence, net debt is currently €3,400,000,000 Therefore, our net leverage stood at 1.5 times and gross leverage at 3.1 times. I will now pass back to Reinhard again, who will comment on our outlook. Thank you, Sven. As stated at the beginning, the current demand situation is strong, but supply is a limiting factor. The broad based recovery is continuing. Cyclical tailwinds and structural growth drivers both align in an upward direction. Depottlenecking supply shortages, however, will take time, and this is capping the near term upside. Following this line of thought, for the running Q3 of our 2021 fiscal year, we anticipate revenues to slightly grow And to come in between €2,600,000,000 €2,900,000,000 Embedded in this forecast is our updated assessment The Austin power outage will lead to a mid double digit €1,000,000 revenue loss in the current quarter. Because of this and other foundry related constraints, we expect only a slightly positive revenue progression for the ATV and PSS segments and a slight decline for CSS despite healthy customer demand. IPC, with a comparatively high in house manufacturing share and inventory level should see high single digit quarterly growth. At the midpoint of the guided revenue range, The segment result margin is expected to be around 18%, mainly driven by higher revenues. For the full 2021 fiscal year, We now expect slightly higher revenues of around €11,000,000,000 plus or minus 3% more than compensating for the AUSTIN effect. As the second half of our fiscal year progresses, we expect most of our business to benefit from easing supply limitations and be better able to serve demand. Given this prediction and on the back of our results achieved in the first half of the fiscal year, We are again lifting our guidance for the segment result margin, which we now expect to come in at around 18% at the guided revenue level. While we do see strong business momentum, which might help bring annual annualization charges below the level of around €200,000,000 anticipated so far, margin expansion will be slowed by rising foundry prices in areas where we do not have long term agreements. Our protected investments in property, plant and equipment, Other intangible assets and capitalized development costs in the 2021 fiscal year remained unchanged at around €1,600,000,000 We are happy to confirm that we reached the important milestone ready for equipment at our new 300 millimeter fab bin filler. Since mid of March, we are bringing in the equipment to implement the initial manufacturing line which we are confident to run by the last quarter of the fiscal year. For depreciation and amortization, we continue to expect a value 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. Strong operating performance will be reflected on our further increased free cash flow, for which we now estimate a value of more than €1,200,000,000 compared to more than €800,000,000 before. Before opening the Q and A, let me quickly remind you of our Capital Markets Day scheduled for the 4th and the 5th October. Preferably, we would very much like to meet you all in London again. However, We have to keep the option for a virtual format open. Let's now come to our questions to your questions. Different From our usual procedure, I will summarize the key points when we close the call. Now back to Mr. Volkin. Operator, please start the Q and A. Thank you, sir. Our question and answer session will be conducted electronically. And we will now take our first question from Alex Treval from Goldman Sachs. Please go ahead. Yes. Hi, good morning, everyone. Many thanks for the question. One of your peers talked about a limitation on the amount that they can produce internally for the second half of the calendar year with demand being bigger than they're able to produce. And I was wondering to what extent you see a similar dynamic or not for Infineon. I'm wondering, for example, to what extent there could be segments of your business where there could be some scope for internal production Or whether it would be a homogeneous situation across all the different bits of your business? How should we be looking at that? Any thanks. So Alexander, thank you for your question. I'm not so sure we have completely understood it Precisely, therefore, I rephrase it. The question was how much we can in source. And here, I would give it to Jochen? Yes. Thanks. Reinhard, so I understood it that you were asking about the in situation and you think here Reinhard made statements already that we are benefiting from our in house manufacturing strategy and also the CapEx We spent already last year turning into revenue this year. So the supply situation on the in house side is better Definitely better than on the foundry side. If you asked about insourcing, there is very limited Room as we have focused our in house manufacturing, as you know, on power and sensors, Whereas the shortage is mainly in microcontrollers and IoT products. I hope I covered your question with this. This is great, mate. Thanks. We will now take our next question from David Mulholland from UBS. Please go ahead. Hi, thanks guys. Thanks for taking the question. Just wanted to follow-up on the commentary you made around automotive, I think when we spoke about it last quarter, you said at this stage, you thought or at that stage, you thought you were shipping to a level greater than was expected to be in automotive production for 2021. Given obviously, if anything, it seems like production has been more difficult to ramp up. Do you still think you're shipping above that level? Or can you help us get some qualification on where your shipment level is an automotive volume perspective versus what production level is expected to be in the industry today? David, thank you for your question. So Helmut will answer this question. And I think it is not only a matter of ramping up the production. I just saw that we see a lot of catch up from the last calendar year. Helmut, what's going on? Yes. I think the shipping level that we currently see is probably to something like mid-eighty million vehicles per year. Demand from the channels It's obviously higher as people are trying to rebuild inventory, etcetera. So I would say The analysts reported how many vehicles might not have been built in the 1st quarter And what is expected for the 2nd quarter, so roughly 1,500,000 not being built in the 1st quarter and about 1,000,000 vehicles not being built in 2nd quarter, that's the best, I think, estimate that currently exists. Requests are obviously substantially higher Then this €85,000,000 that I pointed out. If it's just a follow-up on that. Just to be clear, though, what do you think in the revenue that you're generating and the products that you're actually able to ship out today, what kind of automotive production run rate do you think We justified given there is potentially a bit of catch up in the channel going on from what you're shipping in your products. Yes. I'd say it varies a little bit. As I said or Jochen earlier said, the constraint is mostly within the foundry products, meaning the microcontrollers and Products alike. So there, we are probably at that run rate of mid-80s. In other products, we might be shipping Slightly higher, but that eventually will anyway level. Okay. That's great. Thanks very much. Maybe, Jens, one addition to this, what we are currently facing, that the OEMs are adjusting their production schemes to [SPEAKER MARCO TRONCHETTI PROVERA:] The parts they can get, so it's very hard to read in detail, and this is shifting from day to day, Which adds to the challenge in the supply chain. Thanks. We will now take our next question from Matt Ramsay from Cowen. Please go ahead. Yes. Thank you very much. Good morning, guys. I guess I have two questions. The first one, You guys talked about, obviously, book to bill being Above 2 for the whole company and chasing supply with demand being much more than supply. If you could Maybe give some commentary as to how you see internal production ramping to meet what demand is versus your visibility On foundry capacity potentially ramping and if there are any material differences in the 2? And I guess the second question is then obviously there's things moving around with gross margin with the challenges in Austin. But How do you feel the company is positioned to potentially pass on any price or I guess cost of goods Increases with the tight supply, how are you guys positioned to pass that on to customers? Thank you. So I think here, I will just share a question with Jochen on the manufacturing side and Sven will answer the other one. So what we are seeing definitely is the benefit of Infineon long term strategy where we are investing in house on a, I would say, along the expected market growth and Try always to keep a certain headroom for flexibility, while in the foundry space, we see that especially in the More mature now, the foundry have not invested enough in order to cope with the situation. Jochen, can you give more flavor to that? Yes. I think this is publicly debated that these nodes between, let's say, 20 to 90 nanometers are currently rather short, and the foundries Are investing now, but the lead times to get this new capacity on board will be easily into 'twenty three. There is, of course, also a cyclical part in this shortage, but there's also the structural one that certain Products, for example, yes, CMOS images, which we encounter now more and more in every smartphone, take up capacity Yes, in these buckets. With your question related to the book to bill, please keep in mind that the high book to bill, these are Confirmed orders, but over an unlimited horizon. So what we see currently coming in and what we can confirm and what you see in the book to bill Our orders that have long reaches, which is a typical situation or typical behavior of the customers in an allocation Yes. Matt, Sven speaking. Thanks for your questions. So on the gross margin, let me give you 2 answers to that. The first one is indeed we are seeing rising input costs. And of course, there is the clear intention of us To pass that on to customers, but please do not forget that we always have a good mix of long term agreements and short term agreements. The long term agreements are not in scope, but the short term ones, that's where we see that fall through from increased input cost. And on the gross margin per se, because I expect that question to come anyway In that forum, so we are now I'm talking about the clean gross margin. So adjusted for the NSR effects, We are at the 39% level. So for the full fiscal year, despite these rising input costs, we expect The gross margin to go up a bit towards the 40% level. So it gives you also a bit of confidence how we look at Pass through and the overall situation. Thanks. We will now take our next question from Didier C. Manna from Bank of America. Please go ahead. Yes. Good morning, gentlemen, and thanks for letting me on. I just had 2 or 3 very short questions. First, maybe if you could talk a little bit about the sort of it feels like you've got a 4th Silicon carbide win on your slide deck, if you could just talk about that with an Asian OEM briefly, if you could give us a bit of color on this. 2nd, I just wonder I mean, it's a follow-up to the many questions that have been asked so far. I just wondered if you could give us your thoughts On this book to bill above 2, e. G, as we move into fiscal year 2022 and as capacity comes online From your own factories but also obviously from foundries, how do you feel about the upside in top line and the downside in order intake As we've seen in previous cycles. And then my last question is for Sven on the free cash flow guidance upgrade, Which is an interesting one in the sense that you're flagging effectively a cash conversion north of 80%. And I just I wondered if you could talk a little bit about the sustainability of that cash conversion or if it's really driven by one off in terms of lower inventory levels on the balance sheet in Working capital because of the situation, that would be very helpful. Thank you. Did you thank you for your question. So I'll start with the general comment. Our upside on the top line is definitely limited by the capacity We see in the foundry market, while we might have some upsides on the in house manufacturing, Sven will give a little bit more flavor to that. The downside in orders we see currently pretty limited. I think we have Seeing this type of market behavior very often, but each time it's slightly different. When you think about the Lehman crisis, you I've seen a dip in demand. This time, we have not seen a dip in demand, but a dip in, I would say, the supply capability and all verticals coming together. And we believe that the majority of the growth drivers are strong enough in order to continue. Nevertheless, of course, when the supply to demand ratio becomes a little bit more healthy than today, we expect that our order book Well, I would say it becomes softer. The silicon carbide, Helmut, what about silicon carbide and then going to Sven? Yes. A couple of things there. I think we reported another design win, triple digit million this quarter. Again, The launch that I think you were referring to is with an Asian OEM that we have reported previously. So We are currently starting to ramp manufacturing of silicon carbide products going into main inverter for vehicles. As you rightfully stated, total growth of silicon carbide revenue this year is going to be about 100 So we'll be essentially doubling our revenue with silicon carbide products, of course, both coming coming from both automotive as well as Industrial, whereas automotive is relatively growing stronger. So before switching to Sven, the question Automotive, we typically have a very good visibility to the end markets And the car is parked at the dealership. So here we feel quite strong. In many other verticals, We have a less clear view in the area of service and equipment for data. It's good, but everything which is around consumer, it is typically less. But overall, we feel very confident to have a very good understanding from our to the final end market and the demand at customer side. Now to spend as promised. Yes. Didier, a follow-up to your question on the revenue top line upside for this fiscal year. I mean, maybe let us step back a bit. And As Reinhard did in his opening speech, we started the year with around 10.5%. We increased after Q1 to 10.8%. Now we increased to 11 despite having lost revenue from the Austin outage in a mid double digit Volume, so that's the starting part. Now if you ask about how much more could you do, we have given you a range of plus or minus 3%. I would say in a non allocation situation with no foundry limitations, we could probably do more. It's really hard to give you a precise number given that the allocation situation clouds the visibility and also The pull ins into the fiscal year could also play a role. But I mean, if you ask me, I would say 1 percentage point, maybe 2 of additional volumes Could be possible, but it's a guesstimate. Now to your second question on the free cash flow for the fiscal year. Indeed, that's a very positive development. We have stated repeatedly that after the Cyprus acquisition Based on a higher leverage, which is coming down quickly but still on elevated levels, the free cash flow is an important element we need to focus on, and we have given clear deleveraging targets out to the market. So now this year, we increased from €800,000,000 to more than €1,200,000,000 The main reasons for that, Didier, the First one is we have now the first half year in our books already. If you add the numbers up, it's €700,000,000 The second is that there is Higher revenues and higher operating profit to be expected in second half. Last, Thirdly, you mentioned already the inventory. We had a more conservative Expectation of some inventory buildup during the course of the second half. This will not materialize, so there is a positive working capital effect. And lastly, also some of the increased lead times on the Invest side mean that some of the CapEx And the cash out for CapEx is pushed into 2022. And that without now wanting to have Cushion on 2022 guidance, please. I just want to mention you should not be too surprised If there is further CapEx to come in 2022, so maybe that's another point data point For your question regarding sustainability and cash conversion. Thank you. Could I have a very, very short follow-up on that? Exceptionally, yes. Thank you. No, I wondered, given the semiconductor affecting the automotive sector, primarily in foundries. And you highlighted that there is far less issues when it comes to your internal production of power semiconductors. Have you had any conversations with Tier 1s or even with directly with automotive OEMs to secure Supply of IGBT modules or even silicon carbides in the coming quarters or in the coming years for fear of similar shortages? Yes. Didier, we definitely are in contact. The OEMs have understood that the up to Now just in time delivery and order from the shaft doesn't work anymore. And of course, we cannot go into details. But I think here, everybody is seeking to understand better and seems that we are changing the We will now take our next question from Alexander Pyturek from Societe Generale. Please go ahead. Yes. Hi, good morning, Anton. Thank you for the question. Just a little bit of expansion on your comments on CapEx, Given the strong industry backdrop, obviously, and also higher flexibility in terms of free cash flow that you now have for the current year, was a bit surprised to hear that some of the CapEx is pushed out into next year. So if you could give us the reasons around that and why wouldn't you instead To rather accelerate your CapEx. And then the second question I have is, if you could remind us what's the percentage of revenue that relies On external charges currently and how this differs by division as presumably CFS is the highest towards the percentage there? Thanks a lot. Hi, Alexander. Thank you for your question. I think here, Jochen will answer. We do not push out, Jochen, maybe what is going on? No, we definitely do not push out. So please remember, 1st of all, we kept our CapEx budget in In the difficult year of 2020, rather on the high side, and we benefit from those with this capacity coming on, namely by Fila coming online in last quarter of the fiscal year. Of course, we do see lead times increasing. This Industry standard, there might be some equipment coming into the new fiscal year. Remember, we have a fiscal year ending in September, But we do push for capacity expansion. And also, Sven highlighted already that Probably next year's CapEx number will be higher than this year's. And therefore, we try to ease The situation as best as we can. With respect to your question on outsourcing, then general outsourcing In the front end for foundries is around 30%, but of course, according to our manufacturing strategy, mainly In CMOS and CMOS Derivative Technologies below 90 nanometers, in this regard, the outsourcing share is the highest For our CSS division, followed by the PSS division and automotive microcontrollers. And as Reinhard pointed out in the introduction already, IPC is heavily relying on the INAOS side. I hope that answers Your question? Maybe a small add on. We don't forget that we have started to invest ahead of the curve and even stayed along our strategy last fiscal year, which puts us in the in house manufacturing in a different position compared to others who are just waking up now and try to order and order very high. So I think Despite the ordering we do, we of course would like to accelerate even further, but we are in a good position as we follow basic Concept there. Thank you very much. We will now take our next question from Johan Sjaleth from Deutsche Bank. Please go ahead. Yes. Good morning. Thank you. And sorry to come back to the foundry topic once again. But, Mr. Hannebeck, did I understand you correctly that you expect the Tight situation on the foundry side to definitely extend into 2023 or did I misunderstand that? And then also can you maybe give us a bit of Feeling in terms of additional capacity from foundries, how we should be thinking about that maybe more as we talk about next Yes, given your discussions you're having currently and if there is anything you can do to accelerate that or She influenced that decision given the conditions in the market. And then as a second question, it's maybe a bit philosophical at this stage, but we look at the Biden stimulus plan, I guess that mostly touches your power products in IPC and ATV. Do you already get any indications based on that your customers that this will benefit your growth outlook? And also do you actually believe you can meaningfully participate here given you're not a U. S. Headquarter company, is that in any way an obstacle for you? Thank you. So Mr. Schaller, thank you for your question. I think here the topic about foundries, Jochen will explain this. I think Just one comment. 2023 is pretty far out. Here, we have to look at 2 effects. The first effect is, of course, additional capacity And the other effect is how the major verticals are showing growth into 2023, Which is pretty far out. The other point before I hand over is the question about our power. Look, we have always said that we position ourselves along the lines of a climate Friendly strategy and the demand from there will continue to increase over time. Yes, we expect that there will be an additional push, but not only from the U. S. But global, because in order to reduce the CO2 footprint, Significant renewable installations are required. Battery backup or battery storage is a must have. And the electrification of many more of the industry has to come. So that's, yes, of course, goes into our hand. The other point is Being in U. S. As a headquarter company, yes, of course, we see more interest there. But I think here, We always prefer not to be successful based on political positioning, but on competitiveness. And I think here, We are in an outstanding positions with leading technologies providing very good performance at very Competitive costs. And this is also very relevant not only for the U. S. But also in Asia. Now Jochen, what's about capacities at foundries? Yes. So regardless of whether it's foundry or in house, if you want to if you ramp a capacity within an This thing clean room, you are somewhere in the range of 1 to 1.5 year to new capacity. If you need to build a new module or factory, then you're beyond the 2 years. So I was referring To the announcement of the various foundries all extending their factory footprint, building new modules, and they will come on stream In 'twenty three. However, also these foundries have, of course, also some Had some free clean room space, and they are equipping. And therefore, we will see Increased output next year. Of course, this is now overlaying completely with the demand picture, which has Two elements, the cyclical part and an allocation, of course, everyone is asking for as much as possible. And there is the structural part, which I think the foundry industry is now catching up with in the sense that Historically, the foundries did not invest into mature nodes, which maturity starts for foundry at 20 nanometer Everything above, now recognizing there is structural growth drivers like the mentioned image CMOS imagers, which demand more capacity in these nodes between 20 to 90 Nanometer. So in a nutshell, the demand side is cyclical and structural. And on the capacity side, it's the normal picture That was within existing clean room, there is a certain lead time building new clean rooms, factories, as you can see with our factory in Filar, takes more time. So maybe, Mr. Schaller, an add on to the topic of U. S, We are definitely perceived in U. S. As a major player locally. We are well embedded in the various ministries and can participate In the due program, so we are not seeing currently any disadvantage not being headquartered there. Our Strategy being strong in U. S. By acquiring Cypress is paying off in several ways, but for me, the most important one that can offer complete solution to local customers there. That's very helpful and very clear. Thank you. Maybe a very quick follow-up. When you say you will see additional capacity in foundry next Yes. I know demand is a different topic, but we just look at it from a capacity side. Can you put any number to that? How much more capacity you think you can realistically get next year from your foundry partners? We cannot comment on this. Sorry for that. We are still in discussion. And I think it is not a boundary asset. It's a total industry situation. And at least we see that For the automotive vertical, the foundries are willing to go a certain extra mile. So we have to See what we can get allocated there. And of course, we are fighting for each wafer. But how the capacity increase will come on board, I think we have to hear from the foundries. Clear. Thank you very much. We will now take our next question from Amit Horkedani from Citigroup. Please go ahead. Thank you. Good morning, all. Amit Agendar Chindani from Citi. Two questions, if I may. My first question or rather I would like to know your thoughts are on the topic of inventory management, please. Hello, may I continue? Yes, Amit, we hear you. Thank you. No, I think I was asked to hold. So if I may just repeat it, my first question is On the topic of inventory management, if you could talk about how are you managing your inventory for the near term Between yourselves and your distribution, what do you see in terms of inventory at distributors, at customers? Are you managing it more tightly to ensure you have better visibility on demand? So how are you doing it in the near term? And then structurally, Do you think you talked about just in time being a thing of the past maybe on the automotive side, but could you give us a sense for how do you think inventory management shapes Surely, in the longer term as well. And secondly, very quickly, if I may, on a separate topic, you talked about demand supply balance earlier. Clearly, that seems to be a topic of debate and you've given this all time high probably book to bill ratio. Can you give us maybe some color on how much of these bookings might be coming up in the next 12 months, 18 months? Look, I guess you're all trying to figure out when does this all come into balance and what's the degree of confidence in the bookings number? Thank you. I give the first will be answered by Helmut. The in house inventory topic, I think we have covered. But if you have additional questions there, Jochen might answer and then the lead time, I would say, the long term ordering. Amrut? Yes. I'd say inventories in the channel, so meaning through the distributors, are very low as typical for This time of the cycle, we're probably 30% to 40% below the targeted range as inventories, which is We most pronounced for the IoT products and then for the automotive parts as well, so that's where the shortage is the strongest. By the way, it's also where the lead time is the longest, so it's very, say, inverted to the lead time is the inventory in the channel. The channel inventory isn't ours to manage. We can ship into the channel, yet the channel sells the product to the customers At their discretion. So the channel in the inventory in the channel is more determined by The operational capability to handle the product and turn the product quickly within the channel rather than by what we can ship in there. Of course, in such a situation, there is essentially no more inventory than what is needed to operationally manage. Everything this is Except for very few products, most of the parts are turned immediately when they arrive. So In the midterm and the longer term, as we expect at least some, let's say, conclusions and learnings from the current situation, So that the overall inventory level, in particular for I hope I can you still hear me? Yes, I can. Okay, wonderful. So in the midterm, we the inventory levels to be in the automotive channel higher than what we have seen before. So another important thing on the book Book to bill is for us confirmed orders. Confirmed orders can, of course, reach into the future, meaning We are confirming orders with a longer lead time further out. So if you look at our total order book, it has a reach That is almost a year in terms of value. So there is substantial long term orders in the book already. It's also not untypical that in when the market turns or when the peak is reached, you see some Pushouts and cancellations of some of the orders that are in the book already. So it's hard to say. When the orders continue to come in, The orders will only be confirmed for, I would say, more than a year now, more or less. So I think here it is very difficult to read in detail. I'll conclude something on the near term revenue. We will now take our last question from Jerome Ramel from Exane BNP Paribas. Please go ahead. Yes. Thank you. Good morning. Two questions. First of all, on Gallium Nitride, you've been very quiet On the gallium nitride, I've seen the acquisition of International Liquefier. Your competitors are being much more vocal, and we start to see major Deployment both in consumer but also in automotive. So if you could share with us maybe an update view on your strategy. And second question, maybe a more long term question concerning automotive and you are very strong right now In microcontroller with your ORIX family for safety and for our train for level 2, level 2 plus. But when we look at the roadmap of your customer for level 3 and above, I think that everyone is moving to system on chip. And I wanted to understand the strategy of Infineon for the system on chip because it's probably something you are lacking compared to some of your peers such as NXP, Rayfat and so on. So just would like to understand the strategy on the system on chip for the domain and for the Liber III and so on? Thank you. So, Jerome, thank you for a technical question. So we are very well positioned for GaN. We have a technology where we believe it is from quality and stability superior what we Fine in the market. It's not the typical way of Infineon to make a lot of noise about these things. But I think here we are extremely well positioned, Especially also that we are considering to be the most comprehensive supplier of silicon, silicon carbide and gallium nitride suppliers. We see gallium nitride in various applications like the server power supplies To a certain degree in onboard charges, but not so strongly. And we see it in the highly compact Adapters, and I think here, especially in the adapters, it's a matter of system integration. You will hear from us in this domain A lot, but I believe various applications can have various solutions. And we see currently in the high power server That silicon carbide is a strong move in. So we believe that we are not behind the curve. Some of these applications, we will prioritize later, but our gallium nitrate capability is quite profound. The next is and here you will have, of course, much more on the Capital Markets Day because that will be a separate presentation on, I would say the advanced technologies from, let's say, silicon carbide, gallium nitride. So next question is on the ORIX. I think here you see various strategies, But what we see that our Oryx is making inroad in all of the applications and the customer even is liking The architect and it is feasible for everything but the let's call it Brain of the autonomous driving computer. And therefore, we believe that this Well, you will see a, let's call it, 3 domains, one which is by far the largest Demand for types of ORIX. Then in the area of domain controllers and zone controllers, you may have seen some multi chip architectures, which also we consider moving forward. And for the central computer, you, of course, see the typical Players there, but I believe you will also see a lot of changes as these tape of computers are much more Much too much power consuming. So with this, I think we are extremely well positioned and continue our road map along the lines. And I believe we will see much more ORIX revenue to come in the next decade. Okay. Thank you. Okay. It is now time for us to summarize. Actually, the question. Yes. Thank you. Thank you, operator. Indeed, that was exactly what I was going to say. So it's time for us to summarize. So I would Like Reinhard to read out our closing remarks. So Alexander told me to be fast, so now with this. Now, ladies and gentlemen, it's time to summarize. With its March quarter, Infineon concluded a strong first half of its 2021 fiscal year. We recorded €2,700,000,000 of revenue, a 17.4 percent segment result margin and €407,000,000 of free cash flow. A bit more than a year after COVID turned into a pandemic, demand is outstripping supply in almost all semiconductor areas. Many products are on allocation and inventories are on the lean side. Infineon is managing the cycle successfully, I would say even very successfully. We see cyclical dynamics coinciding with a structural upturn driven by 2 secular themes electrification and digitalization. We are ideally positioned to shape and benefit from both, especially with the Cypress part becoming a part of Infineon a year ago. We once again adjust our outlook upwards despite the Austin impact and foundry supply shortages. For the 2020 Fiscal year, we now expect revenues around €11,000,000,000 a segment result margin of around 18% and a free cash flow of more than €1,200,000,000 Infineon is in an excellent healthy and to continue its profitable journey. Let's and again, see you at the Capital Markets Day. Thank you, and bye bye. Thank you very much, Reinhard, for this, yes, very dynamic closing statement. Thank you all To the analysts for your questions. Time to wrap up our call on 4th May. Any further additional questions, please don't hesitate