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Infineon Intends to Acquire STMicro, with Third-quarter Gross Margin Increased to 38.2%......


Recently, Infineon’s plan to acquire STMicro has received wide attention. As the global power device leader, Infineon grows well showed in its recent financial report. Under the situation of declining global MOSFET supply and soaring price, Infineon claims that part of MOSFET products are delivered for more than 26 weeks, even 52 weeks sometimes.

Infineon's growth story

Infineon is Said to Have Approached STMicro for Takeover

Bloomberg News said that Infineon intends to acquire STMicro and the two sides have held early-stage talks. In 2017, Infineon’s revenue was 7.063 billion euros (about 8.2 billion US dollars), and STMicroelectronics revenue was 8.3 billion US dollars. If they get merged, they will create semiconductor giant worthy of $16.5 billion that will surpass Broadcom and become the world's sixth largest semiconductor design company.

Figure. 2  Infineon Is Said to Have Approached STMicro for Takeover

Figure. 2  Infineon Is Said to Have Approached STMicro for Takeover

It is reported that Infineon has already begun to consider acquisitions last year and hired BNP Paribas as a consultant. It took three months to study the acquisition. But It is still not clear at this time whether STMicro accepted the deal last year.

But people familiar with the matter said that the French government, one of the largest shareholders of STMicroelectronics, is still opposed to the merger with Infineon. The government wants STMicroelectronics to focus on big orders rather than expand through mergers.

After the news came out, at 3 pm on August 1st, Paris time, ST's share price rose by 2% in a single day, but the final transaction price only rose by 0.2%, while Infineon's share price fell by 3.1%. The financial departments of Infineon and ST declined to comment on this matter.

In August last year, Infineon once thought about giving up merging before contacting STMicro. The source also said that the two sides have never announced these acts, which means they are still in further negotiations.

It is said that STMicro has some assets that are complementary with Infineon. STMicro is one of the largest suppliers of smartphone makers, including Apple; while Infineon has an edge in automotive chips.

According to IHS statistics, Infineon ranks first in the world in power devices and smart card business, while ranking second in automotive electronics, only  next to NXP. ST ranks third, fourth and fifth in power devices, smart card business and automotive electronics respectively. However, ST has a broader business field than Infineon, and the company ranks first in the world in the MCU industry. At the same time, it also has a strong industry influence in the field of MEMS and analog chips. Therefore, the strong and highly-complementary merger is expected to cradle a world-class semiconductor giant.

Market Share of the Big Companies  in Three Major Fields

      Figure.3  Market Share of the Big Companies  in Three Major Fields

Infineon’s third-quarter gross margin increased to 38.2%, benefiting from the growing demands and a stronger U.S. dollar

Infineon Technologies was formally established in Munich, Germany on April 1, 1999 and is one of the world's leading semiconductor companies. Its predecessor was the semiconductor division of the Siemens Group, which was separated in 1999 and went on sale in 2000. In FY2017, Infineon achieved revenue of EUR 7.063 billion, an increase of 9%; and operating profit margin increased from 15.2% to 17.1%.

In the third quarter of Infineon, the revenue increased from 1.836 billion euros to 1.941 billion euros, a growth rate of 6% compared with the same period last year. Increasing demand and higher value of US dollar have contributed to revenue growth in various business segments, including the Industrial Power Control Division (IPC), the Smart Card and Security Division (CCS), the Power Management and Diversification Markets Division (PMM), and the Automotive Electronics Division (ATV). Gross margin growth in the third quarter rose to 38.2%, compared with 37.1% in the second quarter, which included acquisitions, installment debt and some other expenses totaling 18 million.

                                                       The increased revenue in the third quarter of 2018 fiscal year

 The increased revenue in the third quarter of 2018 fiscal year

Segment Earnings in the Third Quarter of the 2018 Fiscal Year

Figure.4  Infineon's Revenue in the Third Quarter of the 2018 Fiscal Year

The revenues of the four major business divisions of Infineon in the third quarter: automotive electronics (ATV) gained 836 million euros, an increase of 3%, accounting for 43.1% of the total revenue; industrial power control (IPC) gained 349 million euros, a year-on-year increase of 9%, accounting for 18%; power management and diversified market (PMM) achieved 580 million euros, an increase of 4%, accounting for 29.9%; smart card chip (CCS) obtained 1.75 euros, down 2% , accounting for 9%. From the perspective of product classification, most of the company's revenue comes from power devices, which account for 65% of the total revenue.

Figure.6  The  Revenues of Four Major Business Divisions of Infineon  in the Third Quarter of the 2018 Fiscal Year

Figure.5  The  Revenues of Four Major Business Divisions of Infineon in the Third Quarter 

In addition, Infineon's revenue in the third quarter of the 2018 fiscal year was 1.941 billion euros, a year-on-year increase of 6%. Gross profit increased to 742 million euros and gross profit margin was 38.2%. Due to the increasing demand, the growing order backlog led to an order-to-ship ratio of 1.5. Revenue in the fourth quarter is expected to increase by 3% ± 2 percentage points.

The  Potential Revenue Percentage of Four Major Business Divisions of Infineon in the Fourth Quarter

Figure.6  The  Potential Revenue Percentage of Four Major Business Divisions of Infineon in the Fourth Quarter 

Global MOSFET supply is reducing and prices are skyrocketing due to multiple factors such as insufficient supply of upstream materials, outdated 8-inch wafer throughput in other product lines, and withdrawal of the international integrated components (IDMs) from the medium- and low-voltage MOSFET market, where consumer electronics and PC are highly popular. 

Regarding the delivery time and price situation of MOSFET and IGBT, Infineon said that the delivery time in some product sectors may exceed 26 weeks, and the order confirmation process needs even 52 weeks. It’s common to see price increasing as demand grows, and the demand is still growing robustly now.

According to Taiwan media's reports, with the release of the US ban and the resumption of operations, ZTE has driven the manufacturers in mainland to fully release the MOSFET rush orders. Some operators are willing to increase the price by 20% in order to grab enough capacity. For MOSFET suppliers, as long as there is goods available, revenue and profit will grow naturally.

MOSFET supply has been in a tight state this year, mainly due to the fact that international IDM companies, including Infineon, Vishay, STMicro, ON Semi and and so on, have not expanded their production capacity in recent years; while new applications, like automotive electronics, Internet of Things, and cloud computing, have consumed a large amount of MOSFET capacity, leading to rising prices for three consecutive quarters and the insufficient supply of MOSFETs for 3C products such as computers and smart phones.

Tariffs have little effect on Infineon

Regarding the tariff issue brought about by the trade war, Infineon said that the number of direct imports from China to the United States is very limited. In the field of automotive electronics, Infineon said that it did not see direct impact on OEMs because Infineon’s business is targeted at the first-level manufacturing supplier, which balances the impact of each OEM. On the other hand, Infineon has good supply sources worldwide, and any potential changes that may occur between OEMs will not have a strong impact on itself. Infineon will not be affected as long as the overall number and typical structure of the car are unaffected. At the same time, the order shipment rate for this quarter was 1.6, so the actual impact on the Infineon business was very small.

For major household appliances, Infineon's current market share is still low, and no significant breakthroughs have been seen in this regard. But it's still potential, with orders increasing. Besides, the power supply for major household appliances may not be specific to inverter household appliances, and the percentage of inverter household appliances may continue to rise despite the decline in total.

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