Disappointments from Infineon

Infineon (IFX) reported a weak second quarter of 2008, as the combined pressures of write-down of carrying value of Qimonda's assets, strong Euro and weaker demand continued to hinder revenues and operating margins. We were disappointed by the poor show by the AIM division, which remained flat sequentially as well as year over year.

These results, as well as the treatment of Qimonda as a discontinued operation, have led us to lower our revenue and earnings expectations for the remainder of 2008 and 2009. The company, however, remained resolved to achieve a minority position at Qimonda by February 2009.

We continue to rate shares of IFX a Hold, with our target price of $10.20. Currency headwinds and cyclical risks posed by AIM, with heavy exposure to US, would overshadow the positive developments of communications business. The company, however, is not expected to achieve a 10% EBIT margin by 2009 as long as the dollar remains weak at current levels versus the euro. We believe shares of Infineon should sell at 1.08x our 2008 sales estimate, as the company works to improve its profitability in all its divisions, and our target price is $10.20 over the next six months.

Udayan Mukherjee contributed to this report.

Read the full analyst report on IFX.