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Infineon Technologies AG (IFNNY - Analyst Report) reported second quarter fiscal 2013 results with earnings of €0.03 (4 cents per ADR), which was 40% or 2 cents below the Zacks Consensus Estimate. Quarterly earnings also declined 70% year over year. Profits were primarily impacted by global uncertainties.

Revenue

Infineon’s revenues in the quarter were €918 million ($1.21 billion), down 7% year over year but up 8% sequentially. The sequential increase was driven in part by the consequence of a return to more normalized revenue levels in the automotive segment.

Revenue by Segments

Automotive segmentrevenue improved 12% to €424 million ($560 million) in the second quarter of 2013 from €377 million in the previous quarter. After definite inventory reductions within the supply chain in the last quarter, demand returned to more normal levels in the second quarter. However, the positive earnings impact from higher revenue was partially offset by regular annual price reductions and higher research and development expenses.

In the reported quarter, sales in the Industrial Power Control segment revenues increased 4% from €138 million to €144 million ($190 million), reflecting the growth in demand for industrial drives and major home appliances which was partially offset by demand in renewable energy.

Power Management and Multimarketsegment revenue reported a 2% increase from €222 million in the first quarter to €227 million ($299 million) in the second quarter. The normal seasonal decrease and the general weakness in the PC market were more than offset by strong business with products used in lighting, servers, tablets and smartphones. Revenues generated with distributors also picked up during the quarter.

Revenue in the Chip Card and Security totaled €108 million ($143 million), which was flat sequentially. Revenues in Payment and in Government ID business improved, while revenues generated with SIM cards declined due to seasonal factors.

Total segment operating income (Infineon defines segment result as operating income) was €68 million ($89.8 million), an increase of 55% from €44 million in the prior quarter. However, operating income declined 53% from €144 million in the prior-year quarter. Total Segment operating margin in the reported quarter increased to 7.4% from 5.2% in the comparable prior-year quarter. Margin increase was primarily driven by higher revenue and continued cost control, which was partially offset by price reductions in volume purchase agreements.

Balance Sheet and Cash Flow

Income from continuing operations in the second quarter was €36 million ($48 million), compared with €26 million recorded in the previous quarter. Free cash flow from continuing operations grew from negative €128 million in the first quarter to positive €73 million ($96.4 million) in the second quarter. The €201 million improvement was attributable to the sharp increase in the cash inflow from operating activities, up €178 million ($235.1 million) and lower investments, which were down €23 million ($30.4 million).

Share Repurchase

Infineon repurchased €128 million ($169 million) worth of convertible bonds due May 2014 with a nominal amount of €47 million ($62 million) and 13 million own shares for €84 million ($111 million).

Outlook

Concurrent with the earnings release, the company provided its guidance for the third quarter and fiscal 2013. Third quarter revenues are expected to come in at about €1 billion, with all segments expected to contribute to revenue growth. The Group's Segment result margin for the third quarter is expected at approximately 10% of revenues.

Based on the results, year to date, management expects revenue in fiscal 2013 to decline year over year at the upper end of the mid to high single-digit percentage range previously announced.

Thus the Segment Result Margin for the 2013 is expected to be at the upper end of the mid to high single-digit percentage range.

Segment Wise, the ATV, PMM and CCS segments are expected to report better than the Group average in fiscal 2013, while IPC is expected to suffer from a revenue decline significantly higher than the Group average.

Infineon currently has a Zacks Rank #4 (Sell). However, some other companies operating in the same industry which can be considered at the moment are ARM Holdings Plc (ARMH - Snapshot Report), Form Factor Inc. (FORM - Analyst Report) and Integrated Device Technology Inc. (IDTI - Snapshot Report), all having Zacks Rank #1 (Strong Buy). 

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