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Infineon to Build New Chip Plant in Austria Worth EUR 1.6B

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Infineon Technologies AG (IFNNY - Free Report) is set to build a new chip production house at Villach, Austria. The investment worth €1.6 billion is spread over a time period of six years.

The construction is likely to commence around the first half of 2019. The company anticipates beginning production of 300-millimeter (mm) wafer from 2021 and the headcount is projected to increase by approximately 400.

Presently, Infineon produces the 300-mm chips at its Dresden location.

Infineon anticipates the new factory to increase revenue churn by €1.8 billion a year, considering full capacity utilization. Currently, the company anticipates production capacities “to be fully utilized by 2021.”

Strengthening ATV & IPC Segments

In the recently reported second-quarter results, Automotive ("ATV") segment revenues (48% of total revenues) increased 12.5% year over year to $1.08 billion. Persistent strong demand for driver assistance systems and electric drive train drove year-over-year growth.

Industrial Power Control (“IPC”) revenues (17.3% of total revenues) advanced 8.2% year over year to $389.6 million. The segment benefited from strong demand in home appliances. Products used in electric drives, trains and wind power plants witnessed traction.

The new development is likely to bolster the prospects of ATV and IPC segments further on the back of robust traction witnessed by power semiconductors.

What the Investors Need to Know?

Shares of Infineon have returned 35.5%, in the past year outperforming the industry’s rally of 5.1%.

Per an IHSMarkit report, Infineon was largest provider of power semiconductors in 2016, globally. Infineon revealed that per the report it holds 18.5% of market share. The company is likely to strengthen its position by increasing production capabilities.

Furthermore, it will improve company’s competitive prowess against ON Semiconductor (ON - Free Report) , which is increasing its market share at an increasing pace and ranks second worldwide.

Per a TransparencyMarketResearch report, global silicon wafer market is envisioned to grow at a CAGR of 6.8% from 2017 to 2025 to $14.2 billion. The report narrows down its outlook on 300-mm wafer demand and states, “Wafer diameter of size 300 mm and above is the most widely used silicon wafer across the world and is the fastest growing wafer segment at a CAGR of 7.8% during the forecast period.”

The report strengthens the company’s position driven by enticing growth prospects of 300-mm wafer. We believe Infineon is well-poised to capitalize this long-term growth opportunity.

Zacks Rank & Stocks to Consider

Infineon carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector worth considering are Western Digital (WDC - Free Report) and Mellanox (MLNX - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Western Digital and Mellanox are projected at 19% and 15%, respectively.

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