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Bleak forecast for Infineon

Posted: 18 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:investor switch? Infineon reduced estimates? memory subsidiary?

Nomura International has again cut its estimates for Infineon Technologies AG for next year and beyond as it fears the German chipmaker will face liquidity problems at the end of next year.

Even though Nomura feels refinancing 850 million euros (about $1.2 billion) of maturing notes in 2010 will likely be difficult, "we sense a strong political interest to keep Infineon afloat," noted Gunnar Plagge, semiconductor specialist at the securities house.

Plagge said there is a strong possibility of a highly dilutive refinancing in the medium term, and said he expects net losses for the next three financial years.

He also said he foresees a potential three digit million euros of liabilities arising from a potential insolvency at memories subsidiary Qimonda.

ST switch
There will likely be imbalances in the product portfolio, and a strong dilution for shareholders seems unavoidable, said Plagge, who has advised investors to switch to chipmaker STMicroelectronics NV.

The revenue estimate for Infineon in 2009 was cut to 3,495 million euros (about $4.8 billion), down 19 percent, and only a small improvement has been penciled in for 2010.

Nomura said Infineon should be able to refinance the short-term 207 million euros (about $280 million) loan with its existing 300 million euros (about $410 million) facility over the summer, but added that the company will likely face liquidity problems at the end of the next year resulting from an operational and investment cash outflow of about 507 million euros (about $700 million).

Plagge said Infineon has done a good job in its communications solutions group marketing products into new handset OEMs. "However, as seen over the past months, and not only at Infineon, executing and ramping projects is highly challenging in very tight handset market windows. In a consolidating wireless semiconductor market, Infineon likely lacks critical mass to finance R&D and proven wireless platforms. Although we have modeled COM revenues conservatively, we believe that the wireless division remains a high risk venture," said Plagge.

For wireline, he forecasted a long-term shrinking revenue stream from non-DSL access business together with some growth in an increasingly competitive DSL business.

Automotive semiconductors, which accounts for about 25 percent of Infineon's revenues and about 40 percent of EBIT is seen as a positive for the chipmaker.

"With an 8-9 percent market share, Infineon covers all major fields of automotive semiconductor applications: power train, safety and body & convenience electronics. We have pointed out the relatively high exposure to lower value semiconductor power switches, converters and other discretes in this area that could inhibit long term growth opportunities in this area. Although we believe that management is addressing the issue, and is trying to refocus the business more towards higher value areas like microcontrollers, given the long product cycles it will take a while before these measures will be visible in the top line."

- John Walko
EE Times Europe

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