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Infineon, Automotive Suppliers See Strong Outlook

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【Summary】Suppliers, like Infineon, are benefiting from the car-tech boom and are expecting to see a major increase in investments.

Original Timothy Healey    Mar 31, 2017 9:30 AM PT
Infineon, Automotive Suppliers See Strong Outlook

German automaker Infineon has increased its outlook for the second quarter of this year.

The company, which makes computer chips for automotive applications, and it said it got more orders than expected for its chips.

That means the company expects its expected revenue for the year to rise between eight and 11 percent and there will be an operating margin of about 17 percent. The chips that Infineon makes manage airbag and power functions in cars.

Earlier this year, in February, Infineon said it expected revenue to rise by six percent. It also said it would have an operating margin of 16 percent. At the time, industry analysts felt that Infineon's outlook was conservative – the supplier holds a solid, strong position in the automotive-supplier space.

Among the original equipment manufacturers that use Infineon chips are Hyundai and electric-car maker Tesla. Other suppliers also use Infineon products – Continental and Bosch are among them. These suppliers use Infineon chips in emission-control components as well as in cruise-control systems.

The company is the second-largest semiconductor supplier to the automotive industry, and according to Strategy Analytics, it has a market share of 10.4 percent, which is behind NXP and its 14.2 percent market share. Automotive makes up 40 percent of revenues at Infineon.

"Due to the stronger than expected development of revenues and order entry, higher investments in property, plant and equipment will be required," the company said in a statement last week.

That means a boost for investments, as well – they're expected to rise to $1.1 billion (1.05 billion euros) this fiscal year, which would be up from a projected 950 million euros.

Infineon and NXP aren't alone – STMicroelectronics, Renesas and Texas Instruments are also seeing success as electric and self-driving cars become a bigger and bigger part of the fleet. Technological developments driving success for suppliers, and some of that is the result of tightening fuel-economy standards, as well. On top of that, new competitors, such as tech giant Google/Alphabet, are emerging, and that pushes tech forward – which benefits these suppliers.

Shares of Infineon saw gains after the news came out, going up to a 15-year high of 18.71 euros per share at one point last week. That's an 8.5 percent gain, and it put the shares at the top of the STOXX Europe 600 Technology index, which at the time was up 1.1 percent.

Not all Infineon-related news last week was rosy – the company was forced to give up on its attempted acquisition of Wolfspeed Power. Wolfspeed Power is a unit of Cree, an American company that makes LED lights. The U.S. government expressed security concerns regarding the potential acquisition, and that was enough to squash it.

Still, Infineon's recent success is a sign that tech suppliers are well-positioned to benefit from advances in the automotive industry. Between the increase in plug-in cars, self-driving car tech/driving aids, and other industry advances, suppliers are well suited to gain – and investors and executives know it.

Townhall


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