Infineon’s Sectoral Operating Weakness Persists, Credit Metrics Stable

Rating: BBB+ EUR spreads 5-7bps wider (market is +5bps)

Weak operating results as broad cyclical weakness seen in recent quarters is showing no sign of abating with strong YoY decreases at both the revenue, gross margin and segment result level albeit with the segment result not as bad as expected. The cut to FY guidance was broadly in line with FY consensus and credit metrics didn’t fair so badly with a YoY increase in Q3 FCF (and only a marginal decrease in FY guidance) and flat leverage.

• Q3 revenue -9.5% YoY (-2.6% vs. company-provided consensus) with most of the miss driven by Automotive (-2.7% vs. consensus) though no segment saw a beat. Adj-Gross margin of 40.2% from 38.6% in Q2 and 44.5% in Q323 (vs. consensus 40.3%)
• Segment result -31% YoY (+2.4% vs. consensus) with only smallest segment Connected Secure Systems seeing a miss with the largest segment Automotive.
• FY guidance of EUR 15bn in revenue for FY24 from “EUR 15.2bn +/- 400mn” at Q1 with adj-FCF of EUR 1.5bn from EUR 1.6bn at Q1. Q4 guidance of EUR ~4bn revenue (Q423: EUR 4.1bn).
  
  
• FCF of EUR 393mn up from EUR 326mn in Q323.
• Gross cash of EUR 2.3bn against the target of EUR 1bn +10% of revenue (roughly EUR 2.5bn).
• EBITDA leverage flat to Q1 at 1.2x, against the target of <2x.