August 1, 2019 / 5:51 AM / 19 days ago

Infineon confirms reduced guidance, says Cypress deal on track

FRANKFURT (Reuters) - German chipmaker Infineon expects to meet its lowered guidance for the year to Sept. 30, it said on Thursday after posting third-quarter sales and profit in line with market expectations.

FILE PHOTO: A close-up of a the Infineon microcontroller kit XMC 4700 is pictured at an exhibition during the German semiconductor manufacturer Infineon's annual shareholder meeting in Munich, February 21, 2019. REUTERS/Andreas Gebert

Munich-based Infineon, which in June agreed to buy Silicon Valley-based Cypress Semiconductor for $10 billion (£8.25 billion), confirmed the deal was on track to close either towards the end of this calendar year or in early 2020.

“Regardless of the ongoing unfavourable macroeconomic conditions, we still expect to achieve our targets for the current fiscal year,” said CEO Reinhard Ploss.

“The underlying drivers of our future markets are very much intact and continue to provide good long-term growth prospects to Infineon.”

Markets initially reacted negatively to the pricey Cypress deal, which Infineon has partly funded via a $1.7 billion rights issue. Since that capital raising, however, its shares have rallied by more than 20%.

Debt financing to cover the rest of the cost of the deal is in place and has been syndicated. Ultimately, Infineon plans to cover 30% of the deal’s cost through equity capital.

Ploss is seeking to capitalise on this year’s cyclical weakness in semiconductor demand - centred in China and the auto industry - to bulk up Infineon into the world’s No.8 chipmaker by sales.

Infineon’s strength in areas such as managing drivetrains would be complemented by Cypress’s prowess in on-board systems, enabling the merged company to offer more complete packages for electric vehicles.

“The Infineon and Cypress portfolios complement each other ideally,” said Ploss.

“The acquisition will enable us to strengthen our core power semiconductor business in the long term. With Cypress, Infineon will be able to gain an even stronger foothold in important future markets and accelerate the pace of growth.”

Revenue of 2.015 billion euros was 2% up on the prior quarter, Infineon said, meeting market expectations according to Refinitiv Eikon data. Operating profit of 283 million euros was down from the prior period, but also in line.

Infineon said it was on track to achieve its full-year goal for revenue growth of 5% or more, with a segment margin - management’s preferred measure of profitability - of 16%.

In the fiscal fourth quarter, revenue is forecast to grow by 1%, with a segment margin of 14.5%.

Reporting by Douglas Busvine; Editing by Michelle Martin and David Holmes

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