Infineon after Earnings: Massive growth on massive promises

Infineon Technologies is one of the local leaders in the semiconductor market. The German company is one of the few entities of this size in Europe. The company's product portfolio is highly diversified, which works to its advantage in an increasingly uncertain market.

According to the report published by the company, it failed to meet investor expectations in terms of both revenue and EPS, yet the company still grew by over 6%. What justified the company in the eyes of investors to reward below-expectation results with such significant growth?

• The revenue and EPS published by the company were 3.7 billion euros and 0.22, respectively, compared to expectations of 3.72 and 0.33. Half of the company's revenue came from the automotive industry.
• The report published by the company was also the report concluding the financial year. Annual revenue was also below expectations at 14.8 billion euros, amounting to 14.6 billion. The gross margin remained unchanged at 40%.
• The first good news for investors is the net margin, which, despite no changes in gross terms, increased to as much as 18% compared to market expectations of 15%, indicating the company's extraordinary ability to control costs throughout the year.
• However, where investors and the company's management are looking is not at past results but at promises for the future.
• The company significantly raised its targets for the next financial year. In the first quarter alone, it announces revenue growth above 3.6 billion, maintaining a gross margin of at least 40% and a net margin at "high teens."
• The company also published the assumptions of its target operating model, which assumes year-on-year revenue growth of 10% with a net margin of as much as 25%.
• Helping to achieve these goals will be not only the company's increasing market share but also a series of large and bold investments. These will include factories in Dresden and Villach.

The narrative around climate neutrality is also important. Something that is often pointed out as the biggest threat to growth in the context of Europe, the company sees as its strategic opportunity and something it is well-prepared for.

Currently, the market believes in the company's very bold vision of development, but disappointment with the results for the next quarter, especially in the context of the net margin, could lead to a serious correction in the company's valuation.

IFX.DE (D1)

Source: xStation5