Infineon Reports Results for Third Quarter of Financial Year 2005

Munich, Germany – For the third quarter of financial year 2005, Infineon Technologies AG (FSE/NYSE:IFX) reported a stable overall development of revenues. Revenues of the Memory Products segment increased in the third quarter, primarily as a result of an approximate 45 percent bit-shipment growth, which more than offset a price-per-bit decline of approximately 30 percent compared to the previous quarter.
infineon.gifIn the Communication segment, revenues in the wireline business were stable in the third quarter, whereas demand for baseband components continued to decline. In the Automotive, Industrial and Multimarket segment, slight improvements in revenues of the automotive and industrial businesses could not fully offset further deterioration in the security and chip-card business.

As expected, sequential EBIT loss increased significantly. The EBIT loss increase was mainly driven by significantly lower price levels in the Memory Products segment compared to the previous quarter, as well as continuous pricing pressure primarily in the security and chip-card businesses. In addition, EBIT was negatively impacted by charges of Euro 81 million, primarily in connection with the planned phase-out of production at the company’s Munich-Perlach facility and impairment charges in the Communication segment. Second quarter EBIT was negatively impacted by a net aggregate charge of Euro 74 million resulting primarily from reorganization measures in the Communication segment.

“We have made good progress in our corporate restructuring. However, in the third quarter we have seen adverse effects on memory products and security and chip-card ICs as well as at some of our baseband customers,” said Dr. Wolfgang Ziebart, CEO and President of Infineon Technologies AG. “In spite of this, we expect an improved fourth quarter compared to the third quarter.”

Business groups’ 2005 third quarter performance and outlook

Infineon began to report its financial position and results of operations in accordance with its new organizational structure during the second quarter of financial year 2005. The former Mobile and Wireline Communication segments were combined into the new Communication segment to align the company’s structure with market developments. At the same time, the company’s security and chip-card activities and the ASIC & Design Solutions business were integrated into the extended Automotive, Industrial and Multimarket segment. The results of periods prior to the second quarter of financial year 2005 have been reclassified to conform to the new presentation.

Automotive, Industrial and Multimarket

In the third quarter of financial year 2005, revenues in the Automotive, Industrial and Multimarket segment decreased slightly compared to the previous quarter. This was mainly due to higher than expected pricing pressure in the security and chip-card business, primarily caused by a rapid decline of market demand during the third quarter. Despite strong pricing pressure in the industrial business, revenues in the company’s automotive and industrial businesses increased slightly. EBIT in the Automotive, Industrial and Multimarket segment sequentially decreased. This was mainly due to very strong pricing pressure in the security and chip-card business, which was not fully offset by productivity measures. In addition, EBIT was negatively impacted by costs related to product transfer in connection with the planned phase-out of production at Munich-Perlach and the investment in the new production site in Kulim, Malaysia.

Automotive, Industrial and Multimarket’s outlook for the fourth quarter of financial year 2005

In the fourth quarter of financial year 2005, Infineon expects to benefit from seasonal strengths in its automotive and industrial businesses. However, the company anticipates no improvement in the security and chip-card business during the fourth quarter and will continue to focus on productivity improvements. The planned phase-out of production at Munich-Perlach and start-up costs for the new production site in Kulim, Malaysia will negatively impact EBIT through the end of calendar year 2006. In the overall Automotive, Industrial and Multimarket segment, Infineon expects stable revenues and EBIT for the fourth quarter.

Communication

In the Communication segment, revenues decreased sequentially primarily due to a further decline in demand from some customers for baseband components, as well as continued pricing pressure. In the company’s wireline business, revenues were stable in the third quarter of financial year 2005 compared to the second quarter. The EBIT loss decreased significantly compared to the previous quarter, mainly because of a reduction of idle capacity costs, lower inventory charges, and lower expenses in research and development, which resulted from the successful implementation of efficiency programs initiated in the second quarter. Second-quarter EBIT included a net charge of Euro 44 million, resulting primarily from the reorganization of certain communication businesses. Third quarter EBIT was negatively impacted by impairment charges of Euro 37 million.

Communication’s outlook for the fourth quarter of financial year 2005

In the fourth quarter of financial year 2005, the company expects revenues of its Communication segment to remain stable or slightly increase compared to the third quarter. The company expects the segment’s EBIT loss to remain stable or decrease slightly compared to the EBIT loss excluding impairment charges in the third quarter of the financial year.

Memory Products

Despite a significant price-per-bit decline of approximately 30 percent compared to the previous quarter, sequential revenues in the Memory Products segment increased in the third quarter of financial year 2005 as a result of an approximate 45 percent bit-shipment growth and weakening of the Euro compared to the US dollar. The greater than expected EBIT decrease was primarily due to greater than anticipated price erosion compared to the previous quarter, and ramp-up costs for the 300-millimeter production facility in Richmond, which could not be fully offset by the significant reduction in the cost-per-chip during the quarter. Third quarter EBIT was negatively impacted by a charge of Euro 9 million related primarily to impairment charges.

Memory Products’ outlook for the fourth quarter of financial year 2005

For the fourth quarter of financial year 2005, Infineon expects a further increase in memory loads per system and worldwide demand for memory products, as well as only moderate growth of supply in the industry due to capacity shifts to non-DRAM products by some of the company’s competitors. As a consequence, the company anticipates a rather balanced supply and demand environment in the market, facilitating price stability during the quarter. In addition, the company expects to gain further market share with its bit shipments further increasing at a rate above market growth, as a result of constantly increasing capacities at the company’s joint venture and foundry partners and due to the start of ramp-up of the 300-millimeter production facility in Richmond. The company will continue to focus on the diversification of its memory product portfolio with the goal to improve margins and reduce price volatility.

Other Operating Segments

The sequential EBIT loss increased in the third quarter of financial year 2005 compared to the previous quarter, mainly due to charges of Euro 35 million, resulting primarily from the restructuring activities in connection with the planned phase-out of production at the Munich-Perlach facility.

Analyst and press telephone conferences

Infineon Technologies AG will host a telephone conference (in English only) with analysts and investors on July 26, 2005, 10:00 a.m. Central European Summer Time (CEST), 4:00 a.m. Eastern Daylight Time (U.S. EDT), to discuss operating performance during the third quarter of financial year 2005. In addition, the Infineon Management Board will conduct a telephone conference with the media at 11:30 a.m. (CEST), 5:30 a.m. (U.S. EDT). It can be followed in German and English over the Internet. Both conference calls will be available live and for download on Infineon‘s web site at http://www.infineon.com.
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