Juergen Rebel - Investor Relations Reinhard Ploss - Chief Executive Officer Dominik Asam - Chief Financial Officer Arunjai Mittal - Member of the Management Board

Gareth Jenkins - UBS Sandeep Deshpande - JP Morgan Pierre Ferragu - Bernstein Janardan Menon - Liberum Capital Francois Meunier - Morgan Stanley Jerome Ramel - Exane Adithya Metuku - Bank of America Merrill Lynch Johannes Schaller - Deutsche Bank Andrew Gardiner - Barclays Achal Sultania - Credit Suisse Amit Harchandani - Citigroup Guenther Hollfelder - Baader

Good morning, ladies and gentlemen. Welcome to the Conference Call for Analysts and Investors for Infineon Technologies 2016 Fiscal First Quarter Results. With us today we have Reinhard Ploss, CEO; Dominik Asam, CFO; and Arunjai Mittal, Member of the Management Board, representing regions, sales, marketing, strategy development, and M&A. We’ll start with an introduction by Reinhard, and then the entire Management Board will be happy to answer your questions. A recording of this conference call and a copy of our 2016 fiscal first quarter results and earnings press release will also be available on our website at infineon.com. Reinhard, please go ahead.

Thank you, Juergen. Good morning everyone and welcome to the telephone conference for our first quarter fiscal year 2016 results. I will begin today’s call with some remarks on group and division results on market developments and our achievements during the quarter, Dominik will then comment on financials, before I conclude the outlook. After that, we are happy to take your questions. Let me begin with group performance in December quarter. Revenue came in better than expected, they declined sequentially by only 3% to €1.556 billion, this represents a more moderate and normal seasonality for the December quarter. It was driven primarily by strength in automotive, but also the segments Power Management and Multimarket and Chip Card & Security performed better than normal seasonality for a December quarter. Segment results came in with €220 million, representing a segment result margin of 14.1%. The book-to-bill ratio for the first quarter came in at 1.1. The absolute booking figure stood at a solid €1.7 billion. Let us now take a look at the divisions. Before I start the divisional review with automotive, let me draw your attention to an organizational change we have implemented. The responsibility for our 32-bit ARM based industrial microcontroller XMC family shifted from the division’s Automotive and Chip Card & Security to a joint responsibility of the division’s power management and multimarket and industrial power control on October 1st. Accordingly, functional costs and revenue were reassigned. As a consequence, the numbers for the September quarter were backward adjusted to make them comparable and differ slightly from the numbers we had published in November. Going forward, the XMC family will play an integrate part of our strategy approach product to system in PMM and IPC. The responsibility in go-to-market lies now with these two divisions. Now automotive. Automotive revenue came in flat at €614 million for the quarter, booking was strong during the quarter with book-to-bill ratio coming in at 1.2, a solid order entry confirms the strong traction we saw in the automotive business during the quarter and will support the seasonal upswing in the current quarter. The segment result decreased €81 million from €102 million in the previous quarter. This translates into a segment result margin of 13.2% compared to 16.6% in the September quarter. Primary reasons for the decline in segment results were negative currency effects on both production costs and inventory, as well as some ramp up cost for our new 200 millimeter Kulim 2 production facility. A strong driver of the solid revenues in December quarter was electric mobility. After many years of investment, we are very happy to see that electric drive trains for hybrid or battery driven vehicles are reaching meaningful numbers in the Chinese market. The Chinese Association of Auto Manufacturers expects that in 2016 the number of so-called new energy vehicles solid in China could more than double compared to 2015, to about 700,000 units. The majority of these vehicles are passenger cars, where local Chinese brands play a dominant role. We benefit in many ways from this trend. Firstly, we are very strong in modules for passenger vehicles with Chinese customers. Secondly, we have also made modules for the commercial sector, mainly electric buses in China from APC, also featured in our last quarterly presentation. During the quarter, we could further strength in our leading position and applications contributing to CO2 reduction. Infineon’s next generation camshaft sensor was chosen by a leading European tier 1 for its new generation of engine speed sensor platform. Besides, I’m very proud that we could achieve a major breakthrough in the Japanese market. A leading Japanese tier 1 selected our next generation 32-bit AURIX microcontroller for their new engine management and transmission platform. Let us now take a look at industrial power control. IPC generated revenues of €249 million, compared to €271 million in the previous quarter. The quarter was affected by typical seasonality in product segment drives traction and renewables. In major home appliances, we experienced temporary weakness due to still very high inventories at OEMs. However, we are convinced that we have won further market share in December quarter as Japanese market, where we have limited exposure, was very weak. The book-to-bill ratio came in at 1.1 in the December quarter pointing towards a typical seasonal upswing for the March quarter. The segment result declined to €23 million compared €39 million in the September quarter. This translates into a segment result margin of 9.2%. On top of the normal operating leverage with lower revenue came a less favorable product mix and ramped up cost for this 200 millimeter Kulim 2 facility. A great highlight was the Paris climate agreement. This accord substantiates our excellent prospect for renewable energies further. As an immediate consequence the subsidies for pholtic installations in the U.S. were prolonged for five years to 2022. Besides key customer using our PrimePACK modules for photovoltaic inverters received large orders for utility scale plants in the U.S. Given our leading position in both solar and winter energy inverters we remain very bullish for this sector. Now let me comment on power management & multimarket. Revenues of PMM decreased by only 5% and came in at €510 million. The less pronounced seasonal decline than typical was driven by strong power management business which counter balanced the weak businesses component for smartphones. The strength and power was driven by a strong DC-DC business. We saw excellent demand from server customers and a very strong medium voltage businesses. The key application in the medium voltage class are low voltage drives, you find those in power tools, drones and robotics. We observed general trend in this area as such drives migrate to brushless DC motor that require multiple power MOSFET [ph] for motor control. Besides we also had a strong distribution business, where we saw general replenishment and a strong sell-through business. Also, we enjoyed a nice net back in shipments of power amplifier for wireless-based stations. The book-to-bill ratio stayed at 1.1. The PMM segment result declined seasonally to €79 million translating into a segment result margin of 15.5%. Besides the less favorable product mix inventory effects and ramp up costs for Kulim 2 had a negative impact on the segment result also for PMM. During the quarter, we could strengthen our leadership in power components for server application with further design wins for the VR13 next generation platform. We could also broaden our customer base with components for smartphones. We are very happy that we were awarded with multiple design wins for our RF components in flagship models of major Chinese brands. Let us now move on to Chip Card and Security. Revenues decreased by only minus 4% to €173 million. Our business experienced a much better quarter than typical, seasonal mid-teens to percentage decline in December quarter. On a year-on-year basis this amounts to a high revenue growth of 30% -- 31%, sorry. This revenue development was due to an increasing demand for Infineon solution for payment applications in China and excellent business with embedded security elements and trusted platform modules. The book-to-bill came in at 0.9. But you should bear in mind that we still have a high order book from previous quarters when customer placed a higher share of long-term orders. Segment result declined slightly to €35 million resulting in a segment result margin of 20.2%. During the quarter we solidified our leading position in trusted platform modules. We secured a 100% share in our recent projects at two leading notebook makers. Likewise our strength in embedded security elements was further underlined by business wins to Samsung and Lenovo. We supply embedded security elements to the latest Samsung Gear S2 smartwatch and Lenovo's Vibe P1 and Vibe X3 smartphones. We could also broaden our customer base for our e-ticketing solution based on CIPURSE, the only open security standard for secure fair collection solutions. In addition to the recent business win at Barcelona's public transport project we were awarded with a design win for our CIPURSE-based products at a major Latin American cities transportation projects. With respect to Internet of Things, our IoT security solution OPTIGA Trust was awarded with two SESAMES award. SESAMES award are the security industry's most prestigious awards. Ladies and gentlemen, this concludes the business review. Let me now hand over to Dominik who will comment in more detail on first quarter financials.

Thank you Reinhard and good morning everyone. First quarter revenues were €1.556 million, a sequential decline of €42 million or minus 3%. The average U.S. dollar, euro exchange rate for the quarter was about 1.09 and as such broadly in line with our assumption. Gross profit, research and development, and selling, general and administrative expenses continued to be influenced by the effects of the consolidation of International Rectifier. Gross profit declined to €558 million from €624 million in the previous quarter. This represents a sequential decrease by €66 million resulting in the gross margin of 35.9%. R&D expenses stayed essentially flat at €198 million, SG&A expenses decreased by €50 million to €200 million. Included in these numbers are €54 million of non-segment result charges. Of that amount, about €45 million are International Rectifier acquisition-related amortization and other charges. This amount includes a credit of €30 million, which is related to a reversal of provisions and impairments in conjunction with the closure of the Singapore Techview facility. €27 million of the International Rectifier acquisition-related cost, hit our cost of goods sold. In R&D and SG&A, we booked acquisition-related charges of €4 million and €24 million, respectively. These predominantly include amortization of acquisition-related intangibles, special retention plans during the integration phase and other integration expenses. Excluding acquisition-related and other non-segment result effects related to International Rectifier gross margin stood at 37.6%. We recorded a segment results of €20 million for the December quarter, a decline of 23% quarter-on-quarter, the segment result margin came in at 14.1%. The reasons for this reduction are primarily seasonally lower revenues and negative currency effect on both inventories and production costs. The product mix and ramp-up costs for our 200 millimeter Kulim 2 factory also played a role. The operating income decrease to €166 million from €203 million in the September quarter. The non-segment result improved significantly from a negative €83 million to a negative €54 million. Still meaningful negative non-segment results was again predominantly the result of the already mentioned acquisition-related expenses. Now let me comment on depreciation and amortization. It remains flat at €211 million. Included in this figure are €37 million related to the amortization and depreciation of fair value step-ups from the purchase price allocation. The financial results continue to be driven by financing expenses for the acquisition of International Rectifier and showed a negative figure of €12 million. Continuing with tax record and income tax expense of €2 million in the December quarter, this represents an effective tax rate of 1.5%, due to taking effects from purchase price allocation and deferred tax assets in to account. Nevertheless, the cash tax rate is expected to be about 15% going forward. Net income from continuing operations decline €252 million, down by €170 million from €322 million in the September quarter. As you might recall, the net income in the September quarter contained a €209 million reversal of previously written-off deferred tax assets. The net income from discontinued operations was again negligible. Basic and diluted earnings per share came in at €0.14 for the fiscal first quarter down from €0.29 in the fourth quarter of fiscal year 2015. The adjusted earnings per share improved by 6% to €0.17 for the fiscal first quarter, compared to €0.16 in the previous quarter. Free cash flow from continuing operations was zero compared to €177 million in the September quarter. The net cash provided by operating activities came in at €175 million, compared to €429 million in the September quarter. At the end of the December quarter, the gross cash position stood at €1,994 million slightly decreasing from €2,013 million at the end of the September quarter. Our net cash position decreased slightly to €204 million at the end of the December quarter, after net cash position of €220 million at the end of the September quarter. Let me also address our after-tax return on capital employed, or ROCE. It stood at 12% in the fiscal first quarter after 26% in the first quarter of the last fiscal year. The decline is essential driven by the reduction of net operating profit after-taxes by one-half. Please note that besides the lower segment result, the reversal of write-offs of deferred tax assets had a significant positive impact on that number in the September quarter. ROCE was again strongly affected by bookings related to the acquisition of International Rectifier, in particular, goodwill, fair value step-ups in the context of the purchase price allocation and the related amortization. Let me now hand back to Reinhard, who will comment on our outlook.

Thank you, Dominik. Let me now come to the outlook for the fiscal second quarter. We expect a typical seasonal upswing, which leads to revenues improvement 3% sequentially plus or minus 2 percentage points. This is based on the rate of 1.1 for the U.S. dollar against the Euro. We expect revenues in ATV, IPC and CCS to increase, while power management should slightly decline compared to the December quarter. As a midpoint of the revenue guidance, the segment result margin should come in at 13%, as every year the pressure on Q2 margin is predominantly a result of the annual contract prices coming in to effect, effective January 1, on a large portion of our revenue base. For the full 2016 fiscal year, we confirm our guidance and expect a growth rate of about 13% plus or minus 2 percentage points year-over-year, the segment result margin of 16% of sales at the mid-point of that range. On a comparable basis we still want to grow close to our trend line growth rate in this fiscal year. This regards to investments we defined as some of outlays for property, plants and equipment and in tangible as well as capitalization of R&D spending, our budget remains unchanged at €850 million. We also continue to expect depreciation and amortization of approximately €800 million for the fiscal year 2016. There in included approximately € 135 million, related to the purchase price allocation. Ladies and gentlemen, the first quarter of 2016 fiscal year has shown once more the strength of our well diversified business cross end markets, customers and regions. There were many coincidence in the market regarding the economic development in China, such as end customers or a general weakness into smartphone market that may have an adverse effect on our business. However our numbers show that our business model proves resilient. Whilst we experienced the intake of a slowdown in a certain end market like smartphones and major home appliances, we saw an acceleration in other end markets such as electric drive train, DC-DC application like server and low voltage price, power amplifier for wireless base stations or embedded secure elements and trusted platform modules. Beside this we continue to believe that growth ultimately creates the highest value for our shareholders. This often request patients when investing into long term trends. Electric drive train for low emission vehicles is an excellent example. It has taken many years of investment but now we see volumes becoming meaningful, driven by China poised to become the largest market for electric or hybrid vehicles in the world. Our three pillars, system design automotive, number one in technology leader and power semi-conductor and leader in security solutions for other foundation for our future success. During the quarter all three pillars were further strengthen to some major breakthrough for long term success. We are therefore really excited about the future of our business. Ladies and gentlemen, this concludes our introductory remarks. And we want to open the call for your questions and with this back to you Juergen.

Operator please start a Q&A session.

[Operator instruction]. We will take our first question from Mr. Gareth Jenkins from UBS. Please go ahead. Your line is now open.

[Technical difficulty].

Hello we can't hear the question. Could you please repeat?

Sorry this is your operator, just one moment. I’ll just check is Gareth line is still open. Just one moment please. Mr. Gareth, your line is open.

Yes can you hear me?

Yes we can hear you now.

Great okay, just a problem with the system. A question for Dominik. It's around the forward-quarter margin guidance, and really full year. Can you give us a sense of the moving parts on the forward quarter? How much is product mix versus OpEx increase, based on FX, versus the annual price-downs? And what gives you the confidence in the reiteration for the full year? Looks like your second-half margins will have to be high-teens to get to 16%. How do you feel -- where is the confidence coming from that gets you there? And then, I have a follow up? Thank you.

So I am not quite sure whether I understood the first half on the Q4 question. So you talk about calendar Q4 now, is that the reason why [indiscernible].

Sorry. I'm talking about your forward-quarter guidance for Q2? Sorry.

The Q2 guidance versus the Q1 guidance, yes. This is pretty much related to the usual price decline we see in the March quarter. And by the way, if you compare prior year, you have to be careful that in the Q1, there was a significant one-off of 40 million, in the Q1. So that step down was not as significant as normally looks, so it’s actually a pretty typical price-down for Q2. And for the full year you asked the question, how can you get to the full year numbers. You are right, that we need to see a significant margin expansion in the second half compared to the first half. But again, this is pretty typical for our seasonal pattern. Again, if you look at last year, you’ll see that the first half was significantly below second half, and that was despite the dilutive effect of International Rectifier, which hit the second half more than the first half. So from that perspective, it’s ambitious, certainly, but it is in line with prior years. And we also see a very solid booking situation, which should support that recovery.

Great. Thank you. And just a follow up on one of the other factors affecting profitability in the quarter. Could you talk to the costs of the Kulim 2 ramp, and how you see those phasing out as the products from ramps?

Yes. I think they are pretty minor still in the December quarter and they will slightly increase over the quarter in Q2 and then stay at that level. There will be no major changes on that or improvement, I’d say over the course of the current fiscal year, because the loading will still take some time to really fill the factory. So it’s a minor issue actually, if you compare the sequential development from Q2 through Q3 and Q4.

We will take our next question Sandeep Deshpande from JP Morgan. Please go ahead. Your line is now open.

I have two short questions. Firstly, my question is on the chip card business. I mean you’ve had a very strong performance for the last couple of quarters in chip card, how do you see the development of chip card through this year? I mean the margin you are showing in chip card is well beyond what you used to historically show and so there seems to have been a step change in this business. That’s my first question. And my second question is regarding the industry and how the industry is reacting in a weak China environment. Do you see incremental price pressure because of that, or is it that it’s as it was before? Do you see a changed pricing or demand environment because of what’s happening on the macro picture? Thank you.

Yes, Sandeep, thank you for your question. The chip card business, we are very happy to comment on. Because we have had a much weaker chip card business. But here, many effects were coming in. Our rolled over portfolio accelerated the shrink, and it expanded also the outsourcing share and last, not least, also changed the way we go to market. All these effects are coming together and we are very sure that we will be able to maintain at that revenue stream chip card comes in the earnings level for the next quarters. The industry will be commented by Arun.

Yes, hi Sandeep. The pricing, we don’t see any extraordinary behavior. It is just like every year in the first quarter of the calendar. And in fact two weeks ago I was coming back from China, having celebrated our €1 billion revenue per year target, which they met one year before time. So the mood is good, and business is normal.

We will now take our next question from Pierre Ferragu from Bernstein. Please go ahead. Your line is now open.

[Audio gap] and you noted that currency effects on the cost side impacted your first quarter segment result. Could you give us a bit more detail around this, and remind us of your main currency sensitivities? Thank you.

Yes, the main impact actually came from the extremely high volatility in the Malaysian ringgit. In our inventory valuation there is a little bit of trailing averaging in there. And, basically, as the Malaysian ringgit had strongly depreciated in two prior quarters that basically next to a reduction in inventory, and that is P&L relevant. So that’s about it. And that affected, there was actually a positive effect in the prior quarter and so the September quarter and negative effect in December quarter and that had a certain sequential reduction that triggered a certain sequential reduction.

We will now take our next question from Janardan Menon. Please go ahead. Your line is now open.

Just want to go back to the margin progression a little bit. I’m just wondering, if most of the margin hit in fiscal Q2 is coming from the price negotiations and the pricing pressure, how does that swing back so fast in the next quarter? I mean how are you able to sort of neutralize that effect and then rise to -- you need to almost get to about 18% margin in the latter half of the fiscal year. So what exactly is the dynamics of that, taking care of that price pressure so far? And in your margin guidance in the second half, especially in fiscal Q4, would you be counting on an increase in utilization in the 300-milimeter fab at all as a positive tailwind to help you in your margin progression?

It's a multitude of factors which will drive the recovery in second half. And first and foremost of course the absent of the headwind from annual price reduction and the productivity improvements, we have to achieve every single quarter. So basically you will a productivity kicking in against that less price reduction because most of the customers are then already phased over so to speak to the New Year. Secondly, there is significantly of course the volume ramp will drive margin expansions and certainly the biggest impact there. And last but not least, there are also some operational improvement measures which we’re still implementing at international rectifier and other parts of the Company. And then as a multitude of smaller sectors, it's really not one single big thing, but it’s various sectors which will support that recovery.

And in the previous quarter you'd said that by the end of the year you should be at about 25%, or so, of utilization in the Dresden fab, up from 10%, or so. Is that still the way we should be looking at it?

I think that was not for 2016, we said that 2017 we want to reach -- within the 2017 we want to reach the cost breakeven and that should be about 25% or 30% loading. So that’s what we have to achieve in next fiscal year.

We will now take our next question from Francois Meunier from Morgan Stanley. Please go ahead, your line is open.

Actually, I was wondering about this margin guidance, as well, for Q2, for the March quarter. Basically, it implies gross margins of 34%, 35%, which actually is not that much higher than STMicroelectronics. So I was wondering if there anything going on with the inventories as well. Because I think I asked the question actually last quarter again, inventories have crept up another 5% this quarter. I was wondering if it's normal, or if you think that you are going to normalize this number by the end of this year.

So, inventories, first of all, we’re actually very happy that we have a solid inventory position to sustain the volume ramp which we anticipate for the second half of the fiscal year. We don’t see any major charges or something looming because of an excessive inventory that’s not the case. So from that perspective, we are happy with inventory situations. There are some pockets where it might be a little bit high, the others where we’re still a little bit constrained. But average temperature of the hospitals is okay. We see that as quite normal in terms of the seasonal demand. And again as you mentioned, we need a significant recovery in the second half and that will require certain volume ramp and we need that inventory to sustain that.

Maybe just a quick follow up question about the microphones, MEMS microphones, you had a strong ramp last quarter. If you could give us a bit of an update on what's going on with this new big product for you.

Arun will take that.

Our microphone business is in line with the smartphone business Reinhard talked about in his introduction speech that we see also the slowdown there in the smartphones overall, so it's absolutely in line with that. Having said that, the pipeline for design in for the new models particularly with our Asian customers is looking very healthy and therefore we remain upbeat on a year-to-year comparison that we see descent growth.

Our next question comes from Jerome Ramel from Exane. Please go ahead, your line is now open.

Question on IPC, if you could give us a little bit color on different sub-segments, so you say that you will see some inventories so actually [ph] in home appliances, but for the other segment drive, renewable energy, if you could give the speech between solar and wind turbine, and also the trend, that would be helpful.

Arun here again Jerome. No change in the principles, so we are excited about renewables, as Reinhard mentioned the discussions which took place in Paris are just giving us tailwind which we need. But as you can imagine this is more for the midterm. In the short term we see that the benefit from the change in or the expansion of the benefits in the U.S. for renewables is also coming our way. So, if you’re on the renewables overall, be it solar or wind, we see very nice tailwind in both these areas in U.S. as well as from China. In the industrial sector, classical drives other than the home appliances, we also see stable business. There particularly is expansion towards the West Coast Inland in China takes place by the Company. We ride the wave with our customers who have also been giving some guidance in the last weeks. So these two form a major portion of the IPC business last but not least. You asked about traction with the increase in the rail activity we are -- our backlog is very, very healthy but we are also seeing that some more order should come in the next six to 12 months, if China will fulfill its ambitions of high speed network which so far they have been pretty much on track, so all three I think leads to the effect that in IPC we see a year-to-year growth as predicted earlier.

Thank you. And maybe just one follow up. If I look at the margins of the sub-segments, the most profitable division is chip card right now. Also, within PMM it's probably the non-power business which is more profitable. My question is, going forward, and with your guidance of EBIT margin through the cycle of 15%, how sustainable do you think it is? Because if I look at the picture right now, while your best performing division in term of margin are coming from more volatile division rather than the power, so just like to understand how confident you are with the sustainability of the margin from the non-power business?

So the total power business is defiantly overall profitable, we do not report on the power as a sum and when you look into the numbers we have already addressed that IPC is suffering significantly from the integration of the IR business, here we expect over the time as we can recover and you look back in some time the margins of IPC were very solid. So we believe that we will, say work through these challenges on IPC, bringing this, over the time. Back regarding PMM I think here the total business is quite positive the difference between power and non-power are there. The highly innovative silicon microphone shows stronger numbers but here we see that we still have a huge potential in order to grow the business although with the non -- the Chinese and others, so we do not see as volatile as the typical mobile business. Just for say some numbers on IPC we are pretty sure that IPC will come back over 15% after having ramped the intelligent power modules for major home appliances and others. So here what we expect that the margin is -- or the overall segment result will be significantly support by the gross which is to be expected as we have it typically over the year.

We will now take our next question from Adithya Metuku from Bank of America Merrill Lynch. Please go ahead. Your line is now open.

I have a couple. Firstly, for the March quarter revenue guidance you said your book-to-bill ratio was 1.1. If I look at the historic book-to-bill ratios, in December 2012 you had book to bill of 0.95, and you did 8% sequential growth. In December '13, when it was at 1.1, you did 7% sequential growth. In December '14, it was 1.1, and you did 9% sequential growth. Now, you have a similar book-to-bill ratio, but you're guiding for 3% sequential growth. It looks really conservative, so can you explain the -- can you talk a bit about what's driving that? And secondly, if you assume normal seasonality in 3Q and 4Q, on your sub-seasonal revenue guidance for 2Q your full-year revenues would growth by 15%, but you have kept your full-year revenue guidance unchanged at 13%. Again, it just looks a bit conservative. So, if you could explain how you're looking at demand trends that would be really useful. Thank you.

Yes, hi, you are 100% right. There were quite a bit of numbers that you through out there, I’m sure I didn’t catch all of them, but I have my own set of numbers which let’s see if you can catch. Q4 to Q1 typically season is minus 6% and we say only minus two as you saw in the reporting recently. So here you see very clearly that we are ahead of the trend very positively. Whereas Q1 to Q2 typically is plus five and we are guiding at three plus minus two as Reinhard indicated in his speech. So yes it could become plus five or it could be higher, but with Chinese New Year around the corner and PMM's business being highly dependent on Asia which is nearly 70%. We think we -- it is safe to look into the details there and little bit more conservative in sense of guidance, but yes plus three, plus minus two is the guidance out there. So all in all considering the areas in which we are active which is the growth in automotive which Reinhard talks about, whether it is electrification of the drive train or induction of CO2 footprint or in chip card tailwind as well as gain in share that we are experiencing we think will be helping us to achieve the forecast which we have guided for the full fiscal year.

I kind of get the conservatism for the March quarter. But on the sub-seasonal revenues for the March quarter, even if you assume normal seasonality in the remaining two quarters of the year, I struggle to see how you can only do 13% growth and not 15%. Are you expecting some kind of demand to drop down in the second half of the fiscal year or is there anything I'm missing?

No, not really and I certainly hope you will be right. It's just that we prefer to be guiding in the manner that we have always done, which is, stay conservative and achieve those numbers which we guide for. And with so much uncertainty out there three quarters from now, so that is the reason why we are guiding. I mean earlier half of the Q&A Dominik was trying to explain why we are sure we will meet bullish numbers in the second half and your question indicates that on the revenue, you think we are too conservative. So yes somewhere in the middle it's the truth, and I feel at the moment we are conservative on the revenue side but we should be able to meet it if there are no other negative surprises from the macroeconomic scene.

Our next question comes from Johannes Schaller from Deutsche Bank. Please go ahead, your line is now open.

Maybe to quickly start unfortunately, again with the margin, but in the automotive business you have a great book-to-bill here and there are certainly on the power side, and on the radar side, a lot of things moving in to the right direction in terms of demand. How should we think about the margin in that business really over the course of the year? I think what I'm asking as well is, if we look at the 16% guidance for the year, are you assuming really more an improvement in the auto margin? Or are you assuming, maybe, mix shifting back towards your higher margin businesses, if you could help us with a bit more clarity around that. And then also, you mentioned the server side, where you have pretty good momentum. I think some of the demand data points there have been mixed. If you can just remind us where you are in terms of market share progression, if you're still expanding your market share, and if you expect that to continue over 2016? Thanks.

So I think you indicated or more or less said it, the automotive business here we see the growth of profit of the business which we have won years ago or year ago, that just support other automotive to improve their margin, but the margin expansion is, we expect for most of our divisions moving forward. Now we come to the question to the server maybe Arun you can take that question on market share and development of the server business.

So, servers itself is predicted to grow at 6%. And with a significant position we have, both in AC-DC part as well as the DC-DC inside the servers, we think we are going to grow with that or above that if we are success in one of the other customers. These tend to be large projects which you win and are determined by the Intel processor ramp up schedules. So we are doing quite well in the server market, especially since the combination of the IR and Infineon portfolio of products, both for the controllers as well as for the switches.

And another comment on auto, we already mentioned the rise of demand in renewable that means electric drives. Here we see that the utilization of the model manufacturing is improving, so we also expect there contribution to the margin improvement for auto.

Just maybe a very short follow-up on auto, and as there are some rumors going around on VW demanding pretty big price cuts. Have you seen any of that at all coming through to your level? Or is that something which is, maybe to a certain extent, also part of your guidance to be on the conservative side?

We have not seen any effects from VW. But here we also want to comment that we are very broadly based on a global customer base and we do not see here specific effects and we also believe that the certain chip and demands may not significantly affect us.

Our next question comes from Andrew Gardiner from Barclays. Please go ahead, your line is now open.

I had another question on the automotive side, just thinking perhaps a bit more over the medium or long term. Reinhard, thinking about your statements on the growth in China, particularly in the electric vehicle space, or some of the comments you've made about the advanced safety features coming in, are you feeling any signs that we might have an inflection here? You mentioned that these are investments that had been made some years ago and it's finally bearing fruit. I'm just wondering whether you're, perhaps, starting to think about a change in the content growth that you're seeing over the medium term for auto. Also, more specifically, can you remind us the underlying figures for the market that you're currently using to forecast automotive revenue for 2016? Thank you.

Andrew the effect on shifts to higher content, we can say we see now for around one to two years especially with the autonomous driving or assisted driving coming in much more strong. And here we have to say even much-much strongly we have anticipated the success story for [indiscernible] is very strong and the demand for further application in this segment is also much stronger. When we look back some years, we would have expected the major growth for automotive would come from the number of cars produced. I think at that time we stated that 3% to 4% coming from the number of cars and 1% to 2% coming from the content. This of course these numbers did not contain [Audio gap] we see more that contain grows as the major drivers than the number of cars. So the xEV growth is something that we are cautious on, but we believe that this can also contribute additionally for the content. So it is, I would say from a speed of auto it is defiantly a kind of inflection point we are seeing and we believe that this will continue for some time because although the differentiation in this sector seems to be very attractive for the OEMs to add additional feature for the -- which is supported or assisted drive the number for our cars maybe Arun can help out and the underlying figures.

Okay, well you see different reports in the market for the cars, so some say 2% some say 3%. We have also seen more aggressive figures for this year, depends on I think develop globally. But independent of that as Reinhard pointed out the principle change is that the content is rising and we feel very comfortable that we are at a good position to care fir -- to supply for this content drive. Your earlier question on China and growth of China into xEV segment is clearly something which we are benefitting from and here Reinhard mentioned it in his opening speech that we hope to ride that wave also, even though it is small in terms of the total cars globally.

Thanks very much.

But give me one second here to add. Many people always ask because our strong are we in China market is such and as we are benefitting significantly from the grows of local company in the xEV area also in the commercial vehicle, we can't say that we have found a very solid ground in the local markets, which makes us believe that we can continue our growth story in China.

Our next question comes from Achal Sultania from Credit Suisse. Please go ahead. Your line is now open.

First one is more on the near term. I think, obviously, you're talking about continued strength in your automotive business. And we -- and the data points that we come across, we are seeing some signs that the volumes in the US, at least the SAR volumes, are indicating that they might have somewhat peaked, that's what a lot of people believe. Are you already seeing some kind of deceleration in your U.S. business, or, basically, it's being offset by continued growth in Europe and China? I just want to understand what's happening, region-wise, in your auto business.

Yes, Achal it's Arun here. No we are not seeing any deceleration in our auto business and -- neither regional nor globally and the guidance indicates that we are confident about our growth in the short term for sure. But the macro aspects I covered earlier and maybe Reinhard can add to that -- thank you Reinhard and you mentioned that the order levels, the backlog is also pretty high, so it's give us the confidence.

Okay. Thank you. And maybe one more, on the medium term. Obviously, when I look at your margins in ATV and IPC they are about low teens, which is obviously below the Group average. I understand you've been investing heavily in this business for future product, but at some point is it fair to assume that these businesses should get to around Group level average at some point in time when those investments start to come down and revenues continue to grow at a meaningful level? Or is it like something structural in those businesses which mean that the margins in those businesses would never get to those 15%, 16% levels?

So it's Dominik here. I think we do have a good chance of getting ATV, our biggest division closer to that group average and then we have same 15% through cycle target, and this is also target we have earmarked for ATV to achieve within the reasonable timeframe. It will take probably also some time for IPC and as Reinhard had already mentioned, there are specific issues with International Rectifier where there are contractual obligations which prevent us a quick recovery and it will take as a couple of years to clean that up. And from our perspective it will take some time in IPC. We don’t see 15% margin target we are listing out for IPC in the current fiscal year.

But as this is so important, I also want to say there is a key target for all our division. We achieved the 15 plus percent, we have the plans, but it may take some time as Dominik said.

Our next question comes from Amit Harchandani from Citigroup. Please go ahead. Your line is now open.

Maybe three quick questions, if I may. Firstly, starting with bookings, you've given the book-to-bill numbers for the December quarter. Could you kindly tell us how the evolution has continued maybe in the month of January? Any initial data points? And maybe going back to December, what was the linearity of bookings through the quarter? So that would be my first question. The second question is with regards to the comment on investments. Could you maybe share your latest thoughts on inorganic investments and scope for strategic partnership? How are you thinking about that? And finally, maybe broadly on China, you've talked about the market evolution. But could you give us a sense of how would you strategically look at competition from the Chinese vendors as the government encourages indigenous firms? Thank you.

So the first two questions are for Arun, maybe China, we can share.

Sure. So our guidance as always is based on the signs we see already in the bookings. So clearly, what supports our positive guidance of growth is indications that we see also in bookings in general. Second question was on linearity of that, I haven’t really looked into on a daily basis how linear that is. But I think on a quarter-to-quarter basis, we are in line with our indications. Dominik, do you want to add something there.

I think the behavior if you cut out the month within the December quarter is very typically with the stronger book to bills in the first couple of months and then the weaker of book to bill because of the holiday season in December quarter. So it was very normal.

That’s why I didn’t look at, I was in holiday. And investments your question on inorganic growth, yes, this is a same statement as always, sorry for that. But our belief is no different than what it was before the decision for buying International Rectifier and there please understand we can’t give any more than what you know already. And if there is something to know, I am sure Reinhard will call for a conference call.

Now the question on China, this is from my point of view a very mixed picture. Currently, we see a lot of push from China to enter in the communications and mobile market, especially mobile. We do not see yet a strong competition in auto which I believe is also due to the fact that the zero defect requirements are quite a challenge from effort to return. And in the total power segment we have seen several attempts from China to enter those. But here I think our excellent technology position is providing us a very good differentiation to the market, which we definitely plan to continue and maybe have the technology and development and in order to stay ahead. But here we also are very well aware that this might not be enough and therefore, we believe that the strategy for complementing power with control and the investments there will have us to fulfill the concept of P2S. Other business like the chip card, I think these are very special from also governmental and regulation point of view, maybe Arun can add some comments on this and for IPC while we have seen continued effort in order to enter the IPC business, the IGBT business we have to say and quite an investment there. And we expect that we will continue to see efforts in order to penetrate that market which also may have an effect on the electric vehicle. But again I believe our technology base here at least for the next year is pretty good.

Our last question comes from Guenther Hollfelder from Baader. Please go ahead, your line is now open.

Just a follow-up question on your smartphone business, so I assume that margins in the first half are also negatively impacted by the decline or the weakness we are seeing currently. So I was just wondering, your margin guidance of 16%, do you need a recovery in the global smartphone market in the second half like returning to growth for smartphones to get to this 16%? Thanks.

I think here we see still two effects; one, is the potential growth of the smartphone market; on the other side, you see also the penetration of the MEMS space microphone as well as our strengths in RF parts. For these two types of technology of products, we have similar as in other areas a compound effect and penetration minute I would also bring our strengths to market. And for quite some time we were from the ramp even not able to address the full markets which we can address potentially more strongly now. On the other side, of course we expect that a certain recovery in the market will happen and the current order books at least [indiscernible] this assumption to be correct.

Thank you

Okay, thank you all for your questions. With that, we would like to conclude this conference call. And for any further questions, please feel free to contact us here from the Investor Relations team in Munich. We would like to thank you very much for your interest, and have a nice day. Bye.