Jürgen Rebel - Corporate Vice President, Investor Relations Reinhard Ploss - Chief Executive Officer Dominik Asam - Chief Financial Officer Helmut Gassel - Chief Marketing Officer Jochen Hanebeck - Member, Management Board

Adithya Metuku - Bank of America David Mulholland - UBS Alexander Duval - Goldman Sachs Janardan Menon - Liberum Jerome Ramel - Exane BNP Paribas Sandeep Deshpande - JPMorgan Achal Sultania - Credit Suisse Andrew Gardiner - Barclays Amit Harchandani - Citigroup Johannes Schaller - Deutsche Bank Sébastien Sztabowicz - Kepler Cheuvreux Guenther Hollfelder - Baader Bank Veysel Taze - Oddo

Welcome to the conference call for analysts and investors for Infineon Technologies 2017 Fiscal Fourth Quarter and Fiscal Year Results. Today’s call will be hosted by Jürgen Rebel, Corporate Vice President, Investor Relations of Infineon Technologies. As a reminder, today’s call is being recorded. This conference may contain forward-looking statements based on current expectations or beliefs as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon’s control that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon’s actual results could differ materially from the results anticipated or projected in any of these statements and they should not be put undue reliance on them. For a detailed discussion of important factors that could cause actual results to differ materially from the statements made on this conference call, please refer to our quarterly and annual report available on our website. At this time, I would like to turn the conference over to Infineon. Please go ahead. Jürgen Rebel: Good morning and welcome ladies and gentlemen. With us today, we have Reinhard Ploss, CEO; Dominik Asam, CFO; Helmut Gassel, CMO; and Jochen Hanebeck, member of the Management Board responsible for operations. Reinhard will start with some remarks on group and division results, market developments and achievements during the quarter. Dominik will then comment on some selected key financials. After those introductory remarks, the entire management board will be happy to answer your questions. In order for everyone to have a chance to answer their questions, I would like to ask you to restrict yourself to one question and one follow-up question in the first round of questions. A recording of this conference call and a copy of our 2017 fiscal fourth quarter and fiscal year earnings press release and also the investor presentation is available on our website at infineon.com. Reinhard, please go ahead.

Thank you, Jürgen and good morning everyone. In the September quarter, revenues came in at €1.820 billion for the group, a year-over-year increase of 9% and a quarter-over-quarter decline of 1%. At a constant euro to U.S. dollar exchange rate, we would have grown by about 11% year-over-year and 3% quarter-over-quarter. Segment result increased year-over-year by 17% and decreased quarter-over-quarter by 3% to €328 million. The segment result margin came in at 18%. The book-to-bill ratio for the fiscal fourth quarter came in at 1.2. With this fourth quarter performance, we solidly met or raised 2017 full year guidance for revenues and segment result margin in spite of significant headwind from the weaker U.S. dollar in the second half of fiscal 2017. Now, let’s take a look at the divisions. Automotive revenues came in at 736 million for the quarter. This represents a 7% year-over-year increase and a 4% decline quarter-over-quarter. At a constant euro-U.S. dollar exchange rate, we would have grown 9% year-over-year. The book-to-bill ratio come in at a strong 1.3, supporting our confidence in another year of above trend line growth in automotive. The segment result decreased in line with revenue to €109 million from €120 million in the June quarter. The segment result margin came in at 14.8%. The key message for our automotive business this quarter, are as follows: first, automotive business remains very solid, taking the currency headwind into account; second, we continue to see very good traction in both ADAS and elective drivetrain; third, we are constantly winning new business across the board. We achieved a major design win for the second generation of our AURIX 32-bit microcontroller of several €100 million lifetime revenue at our leading European Tier 1. The design win includes platforms in traditional safety, chassis and powertrain as well as high growth ADAS application. Besides, we won several designs for LED lighting control solution in North America and China. We also made further progress in Japan with a significant 77-gigahertz radar sensor ICE design win at a leading Japanese Tier 1. In Industrial Power Control, we posted revenues of €328 million compared to €321 million in the June quarter. This marks again an all-time high and a steep 18% increase year-over-year. Quarter-over-quarter, this means a 2% increase. The strong business momentum could more than compensate the headwind from the weaker U.S. dollar. At a constant euro to U.S. exchange rate, we would have grown 21% year-over-year. As in previous quarters, major home appliances, renewables and traction showed strong momentum. Finally, although the classic industrial drives business is picking up and contributed significantly to the sequential growth, the book-to-bill ratio continued to be at a level of 1.3. The segment result came in at €60 million compared to €55 million in June quarter, a sequential increase of 9%. The segment result margin came in at 18.3%, which marks a 3-year high. This quarter’s highlight for IPC, first, we see good design win traction for our IGBT driver IC. Second, revenues for full silicon carbide modules start coming in both for solar inverters and for ultra-fast charging station for electromobility. Turning to Power Management & Multimarket, revenues of PMM increased by 8% year-over-year and by 3% quarter-over-quarter to €573 million. At a constant euro to U.S. dollar exchange rate, PMM would have grown 10% year-over-year. The power business continues to be very strong across all applications and products. No inventory buildup is seen at distributors. Order intake continues to be on a very high level. The smartphone component business showed a typical seasonal upswing from the lower base we had reached in the first half of the fiscal year 2017. The RF power base station business is stable at a low level. In AC-DC, we saw solid demand across all applications, especially demand for server power supply remains very solid. In AC-DC, we noted good design win traction for our digital power ICs for lighting and high-density SMPS. On top, in October, we announced the first design win for our 600-volt gallium nitride power switch for highly compact 3-kilowatt AC-DC power supplies for data center. In DC-DC, we also saw solid demand across all applications. Demand for server platforms remained high and we saw a strong ramp of our latest power stages that combined a driver and 2 MOSFETs in one package. We also made continued progress in other ICs with more design wins for Class D audio amplifiers. In the smartphone component business, the sequential increase in the silicon microphone business was very strong, indicating a regaining market share. The order intake accelerated compared to the previous quarter and the book-to-bill came in at 1.2. The PMM segment result slightly decreased to €126 million, representing a more normal run-rate in line with revenues after we benefited from some positive one-time effects in the June quarter. The segment result margin stood at 22%. Now, look at Chip Card & Security, revenues increased year-over-year by 4% and decreased quarter-over-quarter by 2%, coming in at €181 million. This slight sequential decline can be attributed to the headwind from the weaker U.S. dollar. At our constant euro to U.S. dollar exchange rate, we would have grown 7% year-over-year. Business in government ID was strong, balancing weaker demand in the payment business. Good momentum in embedded SIM continued driven mainly by automotive applications. However, the security controller market as a whole remains challenging at the moment. The book-to-bill ratio came in at 1.0. Segment result stayed essentially flat at €33 million, marking a segment result margin of 18.2%. As a highlight, we could win new business across the board. The strong momentum in government ID continues with a meaningful business win in a major electronic ID card project. Our 65-nanometer based payment platform finds wider and wider adoption with first volume orders from major customers. We secured further design wins for TPM solutions at leading computing and Internet infrastructure OEMs. With this, I would like to hand over to Dominik, who will comment in more detail on some selected key financial figures.

Thank you, Reinhard and good morning everyone. Based on the depreciation of the U.S. dollar against the euro from an average exchange rate of $1.10 in the June quarter to $1.17 in the September quarter, we faced about €64 million of headwind in our top line. The actual exchange rate of $1.17 was also slightly worse than our assumption of $1.15 at the outset of the September quarter. To put our revenue momentum on a comparable basis with our competitors, we have to use U.S. dollar terms. In U.S. dollars, our sequential growth would have stood at plus 6%, i.e., above our normal seasonality in the September quarter. Gross profit decreased slightly to €683 million. This implies a gross margin of 37.5% after 38.2% in the June quarter. Our research and development expenses and selling, general and administrative expenses came in at €189 million and €206 million respectively. Included in these numbers are €56 million of non-segment result charges. Of that amount, €33 million are International Rectifier, acquisition-related, amortization and other charges. €19 million of these acquisition-related charges hit our cost of goods sold, €40 million SG&A. The remaining €23 million of non-segment result charges include a loss of €13 million in connection with the sale of our manufacturing facility in Newport and various smaller other items. The €13 million loss is mainly driven by the recognition of cumulative currency translation effects in the income statement upon the sale of the Newport site. Prior to the sale, the effect of the depreciation of the British pound in the aftermath of the Brexit decision had been booked in other comprehensive income. Excluding acquisition-related and all other non-segment result effects, the adjusted gross margin stood at 38.6% compared with 39.4% in the June quarter. The slight reduction in gross margin was partially the result of the weaker U.S. dollar partially due to the increasing depreciation and amortization. In the September quarter, depreciation and amortization, including non-segment result effects, increased slightly to €205 million. Included in this figure are €29 million related to the amortization and depreciation of fair value step-ups from the purchase price allocation from International Rectifier. Excluding these effects, depreciation and amortization increased by €5 million quarter-on-quarter. Note that we will face gradually increasing depreciation and amortization, excluding non-segment result effects also in the coming quarters. For the full fiscal year 2018, we actually expect that item to increase slightly faster than our revenue. Continuing with tax, we recorded an income tax expense of €84 million in the September quarter. €52 million of this expense are attributed to the use of deferred tax assets and revaluations of tax credits. For modeling the cash flow statement for fiscal year 2018, a tax rate of 15% is again a reasonable assumption. But please consider that the low tax rate is primarily a result of the existing German tax loss carry-forwards. We expect to benefit from these tax loss carry-forwards for at least another 5 years. For modeling the P&L, please keep in mind that as we move towards the end of our tax loss carry-forwards, the effective tax rate in the income statement will gradually increase several years ahead of the increase in the cash tax rate due to deferred tax accounting. Free cash flow from continuing operations came in at €249 million after €301 million in the June quarter. This is mainly a consequence of the typically higher investments into capacity expansion in the September quarter to prepare for the usual demand pickup in the second half of our fiscal year. Our net cash position increased to €618 million, up from €358 million at the end of the June quarter. Our after-tax return on capital employed or ROCE came in at 13.3% in the September quarter after 18.0% in the June quarter. The decline is essentially driven by the decrease in the net operating profit after taxes. ROCE continues to be 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 depreciation and amortization. Excluding acquisition-related bookings and deferred tax effects, the underlying ROCE stood at around 27%, i.e., more than twice as high as our cost of capital. Let me now hand back to Reinhard who will comment on our outlook.

Thanks, Dominik. For the 2018 fiscal year, we expect revenues to grow 9%, plus or minus 2 percentage points, assuming a rate of $1.15 for the dollar against the euro. If the dollar were at the same level as in the 2017 fiscal year, we would expect euro revenue growth of 11% at the midpoint of the guidance, a significant accelerated growth compared to the fiscal year just ended. This triggers more invest into capacity extensions in order to harvest as much as possible of the incremental opportunity. Almost all of our competitors and market researchers report numbers in U.S. dollars. Due to the depreciation from $1.11 on average for fiscal year 2017 to a $1.15 assumption for fiscal year 2018, we have guided about 13% growth at the midpoint in the U.S. dollar terms. With this, we expect to gain further market share in 2018. For the divisions, we expect the following. ATV will grow meaningful above group average, whereas IPC and PMM should come in below group average, nevertheless, grow significantly. Chip card should remain about flat, given the currently difficult market situation. For the segment result margin, we expect 17% of the sales at the midpoint of the guided revenue range. In terms of investment, which includes also capitalized development cost, we expect between €1.1 billion and €1.2 billion to cope with extremely strong growth momentum. We want to reap as much as possible from the additional market opportunities and we will continue to invest in order to generate growth and gain further market share. Given that we have a much higher share of revenues than of investments denominated in U.S. dollar, the dampening effect of the depreciation of the U.S. dollar is much higher on revenues than on investment. As we intended to grow significantly above our 8% trend line growth at constant currencies, our investment to sales ratio naturally overshoots our 13% target. Mid-term, we are very confident that we stay at this 13% invest to sales ratio at 8% trend line growth, given the proven higher capital efficiency of our 300 millimeter power manufacturing facility in Dresden. Looking into the December quarter, our fiscal first quarter, we expect revenues to decline seasonally by 2%, plus or minus 2 percentage points. This assumes again a rate of $1.15 for the dollar against the euro. The segment result margin should come in this 15% at the midpoint of the guided revenue range. Ladies and gentlemen, let me summarize the key points for this quarter. First, there is continuously strong order entry. The current boom phase could carry on for a while and we could even see higher than through cycle average growth rates for the next 2 years. However, longer term, we feel comfortable with our 8 percentage to cycle growth trend line growth projection. Nevertheless, our underlying growth momentum is accelerating compared to fiscal year 2017. At a constant euro-U.S. dollar exchange rate, our growth outlook would have stand at 11% at the midpoint. If we reported in U.S. dollars, as most of our competitors, we would even guide for 13% growth at the midpoint. Second, we made progress in optimizing our manufacturing footprint. We are accelerating the ramp up of our Dresden 300 millimeter power fab. In principle, we are reaching the cost crossover to 200 millimeter waf relative to our initial plans early calendar year 2018. However, 300 millimeter wafer costs are increasing faster than 200 millimeter wafer cost. On top, we are ramping significantly faster due to the booming demand, which incurs additional unplanned ramp up cost for 300 millimeter. Moreover, we sold the 200 millimeter legacy facility in Newport, Wales, while securing capacities through contractual agreement. Third, in spite of the headwind from the weaker U.S. dollar and increasing raw wafer prices, we plan to keep our segment result margin at the target level of 17%. Ladies and gentlemen, this concludes our introductory remarks and we are happy to take your questions now. Jürgen Rebel: Operator, please start the Q&A session.

Thank you. [Operator Instructions] And we will now take our first question from Adithya Metuku from Bank of America. Please go ahead.

Good morning, guys. Thanks for taking my questions. My first question is on short supply in the MOSFET space. We have been hearing a lot from some of the renewable energy companies about how EBIT demand means they were unable to get power MOSFETs and some of the companies called out Infineon specifically. So, if you could give us a sense for how you are able to meet demand as it ramps and whether you are lagging behind with orders, let’s say, coming in? And secondly, my follow-up is just quickly on the proportion of revenues within your automotive business that come from xEV and ADAS, if you could give us that number and how quickly they have grown in the quarter? That would be really helpful. Thank you.

Thank you, Adithya. The answer will be given by Helmut on this demand and supply situation on MOSFET.

Yes, good morning, everybody. Demand on MOSFET remains to be very, very high. It is, by far, exceeding any forecast that we had in the past. Therefore, growth in capacity is not catching up with growth in demand and we are definitely in allocation in some of our power supplies. That is also true for the renewable energy portion of the market.

Then the question for the proportion of revenue in ATV coming from xEV and ADAS, xEV has a strong growth momentum, but is still in the low-teens of ATV total revenue. The growth of xEV and ADAS through fiscal ‘17 was in the range of 60% to 80% and we see the strong momentum continuing.

Just to clarify, the xEV and ADAS is low-teens or just xEV is low-teens?

Both together.

Okay, understood. Thank you.

Next question comes from David Mulholland from UBS.

Hi. Just a couple of questions and then one following on from the last point, I think one of the comments you have made for last quarter was what progress you would see on design wins in sort of the xEV space and particularly for IGBTs. And I wonder if you could give us an update on what you saw for the full year ‘17 in terms of design wins for IGBTs. And then, secondly, one for Dominik, just on the margins that we have seen in Autos today, it’s still quite a bit below the group average. Can you just give us a comment on how that might progress in the next 2 to 3 years given the growth rates that we are seeing and what we might be able to expect sort of more towards group average or higher margins in the auto space?

So David, thank you for your questions. Just to make sure, because it did not came all very clear. That was the question for the design wins in the xEV space and the question for how the margins in ATV will develop. The design wins in xEV basically doubled from ‘16 to ‘17. And we will also continue to grow the margin. Expansion will be or the margin situation, Dominik will comment.

Yes, of course, it helps if we grow faster than group average in ATV, however, we also have to consider the structural mix. And while, as mentioned, the xEV business is ramping extremely fast, it’s given the highly attractive nature of that fast-growth business also a highly coveted segment where people are aggressively pricing. So you should not expect a massive margin expansion from that area because there is more and more xEV business, which is actually in that kind of early phase, a lower margin business compared to the ATV group average.

That’s great. Thanks very much.

Next question comes from Alexander Duval from Goldman Sachs.

Yes, many thanks for question. Alex Duval from Goldman Sachs. Just a couple. First on end-market inventory levels, one of your peers, ST, talked about their view that inventories in the distribution channel are pretty lean or very low. I wondered if you could give a bit more color on what kind of inventory levels you are seeing in the different key verticals. And second of all, today you have talked regarding industrials about sort of broadening out of demand. So I wondered if you could just help us understand what’s driving that and how that demand is picking up in areas beyond renewables and white goods? Many thanks.

Alexander thanks for your question. Helmut will comment on the inventories and I will follow-up on the industrial market.

General inventory levels in the distributor space is on the very lean side. That is particularly true for all the power devices, which means that they are in allocation throughout the complete chain. The inventory levels on end markets are less transparent, however, also pretty visible that in anything that’s related to power, there isn’t much inventory left as well. Second question goes to Reinhard.

Yes. So thank you, Helmut, for that. Then the industrial, the major growth comes definitely from renewable. And here, for most all of it, from the photovoltaics where we see that the installation in China is constantly rising. And currently, this segment is definitely under allocation. The renewables is also the area where we will make the most revenue on short term on silicon carbide products. In solar, we had in China about 40 gigawatts coming online compared to 25 the year before. Another topic is the growth from major home appliances and air conditioners where more and more suppliers or our customers are switching to inverterized drive control for efficiency and convenience. This is extremely strong and one of the success factors of IR acquisition. And finally, interesting enough, after many quarters of flat industrial drives business, we see that this is also picking up, marking a certain trend in growing industries. The rest, traction and other signs, is, I would say, basically flat. And traction, as we commented, is a project-type business. So I think here, many, I would say, segments in the IPC market are pushing the growth.

Thanks.

We can take our next question from Janardan Menon from Liberum. Please go ahead.

Hi, good morning. Thanks for taking my question. Both mine are actually on the 300-millimeter fab. The first one perhaps for Dominik, I know there is lots of factors which are affecting your margin guidance of 17%, both positively and negatively perhaps. I guess I was wondering whether you can isolate just the 300-millimeter ramp where you have added a lot of capacity at about up to about 25% to 30% of equipment is there and you will be ramping that up through this year. What would be the positive impact on your margin just from that alone in the current fiscal year, and how do you see that moving into the subsequent year? And also your investments during the year, how much of that will be on 200 millimeter and how much of that will be on 300 millimeter? If you gave us a breakup, that will be great.

Yes, so Dominik will start and then Jochen will answer the point to the ratio.

Yes. With regards to the cost improvement, let me describe it in that way. You have seen that we basically guided the margin flat, and the major puts and takes I would call out here are four-fold. First of all, we already mentioned improvement on 300 millimeter. As Reinhard has mentioned in the intro, relative to the kind of €50 million ramp up cost, which we think we can get out of the P&L in this year, there is a smaller counter effect from higher wafer prices in 300 millimeter and also the effect that we are ramping even more aggressively. So it might be a little bit lower than that, but just to give you some feeling. Then you have as a negative, of course, the substrate prices, where I don’t want to give any details, but they are going up. I have mentioned in my introductory remarks that the depreciation is rolling on in the current fiscal year in the portion which hits the segment result here, not the kind of purchase price allocation stuff which is actually going down. But the portion that hits the segment result is growing in the low teens, I would say, versus the 9% guidance we have given, and that’s a pretty significant headwind too. And last but not least, we are actually kind of catching up a little bit on R&D. You know that we want to scale R&D in line with revenues. And now that you that we have been behind that last year, we actually increase it slightly very slightly ahead of revenues. And this is, of course, because we want to aggressively grow the company and the silicon carbide, and there are some other topics where we want to really push hard to win maximum market share. So if you take that all together, you will see that there’s actually quite some nice development underlying all this but kind of overlaid by the effects I mentioned. And this is how our 17% margin comes together. And I don’t want to now go into each of these puts and takes because it doesn’t really help you and statistically, I want to use the kind of variances we might see during the year in various portions. But overall, we think that the flat guidance is pretty much what we can do.

But just if I can follow, the €50 million ramp-up and the higher initial cost on the 300-millimeter, do you think that’s a one-off or if your demand continues to be strong into next year, can that continue into subsequent years? What is the nature of that startup cost?

Yes, this is exactly what it’s our confidence that even beyond the current fiscal year we see good opportunities to further ramp 300-millimeter maybe faster than anticipated. And from that perspective, we want to create that option value by investing and ramping the capacity. And that is a good intro, I think to Jochen’s answer on the split of our investment.

So thanks, Dominik. So if you take the total invest, which is more than 15% of sales, first of all you have to deduct the IFRS R&D capitalization, which is about 2 percentage points, then some other topics like R&D-related investment office buildings. But if you really then come down to what we invest into the factories, more than half goes into capacity extension. And out of that, again, more than half goes into 300-millimeter.

And at the end of the year, what will be the equipment capacity in the 300-millimeter?

Yes, I think here, the model, you should think about is we said that the Dresden facility will be fully equipped by the beginning of the next decade. So just take from now onwards a linear model from where we are today, 25% of the clean-room to full clean-room utilization at the beginning of the next decade.

Understood. Thank you very much.

Next question comes from Jerome Ramel from Exane BNP Paribas. Please go ahead.

Yes good morning. Quick question on Automotive. Just to come back to the margin pressure you are seeing, because if I look at all the division, everything was up year-on-year except Automotive. So I would like to understand what is the impact dilutive impact of EV business on your automotive business? Thank you. Jürgen Rebel: Jerome, could you repeat the last part of your question? The line cracked.

Yes. So just wanted to understand what is the dilutive impact of the EV business how your Automotive business?

Jerome, we do not, I would say, go down to that level. We should not forget that EV is still in the significant ramp phase. When it comes to more solid, I would say, overall revenue size, then it’s easier. But despite the fact that there is already revenue on a substantial level, it is, I would say, the most growing part and, therefore, it’s very difficult to give meaningful, let’s say, indications on this.

So the point is, I would really like to understand why, on a year-on-year basis, you lost 230 basis point EBITDA margin for your automotive division when your top line is up 7%?

Okay, there, Dominik will help you.

Let me try one point. And first of all, yes, there is some dilutive effect, but please understand that we don’t want to give details because then our competitors can back solve what kind of margin levels we achieved in the segment. And I think it’s not constructive to have that out there in the public. The second point is Automotive is, as you know, very much insourced in the front end. So contrary to Chip Card, we have a lot of investment and a lot of this depreciation roll-on, which is simply the consequence of the strong growth in the prior years, and the continued expectation of that growth to be sustained in the coming years leaves its marks on the P&L from the depreciation roll-on. We depreciated the 200-millimeter equipment, which is still the lion’s share of Automotive over 5 years, which leaves us a nice kind of gold men once these 5 years are have run through the income statement. But it also means that if and when we aggressively ramp Automotive, we see, first of all, the impact of the higher depreciation there. So that’s one of the puts and takes, so it’s not only the kind of dilutive effect I mentioned on the electric drivetrain topic.

And additionally, we will invest in Automotive due to fact that ADAS and xEVs are offering great growth opportunity in quite some of additional development. For instance, also here, silicon carbide-based inverters and chargers will be one of these topics besides major development in CMOS radar and so on. So I think here, you have to look at these 2 effects, one which as Dominik explained, and additionally, these.

Okay, thank you. And generally speaking, do you see more aggressive pricing in Automotive from your competitor?

Well, look, automotive is always aggressive in pricing. And we do not compare ourselves and ourselves our competitors, we anyhow don’t know these numbers. We see that the market is very interesting to increase the share in Automotive. But the obviously, I would say, purchasing-oriented industry being, I would say, being very tough on prices. We see some effects in new people coming onboard in selected areas, but this does not affect us overall.

Thank you very much.

Next question comes from Sandeep Deshpande from JPMorgan. Please go ahead.

Yes hi thanks for letting me on. My question is regarding your wins in the electric hybrid cars. In this growth guidance that you have given of 9% next year, what percentage would you say is due to auto electrification and as well as the ADAS market? And I have one quick follow-up.

I think here, the rule of thumb still applies. The if you look at the growth, roughly 2% to 2.5% points come from xEV and ADAS, and a total which, I would say, is currently, I would say, more with ADAS and but xEVs catching up.

And one quick follow-up for Dominik. Dominik, I mean, in terms of the 17% guidance on the segment margin, how will you build a bridge between this year’s 17% or rather FY ‘17, 17%, and the FY ‘18, 17%, given the currency impact, the positive impact from the 300-millimeter cost crossover as well as any other impact, such as wafer pricing, etcetera?

Yes. So I mentioned, I don’t want to now go into the specific puts and takes on what the components you have all mentioned. On the positive side, it’s an improvement on the 300-millimeter ramp cost, which is very significant, and then we have a lot of negatives. The substrate price is increasing, while, in the prior years, we have enjoyed like mid-single-digit price down in substrates. We see a significant uptick in these prices. We have already mentioned in prior calls, the volume resource, in terms of wafers, so at 300 million plus or so. So then you can make up your mind if you think about a certain price assumption what that means. You can pretty clearly calculate the depreciation effect I mentioned because we give some guidance on depreciation. If you assume that the purchase price allocation-related stuff is actually going down, you see that if you assume we are growing depreciation and amortization in the segment result by about, say, 12% or so, and we grow the revenues at 9%, and you compare that to our fiscal year ‘17 where depreciation was actually slightly down in absolute terms, you see how much of an impact that is. That’s a very significant number. And you can see that by operational measures and also working with the customers and trying to be disciplined in terms of price decline, we were able actually to offset all of that. So have I forgot anything, Jochen, on these topics? No. This was pretty much the major puts and takes we have there. And please understand, we don’t want to go into too much detail about it because again, that might be useful for other people to listen to and then use that in some fashion.

Thank you.

Next question comes from Achal Sultania from Credit Suisse. Please go ahead.

Hi, good morning. Two questions. One, on the automotive side, it’s a clarification on the xEV and ADAS business. I think, like you said, that these two businesses have grown like 60% to 80% this year. And if I remember, I think last year, the number was more like 40% to 50%. So I am just trying to figure out, like, should these 2 parts of the business, the growth there, should it accelerate in ‘18 from what we have seen, from the 60%, 80% on the growth we have seen already this year? Because I am trying to reconcile the 2%, 2.5% guidance that you just talked about for growth coming from xEV, ADAS, which to me suggests that those 2 businesses should grow like 40% to 50% next year. So I am just trying to make sure I am thinking the right way?

So Achal, we have 2 effects. First of all, the revenue share in ATV of this high-growth business will continue to grow. So in some quarters or a year ago, we stated that 2% of total growth in ATV will come from this, assuming an 8% to 9% overall growth. If all accelerate significantly, then I think this should be I would say, this should be higher. On the other side, we have seen, I would say, even hilarious growth in ADAS and a lesser growth in xEV. And I think here, there is a there is, I think, here a swing between 40% to 60% or 60% to 80% as normal, I think this fits quite well. But for fiscal year, is what you calculated fiscal year 2018 is what you calculated.

Okay, okay. And Dominik, one question for you on the margins in the near term. So I think, like, if I look at the revenue variance from September quarter to December quarter, like revenues are down €35 million, €40 million based on your guidance, but the margin the EBIT number actually is down much more than that. And then we all know that in March quarter, usually there is some pricing pressure, so maybe margins are down further in calendar Q1. So I am just trying to understand what is causing the December margin guidance to be that low at 15%, whereas you are still confident about 17% for the full year?

Yes. So first of all, let’s not forget there, it saw significant portions of our populations some Meretites, and you see that, that kind of contraction from the September quarter to the December quarter is actually quite normal. If you go back to the prior years, you will see that’s the case. I have to admit, though, that there was one operational issue we had, which is negatively affecting the December quarter, and hopefully will not reoccur in the remaining nine quarters. So the way I want to describe it is we feel quite comfortable about the December quarter to bring it in at that margin. We understand that from the outside, it might look overly conservative, but there are some headwinds we have to digest. Also, the roll-on depreciation is already playing a role, while the productivity measures over the year is kind of only coming in gradually. And then, yes, there is another challenge looming with the March quarter where prices have come down. But for the full year, we are actually very confident about the margin because that type of pattern we have in this year is very typical if you compare it to prior years.

Okay, thanks. Thanks a lot, Dominik.

Next question comes from Andrew Gardiner from Barclays.

Hello. Can you hear me?

Yes. Loud and clear.

Thanks, Jürgen. I just had another question on the sort of supply-demand, so to say, imbalance. I mean clearly, you guys are seeing good book-to-bill, good orders, seems to be accelerating through the year, and you’re now acknowledging sort of on allocation across many product. How – does the CapEx – the heightened CapEx for the fiscal ’18 year, is that enough based on your current demand forecast to get you back to a more, let’s say, sort of neutral supply-demand by the end of the year or so? When does the capacity come on to allow for that? I’m just trying to understand how much is sort of – is catch-up in terms of the guidance.

Thanks, Andrew. Jochen will comment on this.

Yes. We are basically using the CapEx we outlined to ramp our facility mainly in Dresden, but also the facility in Kulim in 200 in order to catch up with the demand. But we are almost ramp limited here, so we have no site yet that we are catching the peak demand. But, of course, we also have to assume that in this peak demand, there are some double bookings in there. So we feel comfortable with this capacity increase compared to the demand we see.

Okay. Actually, just to follow up quickly on that, specifically within Automotive, you’ve given the guidance you’ve given for December and sort of seasonal March. It does seem as though you’re sort of – for the full year ’18 the meaningfully above-the-group average implies an acceleration to sort of 20% to 25% year-on-year growth by the back half of the year. Again, you sort of – can you sort of handicap how much of that is catch-up relative to underlying demand that may indeed sort of continue into the following year?

Well, Andrew, I think the – in Automotive, we have a tight supply, but I would not say we have an allocation situation, which leads to a significant catch-up in – that we have extremely low inventories in the supply chain. This is very, let’s say, still in a normal range. The extremely high demand we see in the PMM power business, where we can also use the capacity from Newport, which we have contractual agreement, and in IPC. And here, Jochen already mentioned it, I think we will through the year see – and by the way, we are increasing capacity really significant and should grab quite a good portion of market share compared to others, who are not able to ramp similarly. And I’m pretty sure we will see over the next quarters how the market will behave, because we expect that a certain amount of double bookings are in. But I think here, the long-term growth could continue into 2019 and – but this, we will I’m pretty sure discuss in the second half of fiscal year.

Of course. I wasn’t looking for fiscal ’19 guidance just yet. But thank you very much.

No, you asked about the invest, and many of the invest is required to support the growth in 2019, therefore, I was commenting on that. I understood you didn’t ask.

Perfect. Thank you, guys.

Next question comes from Amit Harchandani from Citigroup. Please go ahead.

Good morning, gentlemen. Amit Harchandani from Citi. And thanks for taking my question. 2, if I may, sort of asking or clarification from what has been said earlier. If I was to look at the demand-supply situation in terms of lead times, where you’ve commented back in September that half of your power portfolio is running at almost twice the normal levels. Based on the commentary today get the impression that might have become even tougher. So could you give us a sense for lead times across your power portfolio as well as outside your power portfolio, and your view on when do you see them returning back to sort of closer to normal levels? And as an unrelated follow-up, you’re talking about raising CapEx for 2018, clearly, based on some strong demand visibility, could you give us a sense of how the visibility today compares to what you have seen earlier, and how far do you see it going out into 2019, for example? Thank you.

Yes. So Amit, thanks for the question. Both will be answered by Helmut.

Yes. Thank you, Amit. Lead times in parts of our portfolio have exceeded to almost twice the level of normal. It remains at that level going into the March quarter. The current investments that we’re making are targeted to reduce the lead times in the second half of the year. Obviously, that is a higher function of continuation of demand and, therefore, needs to be seen how that continues. Current book-to-bill ratio, as commented by Reinhard earlier, is at 1.2 for the group, which clearly indicates that we still have high bookings coming in. When looking into 2019, it’s again very difficult to predict how the market tightness will continue. As Reinhard mentioned in Automotive, we do see a continuation of the above long-term guidance growth in – also in the following year. On the other businesses, that’s too early to comment on.

Well, Amit, remembering the allocation time back, then even so having a lot of orders on hand, many of those might evaporate when the supply-demand model or relation turns. On the other side, we feel very comfortable for the year. And as I said before, let’s wait for the first half to pass by, and then we see – get a clearer picture on that. But we are – and I think here, it is important to say, we are one of these companies, based on the clean-room we have, we can ramp. Many others can’t ramp.

But just to clarify, so thanks for that commentary. But in terms of the visibility, is it better today than what you had at 3 months ago?

Well, the visibility, I think Helmut pointed it out. Our point is we have a very good visibility on the orders on hand which are reaching far out. But the problem is that in some of the business, it is very difficult to judge about, let’s say, how substantial they are and if they will remain when things change in the demand-supply model. If you would believe in all of these, then I would say, yes, our visibility into the future has improved and the demand has become more solid. But as I said before, we are cautious to take the full orders on hand into account when considering the business development.

Got it. Thank you very much.

Next question comes from Johannes Schaller from Deutsche Bank. Please go ahead.

Yes, good morning. Thanks for taking the question. Just maybe coming back to the pricing downs that you’re going to see in the March quarter, just wondering, in your guidance, do you assume fairly normal price downs here and then given that wafer costs are going up and also there’s maybe a bit of capacity tightness here and there in certain products, is there may be a chance that actually, the price downs will be a little bit less severe this year around than they used to be normally? And then my second question, could you give us a bit of an idea just on your compound semi business, silicon carbide and gallium nitride, just where that was in terms of revenues exiting the year and just how you expect that to grow in 2018? Any numbers here would be really helpful. Thank you.

Yes. Well, Helmut, on the pricing.

Yes, we always have the year change effect in March quarter as compared to December quarter as many of our customers have annual contract negotiations that come into effect in the first quarter of the calendar year. So the price decline is more visible in the March quarter than in the December quarter typically. Overall, the tighter market situations have a tendency to have reduced declines in prices, and we expect it to be similar to the same situations comparatively in the previous years.

The new material semiconductor gallium nitride is in its infancy. We see some areas of demand and have, I would say, ramping was one of the server powers supply vendors, this business, but this is extremely small. Silicon carbide, we started ramping. We do not want to disclose specific numbers because that is a highly competitive area. But – and we want to maintain our strong position there. The revenue will come with IPC in the photovoltaics area. And from my point of view, it is a matter of how we can ramp it on one side and how the – our customers can adopt their designs for this area. The reason is pretty simple. The size of the photovoltaic inverter shrink so much that basically, inverter formally being transported by, I would say, a crane or something like this; now it can be carried by people. So it is not only efficiencies much more. But let’s wait and see how it really materializes across the board, and we can talk about that in, I would say, one year later. But definitely, what we can say, silicon carbide is, I would say, really ramping.

That’s good to hear.

Next question comes from Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: Yes, hello. I’ve got a question on the wind market because Vestas made a big [Indiscernible] in bringing some pricing pressure. Have you noticed any material change in market dynamics in the wind market? And also, can you provide a little bit of outlook for this market for 2018 and beyond? And the second question, on Chip Card & Security. You guided on a flat sales for the division in 2018. Could you update us a little bit on what is happening on the U.S. EMV market right now? And also, the competitor, the client base on Chip Card & Security are consolidating with the merger between Morpho and Oberthur, have you noticed any change in pricing condition in this business up to now? Thanks.

Thanks, Sébastien, for your question. Helmut will give the answer.

On the wind market, the wind market overall is growing. It is growing not as fast as the photovoltaic market is. And there is some customer share change in the wind market currently that affects different supply chains and suppliers differently. Overall, the wind market in particular for us has been very strong in the fourth quarter. When it comes to the merger in the Chip Card, we do see some influence as both companies, obviously, are opening books on pricing right now, but it’s nothing out of the normal. Sébastien Sztabowicz: Okay. And for the U.S. EMV market, do you see still some market compression going forward? Or are we stabilizing right now?

Right now, the unit growth goes up, but of course, it remains a very competitive market going forward. Yes, and the tender is still open there, so we’ll see.

Next question comes from Guenther Hollfelder from Baader Bank. Please go ahead.

Thank you. One question, you mentioned a rebound in the industrial drives market. I mean, of course, we see the cyclical momentum also at your customers right now. But do you believe there’s also a chance that there is more structural growth regarding more automated factories, higher robotics penetration, machinery penetration?

Yes, Mr. Guenther, the – I think here it is really that is not an inventory growth. It is definitely a growth in end demands when we talked to our customers. I think robotics is driving one, but robotics is a smaller power, higher power in these industrial markets as general capacity increase. So we believe that this will not be a cyclical event now going up and coming back down for this. The demand situation before this growth had been, I would say call it too stable an audit to assume such effects.

Thanks. And as a follow-up, following up to previous questions regarding wafer prices and average selling price trend. So do you see any opportunities at customers on the industrial side or distribution side or even in automotive, that these wafer price increases are – will be a factor in price negotiations or in price lists and can offset some of the input prices you are seeing?

Well, of course, we try to negotiate that in, but as always the key element is the demand-supply situation on one side and how much we are able to differentiate with these products. So we do not – I think we will put it on the table. How much we can figure in is unclear from today’s point of view.

Okay, thanks. Thank you.

Next question goes to Veysel Taze from Oddo. Please go ahead.

Hello. Can you hear me?

Yes.

Yes, Veysel Taze, Oddo. Several questions. The first one will be related to what you mentioned during the call. You mentioned some double ordering in your power business. If I remember, when we had this huge hike in outlook back in March, you didn’t comment about – you commented back then that there was no risk of double ordering; now you mentioned for the first time. I was wondering, double ordering, where you see the most risk, I guess, it’s probably in PMM and the non-auto part, right, and from China?

Well, I’m not so sure on the last communication. I think what we say, our growth guidance is reflecting this. And, of course, we have not taken all the orders which we have into the gross guidance because we are, I would say, expecting some of those. So I think from the effect in total, I’m not so sure what we communicated in March at the moment, but I think no big changes in total in March maybe there is one small thing which we have seen. At least the assumption in March was that it may be a little bit more temporary and come back. Now it seems to be more a substantial, I would say, remaining growth level, moving definitely up especially in the PMM business and the IPC business. So – and I think here, what we expect that the effect will be in PMM and IPC business, but they’re different in structure. For the industrial parts, we don’t expect so much for the more consumer type. It can be, let’s say, a bigger swing, but I would say, we cannot go more in details on that. Jürgen Rebel: So we’ve already over run – okay, please, one last question, please, before we are really out of time.

Yes, one last question, quickly. If I look at your Q1 outlook, and you mentioned PMM and industrial that you’ll see some double ordering, which means Q1 seasonality will be stronger than the traditional, would that also imply that your Q1 outlook assumes that the Auto business will see a much stronger seasonal downturn in Q1? I mean, we have, last quarter, minus 4% Q-on-Q.

Well, when we talk about the double ordering, then we consider the further-out quarters, quarter 2 and quarter 3. For the current quarter, the order books are pretty solid, and we have delivery commitments and agreement with the customers. So in the current quarter, we don’t expect effects from double ordering. And regarding the question, Auto will be better than normal seasonality. I think – it is, I think, here normally in quarter 1, you see a weaker Auto. Currently, we see a pretty positive development in Auto, considering the overall driving elements.

Great. Thank you for clarification. Jürgen Rebel: Alright. Thank you, everybody, for your questions. With this, we would actually like to conclude the call. And for any further questions, as always, you can contact the Investor Relations team. We would like to thank you and wish you a very nice day. Bye.

Thank you from all of us. Bye.