Alexander Foltin - Head of Investor Relations Reinhard Ploss - Chief Executive Officer Dominik Asam - Chief Financial Officer Jochen Hanebeck - Member of the Management Board Helmut Gassel - Chief Marketing Officer

Janardan Menon - Liberum Capital Andrew Gardiner - Barclays Capital Sandeep Deshpande - JPMorgan Aleksander Peterc - Société Générale Amit Harchandani - Citigroup Alexander Duval - Goldman Sachs David Mulholland - UBS Achal Sultania - Credit Suisse Johannes Schaller - Deutsche Bank Jérôme Ramel - Exane BNP Paribas Adithya Metuku - Bank of America Merrill Lynch Sebastien Sztabowicz - Kepler Cheuvreux Tammy Qiu - Berenberg Bank Veyzel Taze - Oddo Seydler

Good morning and welcome, ladies and gentlemen. Also on behalf of the entire Management Board of Infineon Reinhard Ploss, CEO; Dominik Asam, CFO; Helmut Gassel, CMO; and Jochen Hanebeck, Member of the Management Board responsible for operations. Except for the host, everything else will be, as you know it. Reinhard will start with some remarks on group and division results, market developments and our achievements during the quarter. Dominik will then comment on some selected key financials, followed by Reinhard again updating you on our guidance. After that we will be happy to answer your questions. In order for everyone to have a chance to ask questions, please restrict yourself to one question and one follow-up in the first round. A recording of this conference call and a copy of our 2018 fiscal second quarter earnings press release and investor presentation are also available on our website at infineon.com. Reinhard, please go ahead.

Thank you, Alexander, and good morning, everyone. Revenues in the March quarter came in at €1,836 million for the group, a quarter-over-quarter increase of 3% and a year-over-year increase of 4%. Our underlying growth momentum remained strong. At a constant U.S. dollar exchange rate, we have grown by about 12% year-over-year. Segment result increased quarter-over-quarter by a 11% and year-over-year by 6% to €314 million. The segment result margin stood at 17.1%. Order entry continued being during the March quarter and the book-to-bill ratio came in at 1.3. Overall, we met our Q2 guidance for revenues and achieved a slightly better than guided segment result margin in a continuously positive environment. Sustained strong order intake is meeting supply limitations in several product areas. Therefore, we continue our efforts to ramp up capacity to fulfill of our customers’ demand. Now to the divisions. Automotive revenues came in at €811 million for the quarter. This represents a 4% year-over-year increase and a 5% increase quarter-over-quarter. At a constant exchange rate, we would have grown 10% year-over-year. The book-to-bill ratio of 1.3 is evidence of the unchanged growth momentum in automotive. The segment result increased €116 million from €103 million in the previous quarter, which had been negatively impacted by a production-related one-off charge. The segment result margin stood at 14.3%. As in prior years, we faced annual price declines from volume purchase agreements in the March quarter weighing on the margin. We continue to expect a gradual snap back of the ATV segment result margin in the next two quarters to the levels seen throughout the last fiscal year. Looking at the 2017 market share rankings by strategic analytics, we strengthened our global number two position by gaining 0.1 percentage points. Also, the gap to the number one narrowed by 1.6 percentage points. Our overall market share of 10.8% is based on strong positions in power, sensors and microcontrollers, addressing core functionalities outside infotainment. From a regional perspective, we became number one in Europe, the world’s largest market for the automotive semiconductors. Our largest share gain we saw in China, where we strengthened our number two position. It is also in China, the world’s most important market for electromobility, where we have established a back-end manufacturing joint venture with SAIC, the largest local OEM. The entity will manufacture automotive frame-based HybridPACK IGBT modules and sell to Chinese Tier 1s and OEMs. Infineon will deliver IGBT chips to the joint venture. The setup will enable us to share invest and save import tariffs. Pilot production has already started with volume production scheduled for the second-half of this calendar year. Meanwhile, we are constantly winning new business across all areas of our automotive business. For example, a major Chinese Tier 1 chose an Infineon chipset for the transmission control unit. The solution includes an Infineon microcontroller and two application specific ICs. In Industrial Power Control, we posted revenue of €317 million, compared to €296 million in the December quarter. Quarter-over-quarter, this means a growth of 7%. Year-over-year, this marks an 8% increase. At a constant exchange rate, the segment would even have grown 13% year-over-year. We saw particularly strong growth in drives, traction and home appliances. Drives saw their strongest quarterly revenue level since 2011 and the market was highly influenced by public infrastructure spending programs. Order entry remained very strong at the book-to-bill ratio came in at 1.3, various product classes remained in allocation. The segment result came in at €62 million, markedly up from €48 million in the prior quarter for a segment result margin of 19.6%. This improved profitability was caused by productivity gains and a favorable product mix to skate drivers seeing an all-time high. Macro indicators remain solid and point to sustained market growth above long-term trend. We see continuous momentum across applications, be it automation drives, renewable energies, traction of home appliances. Coming to Power Management & Multimarket. Revenues of PMM were €543 million, staying essentially flat quarter-over-quarter despite currency headwinds and the fact that the sale of parts of our RF power business for cellular infrastructure to Cree in early March reduced revenues by a mid single-digit million euro amount. Compared to the same period in the prior year, revenues increased by 4%. At a constant exchange rate, PMM would have grown 18% year-over-year. The PMM segment result came in at €108 million. The segment result margin stood at 19.9%, Some productivity gains and positive price developments more than compensated negative currency impacts. The power business remains very strong across all applications and products, evidenced by high order entry leading to a book-to-bill ratio of 1.4. In both AC-DC and DC-DC, we saw unabated customer demand as both areas continuing to be supply constraint. Our CoolMOS benefits from increasing pull coming from our customers in electromobility for onboard chargers and charging infrastructure. Besides that, demand for server power supplies and power stages remained strong. With our digital AC-DC control IC, we are seeing good traction in a broad range of applications, spanning PCs and industrial power supplies, TV power supplies and lighting. During the second quarter, we closed the acquisition of Merus Audio in Denmark broadening our product portfolio and low power Class D audio amplifiers and supporting our development of system solutions for the growing human-machine interface market. Looking ahead, we see 5G evolving in a meaningful growth driver for power ICs as well discrete. Ericsson presented a Massive MIMO radio platform with 5 times the number of MOSFETs going into the power stage where there’s a current standard. Within the smartphone component business, we recorded a business win in cooperation with an Asian RF module supplier for a platform at a global handset leader. Now a look at Chip Card & Security. We posted revenue of €164 million, compared to €162 million in the December quarter. This represents an increase of 1% quarter-over-quarter and a decrease of 3% year-over-year. At a constant exchange rate, revenues would have increased by about 5% year-over-year. We saw particularly solid growth in our business in government IT, as well as embedded SIM used for cars and other applications. At the same time, headwinds in the market of classic SIM and payment led to revenue declines. The book-to-bill ratio came in at 0.9. The segment result stood at €27 million, marking a segment result margin of 16.5% and meaning that the segment could retain its profitability level despite difficult market conditions due to a favorable product mix. In the second quarter, we won several project for government ID in South America countries, as well as with our payment solution. We secured strategic projects wins with our embedded security products at leading OEMs of industrial and ICT applications. To ensure easy integration of security in IoT or connected devices, we launched our turnkey solution OPTIGA Trust X. We note that Daimler builds on eSIMs from Infineon as automatic emergency call saves lives. We also partnered with Juniper Network to further protect routers and network equipment. With this, I would like to hand over to Dominik, who will comment in more detail on our key financial figures.

Thank you, Reinhard, and good morning, everyone. As in the previous quarter, our underlying growth is somewhat modest by the adverse currency developments. Quarter-over-quarter, the euro strengthened noticeably against the U.S. dollar from $1.18 in December quarter to $1.23 in the March quarter. This caused a negative impact of about €40 million on the top line. In a year-over-year comparison, the headwind from the euro dollar exchange rate is even more pronounced, as the greenback depreciated by about 16%, as compared to the average exchange rate of 1.06 in the March quarter of 2017. Note that this implies that Infineon has delivered growth of almost 21% for the quarter just passed in U.S. dollar terms. Gross profit increased to €682 million. This implies a gross margin of 37.1% after 36.4% in the December quarter. Research and development expenses and selling, general and administrative expenses came in at €200 million and €209 million, respectively. Included in these numbers are €39 million of non-segment result charges. Of that amount, €28 million are International Rectifier acquisition-related amortization and other charges, €16 million of the non-segment result charges hit our cost of goods sold, €2 million R&D, amd €21 million SG&A. Excluding acquisition-related and all other non-segment result effects, the adjusted gross margin stood at 38% compared with 37.4% in the December quarter. Depreciation and amortization, including non-segment result effects trended up slightly to €211 million. Included in this figure are €24 million related to the amortization and depreciation of fair value step-ups from the purchase price allocation from International Rectifier. The combined effect on other operating income and expense from the sale of parts of the RF power business to Cree, including the accounting again on the disposal, as well as impairments of related capitalized research and development expenses was a positive €257 million, which we recorded as part of our non-segment result. Against that net gain, we recorded transaction-related expenses of €8 million in non-segment result. Total non-segment results stood at positive €218 million. Continuing with tax, we booked an income tax expense of €62 million in the March quarter, which included the tax on the gain from the sale of the RF power business. The effective tax rate was 12%. Free cash flow from continuing operations came in at €334 million, after negative €135 million in the previous quarter. Proceeds from the sale of RF power business are reflected in free cash flow. Our after-tax return on capital employed came in at 31.2% in the March quarter, after 14.6% in the December quarter. The increase is essentially driven by the increase in net operating profit after taxes or NOPAT, resulting from the gain on the sale of the RF power business. Return on capital employed furthermore continues to be strongly affected by bookings related to the acquisition of International Rectifier, in particular, goodwill, fair value step in the context of purchase allocation and the related depreciation and amortization. Excluding acquisition and divestiture-related bookings and deferred tax effects, the adjusted return on capital employed again was well in excess of 20%. Let me now hand back to Reinhard, who will comment on our outlook.

Thank you, Dominik. For the 2018 fiscal year, we now expect revenues to grow between 4% and 7%, assuming a rate of $1.25 for the dollar against the euro for the remainder of the fiscal year. This guidance now reflects the deconsolidation of the parts of the RF business sold to Cree, which was previously still included with the mid double-digit revenue number for the time after closing. You will notice that we have nevertheless slightly increased the midpoint of our guided revenue range by raising the lower bound by a percentage point. This reflects the continued strong order momentum and our confidence in being able to accelerate the build-out of new capacity somewhat. However, it will also impact our investments, which we now see at around €1.2 billion. The relative growth expectation of the divisions are as follows. ATV will grow meaningfully above group average, IPC should come in around group average and PMM should come in below group average, but making up for the revenue loss due to the sale of RF power. Chip Card might see a revenue decline. For the first-half of our fiscal year 2018 in the back and some ability to pass on cost increases, the segment result margin should come in at 17% of sales at the midpoint of the guided revenue range. This proves the robustness of our business model to cope with adverse currency movements. For the June quarter, we expect revenues to increase seasonally by 3% plus or minus 2 percentage points. This also assumes a rate of $1.25 for the dollar against the euro for the remainder of the quarter. The segment result margin should come in at 17% at the midpoint of the guided revenue range. Ladies and gentlemen, let me summarize the key points for the second fiscal quarter. First, business momentum remained strong with a very high order entry across a broad range of application and products and no signs of a slowdown. For this, we are adjusting our guidance slightly upward. We expect that we will be able to, at least, compensate for the loss of revenue resulting from the sale of parts of the RF power business. Second, Infineon can grow profitably. Productivity gains from 300 millimeter allow us to deliver a 17% segment result margin against weaker U.S. dollar. Third, we want to address customer demand for power discretes in the best possible way and will continue the accelerated ramp to add new capacities. Our objective is to invest decisively in order to fully capitalize on the long-term opportunities presented by the structural growth drivers of our target markets. Finally, let me remind you that we are going to host a Capital Markets Day in London for investors and analysts. On the 12th of June, my fellow Board members and I together with the presidents of our four business segments will provide our view on the future course of Infineon. We are looking forward to seeing many of you there. Ladies and gentleman, this concludes our introductory remarks, and we are happy to take now your questions.

Thank you. Our question-and-answer session will be conducted electronically today. We will now take our first question from Janardan Menon from Liberum. Please go ahead.

Yes. Hi, good morning. Thanks for taking the question. I have two small ones, if I may. One is on the increase in capacity that you’re doing right now in the quarter, which you announced that you’re going to €1.2 billion. I was wondering, can you give us an idea on how much of your capacity increases is sort of allocated to electric vehicle-related technologies and how much would be the rest? Would the majority be catering to that, or how could you break that up? Thanks. And I also have some brief follow-up.

Janardan, thank you for your question here. Here we are growing across all the power applications where the major investment is going to. But as we communicated the major growth will come from automotive in the area of power discretes and power modules. So we do not have a concrete percentage range of it – what we are addressing there. Currently, we see a steady growth. The actual increased investment will kick in significantly later in quarters, as the build-up and the effectiveness will take two to three quarters. So here we will see how the business is, but the continuous growth of automotive will be very strong.

Understood. And in terms of the 300 millimeter fab at this point, in the previous quarter you had said there were some sort of start-up, because you’re going quite fast. Can we assume that that is now behind us? And in the June and the December quarters, if everything is as expected today, the increasing utilization of that fab will be a positive on your margin?

Janardan, this will be answered by Jochen.

Yes, hello. So we stated that we achieved this cost crossover of our new 300 millimeter facility in Dresden by the turn of the year from 2017 to 2018. However as we are ramping up the capacity at full speed, we incur additional ramp-up costs, so they overlay this picture, which you have just described correctly?

Which means that end of the day as long as we are growing, so significantly we always have a certain amount of cost installing new equipment.

Okay. So that cost is sort of a continuous process as you keep adding capacity?

Correct.

Understood. Okay, thank you very much.

We will now take our next question from Andrew Gardiner from Barclays. Please go ahead.

Good morning. Thanks for taking the question. I had another couple on the automotive side. Reinhard, in the answer to the prior question, you alluded to the fact that the CapEx that you’re putting to work today is sort of going to result in output two to three quarters down the line. I’m just wondering, if you can give us a bit more insight as to what you’re thinking over that sort of medium-term horizon for automotive. Clearly, book-to-bill remains strong. We all know the sort of the structural drivers in the industry. Do you anticipate therefore automotive to continue growing at sort of similar kind of rates currency adjusted into the next fiscal year?

Well, Andrew, Helmut will answer this question. But in general, we are not commenting on the overall revenue guidance for the next year. But Helmut will give you some insights on that.

Yes. I think based on the order intake that we have seen and we will expect a continued growth of the automotive group above group average. So you can expect double-digit growth for the remainder of the fiscal year. And given the growth trends in electromobility and ADAS, it will continue to grow stronger than in average. So the structural growth drivers will remain intact.

Okay. And then a quick follow-up, if I could, again on auto. You mentioned during the prepared comments that the pressures you’re seeing on the automotive margin at the moment. There was sort of a – there was a one-off manufacturing impact in the December quarter. You had annual price declines in the current quarter. When can you give us a bit more detail as to when you think you can get back to the 16%, 17% margins that you were achieving around a year ago? Is that sort of not this quarter, but perhaps the final fiscal quarter and into next year?

Yes, Dominik, please.

Yes, absolutely. You’re absolutely right. This should happen kind of in Q4 – by Q4, I think, we should see again kind of 16%-plus segment result margin that’s at least what we’re currently planning.

Okay.

And that’s Q4 – sorry, that’s Q4 fiscal, I have to be clear on that.

Understood. Thank you.

We will now take our next question from Sandeep Deshpande from JPMorgan. Please go ahead.

Thanks for letting me on. My question is regarding the IPC business. I mean, you’re showing considerable margins trend in IPC as well at this point. Has there been a change in product mix in IPC, or has there been any other change in IPC, which is driving the much better margin in IPC? And then secondly, a smaller follow-up. Could you comment on how much of your revenue overall at this point is coming from the ADAS market and auto electrification market? Thanks.

So, Sandeep, thank you for your question. Dominik will answer your first question and Helmut, the second one.

In IPC, we see some strong performance from manufacturing, as well as a good structural move and frankly, also a little bit better price decline outcome because of the strength of the market and compounding all these factors, this is what makes for the margin expansion there.

And yes, Sandeep, as we have stated in the previous quarters, we always combine ADAS and xEV and they combined still account for high-teens – high single-digit percentage of automotive revenue today.

Thank you.

We will now take our next question from Aleksander Peterc from Société Générale. Please go ahead.

Yes. Hi, good morning, and thank you for taking my question. Again, really on automotive margin. You mentioned in your full-year outlook that in terms of OpEx, R&D costs should grow faster than revenue and I would expect that is mostly going into automotive. So should I understand that that will be mostly over by Q3 and then Q4 will be back to normal? And maybe could you quantify the pressure on margins coming from this R&D hike? Thank you.

Yes. So, Aleksander, thank you for your question. Dominik will go into detail on that.

So, Aleks, you’re correctly – you are again referring to the division ATV automotive only. And as I commented, we think that we can bring up the margin to the kind of level we have seen in the second-half fourth quarter prior year. So 16% should be reachable by Q4 and that already digests basically the roll of OpEx. We have been actually a little bit kind of behind the planned OpEx increases, because simply at the current growth speed, it’s tough to simply hire other people we require here. But, of course, this is not something one of the first forever from that perspective. There will still be some roll-on of OpEx in the current fiscal year, but that is all included in the comments I made on the Q4 target, so to speak.

So just to be clear, so all of the OpEx hike is happening this year and then nothing is carried over then into the fiscal 2019?

I mean, our general guidance – we don’t give a guidance for next year, but we have a long-term guidance on how we think about scaling OpEx. We always say that, if we scale revenue by a certain percentage number, R&D will scale in line with that growth of the revenue of the top line. So that means, no operating leverage, so to speak, from R&D. We grow R&D as we grow sales. On selling expenses, we try to be moderately below that number. So we say 90% of the growth will be increased in selling expense and obviously, in admin functions – general administrative functions we try to clearly be lower than revenue growth, so we say 60% or so. So that gives you some indication how we think about scaling our OpEx in the mid to long-run.

Thank you.

We will now take our next question from Amit Harchandani from Citigroup. Please go ahead.

Good morning, everyone. Amit Harchandani from Citi, and thanks for taking my question. My first question actually goes back to the sale of the RF business. You’ve shown clear discipline in making that move and privatizing areas where believe you can be a market leader. Now when I think about this and then I think about how your Chip Card business is moving in recent times and how potentially you’re looking to use outsourcing. I’m just trying to think what are the strategic merits of being invested in the Chip Card business versus potentially exploring a strategic option for the same and reinvesting proceeds in some of your other businesses, which are growing faster. But curious to know your thoughts on the synergies that you continue to see between Chip Card and the rest of the business?

Thank you, Amit, for the question. So Chip Card for us is a core competence, which carries over into other segments. The IT security element becomes more and more relevant for automotive and also in the IoT space where PMM is going into. As a company, we are moving more and more to selling solutions. We do not sell solutions as such, but we provide the customers with overall solution. So here is a very good synergy and leverage from the Chip Card segment into others. Notably, the automotive microcontroller contain a security element designed and architectured by Chip Cards, which we would not have been able to do it in this performance without the Chip Card segment. So you do not see the Chip Card capability one-to-one in Chip Card only. Therefore, we believe that Chip Card is an element, which we want – like to retain. And regarding the revenues and earnings, we are happy with Chip Card and we do not see a need to re-prioritize or redirect invest in R&D.

Thank you.

We will now take our next question from Alexander Duval from Goldman Sachs. Please go ahead.

Yes. Hi, everyone, many thanks for the question. Just a couple of quick ones. First of all, I wondered if you could talk a little bit about inventory level in Auto and Industrial segments? Can you give an update on what you are seeing in the go-to-market? And secondly, you’ve talked about bulging orders this quarter. Can you give a bit of color on the kind of linearity you saw through the last few months? Many thanks.

Yes. Thank you, Alexander. The questions, Helmut will take over.

Yes, Alexander, thank you. We see a very healthy inventory level throughout the supply chain. The inventory to sales ratio continues to slightly decline further indicating that there is no change in trend as compared to the past months. I’m not sure whether I fully understand your question on the bulging orders. I think basically, there is a continuation of high order income and the supply chain is hiking to keep up with the demand. As stated by Reinhard in the intro statement in automotive as well as in industrial, the book-to-bill ratio of last quarter was in the range of 1.3, clearly indicating there is a very high demand going on. And last but not least, on a continued basis of coming in orders significantly higher than revenue potential. We also have a triple-digit million figures of unconfirmed orders, which simply we cannot, let’s say, satisfy within a reasonable timeframe. So that continues to grow also.

Very helpful. Thank you.

We will now take our next question from David Mulholland from UBS. Please go ahead.

Hi, just two quick questions on the financials from me. Firstly, on the depreciation and amortization guidance, it looks like it’s come down a little bit in the quarter or your full-year guide has come down. Can you maybe comment a little bit on what’s changed? And then secondly, just on the fiscal Q3 margin guidance where essentially you are guiding to flat sequentially. I think normally the Q3 – fiscal Q3 quarter is whenever you’re able to start doing a bit more on cost, after you face the price downs in fiscal Q2. And historic trend has seen a much bigger step from fiscal Q2 to fiscal Q3. So can you maybe just mention or explain why we are not seeing that normal seasonality in this year?

Thank you, David. Dominik, please answer the question from David.

Yes. So on the seasonality what you see is that we basically guided against 3% growth. There is a little bit of an implied currency headwind, but it’s very minor, because when we say $1.25, what we mean is really $1.25 for the remaining five months of the fiscal year, so that’s from today basically and that is kind of giving you a tiny headwind. And from that perspective, we see the Q3 guidance is very much in line with normal seasonality. So they’re kind of order of magnitude of about 4% up if adjusted for currency is very much in line with the long-term normal seasonality. On the margin expansion side, I mentioned that we are basically running a little behind schedule, so to speak, in terms of beefing up our research and development and selling expenses, because we want to continue to push growth aggressively. And given the constraints we had in terms of hiring that was a little bit of a pent-up demand, so to speak, which we have anticipated coming in, in the second-half of the year. Therefore, we’ve not guided a margin expansion, so to speak, in the Q3, if you look at the 17% we’ve guided. So there was another question. First question was D&A. Yes, there is a little bit of RM power – RF power, which has been eliminated, of course, by the divestiture. We mentioned that there’s also some R&D – capitalized R&D related to the RF power stuff, which has disappeared from our balance sheet and as a consequence in future amortization. And secondly, we had also a little bit of a timing shift. While the investor sales number is increasing, it’s kind of more back-end loaded than initially planned. And that means that some depreciation, which was anticipated already hitting the current year’s P&L is now coming early next fiscal year.

That’s great. And maybe if I could just squeeze one quick one in. Last year, you gave us some good visibility on the progress you were making on longer-term design wins towards the EV – kind of EV sort of 2019, 2020 and so on. I think you gave a figure of €1.2 billion for fiscal 2017. I wonder if you could update us now that we’re halfway through the year on high growth in those longer-term design wins is progressing this year?

Yes. Well, Helmut will answer this in detail. On the other side, we – what we expect to see is a certain uncertainty about what will Europe have as an effect in the number of electric cars coming or hitting the market in 2020 and 2021. With all the diesel discussions, all the design wins, which we are – can mention is something where we do not fully can correlate to the cars built, but the number is pretty significant. Helmut, please comment on that.

Yes. As you rightfully stated, for last fiscal year, the actual figure that we had reported was €1.5 billion worth of design wins. The cumulated xEV design wins over the last three years was €2.5 billion. And I think the comment as to the current fiscal year, which is still rather young, I would say, we are – the momentum is unchanged and coming in nicely. So we continue to see the strong growth in the xEV space. There’s more and more programs in – globally coming in and it’s all IGBT-based and predominantly frame-based power modules design wins.

That’s great. Thanks very much.

We will now take our next question from Achal Sultania from Credit Suisse. Please go ahead.

Hi. Just on ATV, just trying to think about the second-half of this year. It seems like based on the guidance, it seems we should expect like reacceleration in growth even on constant currency basis like somewhere around low-teens, maybe mid-teens in the back-of the year. Just trying to understand how much of that is influenced by this China partnership that you announced with SAIC? And is the CapEx increase that you announced is that also driven by that China partnership? Thank you.

I will say two general – or one general remark is that we are in many areas now capacity constrained in an increased way. So you do not see in all areas the full growth potential, which comes from the market. The growth in ATV, Helmut can comment very briefly. The SAIC CapEx is not consolidated, it’s not in our numbers. And we do not see yet significant effects from there. SAIC will start production only in second-half of 2018. As moving forward, we will report on that. Helmut, please?

Yes, on EV, basically already said that the momentum continues. I don’t necessarily see a reacceleration, because EV growth has already been strong in the first-half already. And as Reinhard mentioned, there already is some capacity constraints also in the way we can grow our EV business. Overall I would say, outside of EV, the bond growth of automotive vehicles continues to be – continues to accelerate or grow forward, partially driven by a higher SUV range, as well as by higher take rate of options in the mid-class range as well. So it’s not all about EV, but a significant growth in all areas of automotive.

Thanks, Helmut. Maybe if I have a brief follow-up on – I think last quarter or it was a quarter before, you mentioned a launch- EV launch from NIO, where you said that power content is almost as high as $900. I’m just trying to – can you give us some color as to what has been the latest trend? Like are we seeing – fine like we understand EV is happening fast, but are we seeing a trend that the content in the newer EV models is increasing even faster than you expected?

No, Achal, this just depends strongly on the type of the product. The NIO is a top line SUV, which is highly powered. So here we communicated content of US$900 for power and this is very unique. In general, we don’t see that there is an acceleration on the power on the EV coming. In general, we expect that and it depends on what the take rate will be on the EV Bobi versus the plug-in hybrids and plug-in hybrids maybe also a significant portion for Europe. China is something where I think here has different effects. What we see as a significant growth driver, the very mild hybrid, let’s call it or micro hybrid, which are the 48 volts, which helps to improve on the CO2, but is only compensated for some of the diesel to gas movements in order to – and it can be installed in the car at a much lower cost rate. So the picture becomes much broader with this from very high power as NIO to, say, very cost effective like 48 volt, which is not even a module.

Great. Thanks, Reinhard.

We will now take our next question from Johannes Schaller from Deutsche Bank. Please go ahead.

Yes. Hi, thanks for letting me on. Two questions. The first one just really on the capacity tightness that we’re seeing across the industry and what that is doing to your margins right now? I mean, you were talking over the last few quarters about rising wafer costs and how that is a headwind. Now I think, it’s probably the first time you’re officially talking about better pricing negotiations or better pricing in PPM and IPC. So where are we on those two developments? Are we kind of moving from capacity tightness being a headwind now to being a tailwind, or is that more of a negative surprise maybe to come from wafer costs? And then the second question just out of the €1.2 billion investments you’re now guiding to, could you give us a sense how much Dresden 300 currently accounts for in that number? Thank you.

So the first question, I want to answer more on a general comment. The allocation always is something, which is reducing the efficiency of production is dragging away the – I would say, concentration or the efforts of marketing and sales in order to do new business. So in general, we do not appreciate our allocation level as we have. And the book-to-bill ratio also we assume that there are some double ordering inside. Therefore, we appreciate best a, let’s say, relatively tight market with a good few to the market. The price increases, here definitely we – under the long-term contracts, we have and we – for the, I would say, new business, we’re adopting prices, which we have communicated in the IPC and PMM way. So you can say in some areas there is a benefit from the overall market tightness in power, but I would not say that there is a real change from tail to – from headwind to tailwind. Nevertheless, the situation is a little bit more balanced. The Dresden question will be answered by Jochen.

Yes. Hello, Schaller. So maybe to carry on the first part, the wafers substrate pricing we expect even further increases also next year. Of course, we observe the market here very carefully in 300, as well as 200 millimeter. On the CapEx, of course, in such a timeframe, we allocate most of our capital towards the capacity expansion, which mainly goes into Dresden and Kulim at the same time in order to benefit here also from the eight-inch expansion.

So if we want to get a rough sense how much Dresden is right now, kind of – is it possible to give us a ballpark number or not?

A couple of hundred million goes into Dresden this year.

Understood. Thank you very much.

We will now take our next question from Jérôme Ramel from Exane BNP Paribas. Please go ahead. Jérôme Ramel: Yes, good morning. Talking about the tightness in capacity, could you give us a little detail on where are your lead time for Power MOS and IGBT? And do you see the same situation for your competitors or you see you might be losing market share because of the tightness? And second question for Dominik. How much of the R&D is now capitalized? Thank you.

Yes, thank you, Jérôme, for the question. The lead times for IGBT, Helmut, please.

Yes. So, as mentioned earlier, we are not able to confirm significant portion of the incoming orders, which is a clear indication that those orders exceed or would exceed delivery time past two quarters, or beyond 26 weeks. To your question of are we losing or gaining share? Given the fact that we are rising our capacity as quickly as possible and the fact that we are probably – have the largest manufacturing base in front-end today. I think, the math will tell that we are probably gaining market share in these days. And capitalization, I give to Dominik.

Maybe one header on the market share gain. If you recall, what I said that we basically grew in dollar terms, which is the currency everyone uses to look at market share grew by 21% in the March quarter. I’m really lacking the imagination how we cannot win market share with such a growth rate, because it’s predominately driven by the power discretes and modules. Now I’ve got distracted for the second question. Now the capitalization on R&D, and as we stated, a couple of percentage points, so 2 percentage points of our invest to sales ratio are R&D. And we currently even a tick lower than that, but the 2 percentage point ballpark is a good number of revenue, that is. So 2 percentage points of revenues is in R&D. And then if you look at the R&D as it’s being expensed, you can add that if you want to have the gross R&D and, of course, there are also some government grants on top of that. So our real gross R&D is significantly higher than the R&D we expense in the P&L. Jérôme Ramel: Thanks.

We will now take our next question from Adithya Metuku from Bank of America. Please go ahead.

Yes, good morning, guys. So two questions from me. Firstly, you’re guiding for an acceleration in organic growth. If I’ve done math correctly, you’re guiding for organic growth of about 11.5%, up from 10% you guided for last quarter. And so can you give us some color on the end markets where you’re seeing – where your confidence has gone up in the quarter? And secondly, the last time you gave an update on the silicon carbide market was last year, when you said 15 Tier 1 OEMs are trialing your six solutions. Can you give us an update on the traction you’re seeing with your six products from the automotive end market? Thank you.

Thank you, Adi, for your question. The color on the end market, of course, automotive is and will remain a strong growth driver, especially in the power segment and the outperformance of the higher power segment with the MOSFET IGBT modules here. We even, as we give the guidance for the remainder of the year, automotive will be the strongest growth. But also the other businesses, but I would say, very clearly and dominated by power shows structural strength. In the area of PMM’s business, we have seen that AC-DC is getting stronger, of course, also on one side driven by automotive where it is in the area of chargers on board and wall charges. But also in the DC-DC area just to mention one element, this is the battery-operated tools, where we expect to see also structural push. Many other areas, we – I would say, are benefiting from our technology strengths adding to what Dominik said that we believe that we are also gaining market share on this site. So I think here, the basic growth drivers as the general market are positive and the structural growth drivers are staying up. The next question silicon carbide and auto, we see the first adoption on the on board charges. We – it’s really different inverter topologies. The introduction into the major drivetrain is still on a very low level.

Okay, understood. Just a quick follow-up, if I could. You said in the press release, you remain very confident on your 2018 guidance. So can you give us some color on the level of conservatism you priced into your guidance? Thank you.

Well, it’s difficult to say some of the numbers, so Dominik can answer. But the orders on hand – here it is very clear that we do not see any risk from the market in near-term from the financials. Dominik, please?

I think, we should also highlight that there is not much upside because of the capacity constraints. So the real constraining factor for our growth in current fiscal year is what we can produce. On the margin side, I alluded to this issue that basically we are a little bit behind the curve of hiring in some areas and we try to accelerate that. But if we may not be able to do that, then there would be some upside relative to what we said. but that would then spill over into next fiscal year, and that’s why I would not kind of put too much emphasis on that, but really kind of stick to the guidance we’ve given here.

Okay. Thank you.

We will now take our next question from Sebastien Sztabowicz from Kepler. Please go ahead.

Yes. Hello, two questions on auto. Have you seen any change in the long-term outlook for your ADAS-based business for the coming years, notably following the Tesla and the road accidents at the end of March? And also what was the cost – top line cost of your EV and ADAS business in Q2? Thank you.

Yes, Sebastien, thank you for the question. One general remark from my side regarding ADAS and then Helmut goes more into the details. The majority drive of ADAS is currently in driver assistance and not of automated cars. I think here, we will see a long growth periods on, I would say, improved driver support while auto – fully automation will take a significant time and will not make a significant portion of the revenue stream related to ADAS. But Helmut, please go.

Yes, building on what you said, Reinhard, say, number one, the fully automated vehicles is still some time to go. In the meantime, there is a growing rapid penetration also supported by regulation like emergency brakes in Europe, et cetera. And so in addition to the comment on Tesla, I think, many other companies are really adding lots of sensors on the radar side, as well as potentially going forward in the LIDAR side. So sensors are really a major driver and they are already needed also in lower levels of automation. So I think on that the growth rate is heavily increasing.

But just a brief add-on, please note this was not a comment about our business relation to Tesla, it was a general remark along the strategy of Tesla.

And the growth of EVs and ADAS in the last quarter?

We do not comment specific growth rates there. But what we can tell you is, which should not surprise you that, if you look at the high book-to-bill in automotive, the book-to-bill in that area was even higher. So Reinhard already commented that the good order intake is continuing throughout the current fiscal year.

Okay. Thank you.

We will now take our next question from: Tammy Qiu from Berenberg. Please go ahead.

Hi, thank you for taking my question. So we have seen that auto demand being very strong over the past few quarters. Can you talk us through what kind of visibility from your design win perspective you can see in the pipeline, so that we can know auto will remain strong over the next, let’s say, throughout 18 months? And also the second question is on the margin of PMM. This quarter, I have seen that PMM margin is very strong compared to last quarter without revenue growth. So can you talk us through what’s the fundamental driver there and also what the likely trend in the next two quarters, so that we’ll be able to see a close to 20% segment margin in PMM this year? Thank you.

Yes, thank you for the question. The first one was the pipeline – the design win pipeline, it is very simple to answer this. The design win pipeline is extremely strong. The dominated growth driver currently is the high powertrain area, as we already commented, going into EV, but also being very broad. The second biggest growth driver is ADAS. But please note that all of the standard products in automotive are growing as we have commented over the years. So assuming no significant changes in global situation, the base for continued strong growth of Q2 design win is secured now as we communicated to match with capacity, which is currently our biggest challenge. So the next was PMM margin and product mix. Dominik, please?

Yes, indeed the margin of PMM in the March quarter was quite healthy, given there was limited increase in – rather flat revenues, it was margin expansion. But I’d say, the prior quarter was lot more of a kind of not representative quarter. I think, the March quarter is a better indication. However, given the comments I made on the OpEx increases on the kind of capacity constraints in the near-term, which will be potentially the bottleneck in Q4, the kind of snapback or the further increases in revenue are a little bit back-end loaded for PMM. But for the full fiscal year to answer that question, we should see 20% – around 20% segment result margin. By the way, you need that type of margin. If you tie it back to the comments we made on the margin development in ATV, you have a bulk of the Infineon revenues already. And then if you say, you basically need about 20% margin for PMM to bring us to the 17% margin for the full group.

And one add-on comment in general, we – as we report significant order entry and also comment that in some areas, we may have double ordering visibility in the automotive value chain is very good. So we have a pretty good understanding about what are the demands and how they really reach the market. So the – few of the company on the automotive – in the automotive area, I think, we have a reasonable understanding there, while PMM and IPC with the higher distribution and much broader customer base is a little bit more difficult to interpret.

We can take one more question please.

We will now take our next question from Veyzel Taze from Oddo. Please go ahead.

Yes, thank you for taking my question. Just one on the capacity constraints you mentioned. I mean, this seems to be a really topic for you guys and the industry in general. Despite the 300 millimeter fab you have in Dresden, do you see down the road in one, two years ramping a completely new fab in order to handle the growth you’re seeing?

Well, Veyzel, thank you for your question. A general remark which was not given today is, I think, Infineon is in an excellent position regarding our manufacturing strategy for power and sensors to outgrow the rest of the market. In Dresden, we have clean room available and Kulim, we have clean room available and we follow a clear strategy, which can be given in more details by Jochen how we deal with clean room and the capacity extension.

Yes, we do have…

If I may a very we brief – sorry, a brief – really a very brief follow-up on the IPC. This segment seems to – was historically with the margin profile below target 17%. Going forward, are we now at the group level of 17% for this segment or was that now an exception what we have seen this quarter?

So IPC had been – when you look back in history longer time shown very good margins. In-between, we had been facing in some areas in the portfolio some challenges. So we can clearly say that with 19.9% in Q2, IPC is, let’s say, better than the 17% target we have given Infineon. And we expect that IPC can maintain. This level – currently, we also communicated that due to favorable product mix for driver IC, we see a peaking there, but it will be, at least, at or slightly above group average – group charge, I would say.

Thank you very much.

Yes.

Okay. So thank you all for your questions. With that, we would like to conclude the quarterly conference call. For further questions, please feel free to contact us in the IR team here in Munich. Thank you very much, again, and have a pleasant day.