Uli Pelzer - IR Reinhard Ploss - CEO Dominik Asam - CFO Arun Mittal - Sales and Marketing

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

Good morning and welcome, everyone, on behalf of Infineon Technologies to our Fiscal Q1 2015 Conference Call. Present on this call, as ever, is the entire Infineon Management Board. That is Reinhard Ploss, our CEO; Dominik Asam, our CFO; and Arun Mittal, our Member of the Board responsible for sales and marketing regions, strategy development and M&A. As usual, we've prepared a couple of introductory remarks that will be read out by Reinhard Ploss and Dominik Asam, and after that, we will open the call for Q&A. With that over to you.

Thank you, Uli. So let’s get started. Good morning everyone and welcome to our fiscal first quarter 2015 results telephone conference. I will begin today’s call with some remarks on group and division results on market developments and our achievements during the quarter. Dominik will then comment on financials before I conclude with the outlook. After that, we will be happy to answer your questions. We are off to an excellent start into the 2015 fiscal year. For the Infineon Group sales came in at €1.13 billion down 4% from the previous quarter. At first glance our revenue performance topped our guidance but on a constant currency basis our sales came in at the top end of the prognosticated range. Segment result came in at €169 million with the margin of 15%. This also beats our guidance of 10% to 13% segment result margin. Include in the segment result figure however are benefits relating to a more advantageous financing of our Campeon Corporate Headquarters as well to the more favorable exchange rate of the U.S. dollar against the euro. In total, these positive effects contributed about 2 percentage points of segment result margin. Excluding those effects segment result margin therefore was also at the top end of the guided range. In addition to the strong sales and earnings performance, bookings were also very solid. The book to bill ratio for the first quarter of the 2015 fiscal year came in at almost 1.1 for an absolute billings figure in excess of €1.2 billion. Now let me come to the divisional revenue starting with the automotive. And what is normally a seasonally weaker quarter sales remained flat sequentially at €580 million. The strong demand for new cars in U.S. in particular with premium segment of the market was particularly up from the last quarter. Bookings were robust during the quarter with a book to bill ratio coming in at a level of almost 1.1. There basically no change in the top line segment result also showed a little movement. It came in at €72 million up slightly from €69 million in the preceding quarter for segment result margin of 14%. As regards our market success the last quarter was again brought some remarkable developments. Several quarters ago we launched a range of driver products for LED rear lights. In the last quarter we expanded our offering and begin marketing LED driver solutions addressing front lighting with very good success and design wins at several German premium brands. In addition to LED lighting we also saw again excellent traction in safety and other ADAS application. For the mentioned LED driver products Infineon launches the brand name LITIX comprising the automotive LED driver family for reliable comfort of automotive exterior LED lighting applications. On the one hand we won a broad range of magnetic sensors used in electric power steering systems at major Tier 1. On the other hand we recorded another design win for our AURIX 65 nanometer microcontroller for automotive emergency breaking and other ADAS application in the same Tier 1. The total expected lifetime revenue value of this bundle of wins alone amounts about to about €300 million. Now turning to Industrial Power Control, the segment saw a pronounced season decline in turnover from the all-time high of €290 million recorded in the first quarter of the 2014 fiscal year to €190 million in the last quarter. After seasonal strengths in the first quarter of the 2014 fiscal year, products for electric drive saw weak demand for the quarter just ended on the back of normal seasonality and also weak demand in China. Another area of softness was in traction after record sales in the last quarter of 2014 fiscal year. By contrast we experienced some relative strengths form wind energy in China with an essentially flat development relative to the previous quarter. After an announced reduction in feed in tariffs in China after June 2015 we saw short term delivery requests for modules and stacks that we were able to satisfy. Book to bill ratio for the quarter improved to about 1, up from the about 0.8 in the previous quarter. As a result of the €29 million decline in turnover, segment result declined quarter-on-quarter by €16 million to €28 million. Despite the sales decline segment result margin remained at an attractive level of 15%. In terms of highlights we continue to see strong demand for our 6.5 kV high power modules for traction applications in China with a strong contribution to order intake during the quarter. In addition we saw good design win movement across our portfolio of products for industrial drives. In terms of new product introductions we are pleased to report that after the creation of a joint development lab with Chinese customer, we maintained our strong position for induction cooking with that customer and now saw first orders also power modules for air-con applications. Moving on to Power Management and Multimarket, PMM revenues for the first fiscal quarter were down less than what normal seasonality would suggest to €280 million from €300 million in the preceding quarter then that seasonality was more pronounced for high voltage MOSFET, silicon microphones and DC/DC ICs. Areas of revenue strengths by contrast wherein low and medium voltage MOSFETs, RF power amplifiers for base stations and RF products for mobile phones. The segment book to bill ratio for the fiscal first quarter came in at just over 1.1 and has now being above 1 for four quarters in a row. As result of the €20 million decline in turnover, the PMM segment result declined to €48 million, down from €60 million in the previous quarter. Segment result margin stood at the still high level of 17%. As for the last quarter highlights, we continue to experience solid design win momentum for mobile communication product. Amongst others, we landed a significant design win for LNAs and switches at a major global move on phone OEM that will begin shipping in the second half of our fiscal year and we saw an additional design win with the new but increasingly important customer for mobile base station power amplifier. As regards our power products we’re pleased to report progress as well. In digital power management we’re beginning deliveries of systems solutions for the voltage regulator generation VR12.5 of server power management. In AC/DC conversion, we have begun deliveries of our digital Dot DP solution for power supplies to a major global laptop manufacturer and have been awarded as design win for a TV part supply by a major global TV OEM. Next, onto chip card and security, chip card revenues experienced a better than normal seasonality decline of 7% sequentially to €132 million for the quarter. At 22% year-on-year growth, CCS was actually the fastest growing segment significantly outperforming the group average of 15% while mobile communication and payment experienced typical negative seasonality. Government IT solutions grew sequentially. Auto momentum was very strong during the quarter with a book-to-bill ratio coming in at all most 1.4. Booking momentum was driven by our success in payment and government IT application and we had referenced in the previous quarter and that I will talk about later on as well. CCS segment result showed only a slight decline sequentially from €20 million to €18 million with segment result margin of 14%. In terms of business and market highlights, we are pleased to report that our payment business again grew at a year-over-year rate of approximately 40% in the last quarter. This marks the third quarter in a row of between 40% to 50% year-over-year growths for our payment business. This growth underlines our strong market share in the U.S. and growing market share in China. In addition to payment we have several new design wins for government IT applications in Europe and South America. We continue to see strong demand embedded secure elements driven by NFC application and mobile devices and we have won further design wins at leading mobile device manufacturers. Finally after initial design win with a SIM card for an automotive eco-solution in the fourth quarter of 2014 fiscal year, we are pleased to report that the last quarter brought about another equal design win at another major car market. Ladies and gentlemen, this concludes the business review. Let me hand over to Dominik, who will comment in more detail on first quarter financials.

Thank you, Reinhard and good morning everyone. Before commenting on Infineon financials, let me point out that due to the short time spent between the closing of the acquisition of International Rectifier on January 13, 2015 and today’s call results release we have not been able to prepare pro forma consolidated financials according to IFRS for the combination of our business with that International Rectifier. We will publish consolidated group accounts according to IFRS for the combination for the two businesses with our next call reporting on May 5, 2015. What we can say today is the International Rectifier according to U.S. GAAP generated sales of $275 million and an adjusted operating income margin of 7% in the December quarter. In that metric, IFRS U.S. GAAP operating income is adjusted for merger related costs, amortization of intangibles and restructuring expenses in the similar way we adjust IFRS operating income to derive our segment results. After strong September quarter in terms of earnings due to a pronounced pickup in revenues in IR’s very high margin high risk business driven by changes in U.S. legislation, we saw a compound effect of the normalization in revenue run rates in HiRel and the usual seasonal slowdown in International Rectifier’s commercial business. International Rectifier’s net cash position remains roughly unchanged from the previous quarter at US$658 million as of December 31, 2014. Let me now come to Infineon financials. Fiscal first quarter revenues were €1,128 million, a sequential decline of €47 million or 4% on a year-on-year basis revenue increased by 15% from €984 million in the first quarter of the last financial year. The top line performance beat our guidance range that called for sequential decline between 5% and 9%. However, included in the top line development is a benefit from strengthening of the U.S. dollar against the euro. The average U.S. dollar euro exchange rate for the quarter was about 125 compared to the exchange rate of 130 assumed in our guidance. The stronger U.S. dollar drove additional sales of about €20 million. Gross profit declined sequentially by €32 million to €427 million resulting in the gross margin of 37.9%. Adjusted in the gross profit and gross margin development was an increase in depreciation and amortization to €141 million up from €137 million in the previous quarter. Research and development expenses came to €139 million down slightly from €140 million in the quarter before while selling, general and administrative expenses totaled €136 million also down slightly from €138 million in the preceding quarter. Segment result for the first quarter was €169 million and segment result margin was 15%. Our guidance for the quarter had called for segment result margin between 10% and 13%. Included in our segment result is a non-recurring positive effect from the reduction of the liability from the linearization from the lease payments for our corporate headquarter Campeon, due to the lower expected lease payments totaling about €14 million. In addition the stronger U.S. dollar euro exchange rate relative to our budgeted grade also had a positive effect on segment result margin. Adjusting for the Campeon and foreign exchange effects our segment result margin would have been about 13%. Operating income was €153 million for the fiscal first quarter up significantly from €180 million in the prior quarter. Recall that operating income in the fourth quarter of the 2015 financial year included a non-recurring charge of €83 million in connection with the antitrust ruling of the European commission against our CCS division. The financial results including income from equity method investments remained unchanged sequentially at positive €1 million. Going forward you should expect the quarterly negative result of between €5 million and €10 million in this category as the financing expense for the acquisition of International Rectifier will begin to kick-in in the current quarter. Continuing with tax, we recorded an income tax expense of €24 million for the quarter. Income from continuing operations was €130 million down from the previous quarter’s €148 million and the fourth quarter of the 2014 fiscal year had a tax benefit from revaluation of deferred tax assets that did not repeat itself on the cause of the quarter just ended. Net income from discontinued operations declined to €6 million down from €33 million in the preceding quarter as positive one-time effects from our settlement with Qimonda insolvency administrator did not repeat themselves either. Resulting net income in the first quarter was €136 million down from €181 million in the prior quarter. Basic and diluted EPS were €0.12 for the first quarter down from €0.16 in the fourth quarter of the 2014 fiscal year. Free cash flow from continuing operations for the December quarter stood at negative €171 million up a positive of €158 million for the preceding quarter. The deterioration in free cash flow was brought about on the one hand by lower profitability and by working capital effects on the other. More importantly however free cash flow from continuing operations in the first quarter of 2015 fiscal financial year was burdened by negative one time effects totaling €208 million relating to the settlement with the Qimonda insolvency administrator and the fine paid to the EU antitrust commission. Adjusting for these one-time effects, free cash flow from continuing operations stood at positive €37 million up from €30 million in the same quarter last year. Please note that free cash flow from discontinued operations of minus €140 million contains an additional one-time cash outflow of €135 million also related to our settlement with the Qimonda insolvency administrator. Let’s now move on to liquidity. As a result of the cash flow effects I’ve just explained Infineon’s gross cash position declined from €2.480 billion at the end of the September quarter to €2.107 billion at the end of the December quarter. Our net cash position declined from €2.232 billion at the end of the 2014 fourth quarter to €1.917 billion at the end of the December quarter. Last but not least let me address our after tax return on capital employed or ROC, it stood at 18% for the first quarter after 24% in the preceding quarter. The decline in ROC is brought about by lower operating income after tax but also by a marked increase in our capital employed from €2.452 billion as of the 31st of September 2014 to €2,969 million at the end of December quarter. The increase in capital employed reflects the decline in provision and liabilities brought about by the payments for the Qimonda settlement, the EU antitrust ruling against our CCS division and expiration of 4.5 million put options on our own shares. The remaining provisions and liabilities related to the Qimonda insolvency proceedings and put options on our own share stood at €83 million as of December 31, 2014. These again reduced our capital employed, but should be regarded as nonrecurring and unrelated to our operating business. In addition please bear in mind the capital employed will increase substantially as of 31st of March 2015 as the acquired International Rectifier business will be reflected also within our capital employed. Let me now handover back to Reinhard who will comment on our outlook.

Thank you, Dominik. As Dominik explained early on, the short time between the closing of the acquisition of International Rectifier and today’s quarterly results released does not allow for combined company guidance. Nonetheless, before we move to the outlook for Infineon excluding International Rectifier, we would like to point out that the amortization of intangible assets generated through the acquisition of International rectifier will drive significant noncash expenses that we were recognized as part of our non-segment result from the current quarters on. We planned to introduce additional pro form reporting under which we will adjust our net income and earnings per share readings for these expenses. Integration cost and other item which have used so far only for the bridging from operating income to segment results. Let me now come to the outlook for Infineon excluding International Rectifier. For the second quarter of 2015 fiscal year and using assumed exchange rate of U.S. dollar against the Euro of 1.20 Infineon expects revenue to rise between 5% and 9% sequentially as all divisions contributing higher turnover. Reflecting higher sales and the stronger U.S. dollar on the one hand and usual annual price reduction for customers on the other hand, segment result margin should come in between 12% and 13% of sales. Based on an updated exchange rate of 1.20 for the U.S. dollar against the Euro was just 1.30 so far, we now expect sales in the 2015 fiscal year to grow at a rate of 12% year-over-year plus or minus 2 percentage points. At the midpoint of the revenue guidance, we expect segment result margin to come in between 14% and 15% of sales. This regards to investments defined as the sum of outlays for PP&E and intangible as well as capitalization of R&D spending, we anticipate to spend €750 million where that we plan to spend between €60 million and €70 million on rating our Kulim 2 shell for mass production and outlay of an addition €21 million for the purchase of certain intellectual property rights under the terms of settlement reach with the Qimonda insolvency administrator is also included in the investment budget. We continue expect depreciation and amortization for the 2015 fiscal year to come in at approximately 600,000 million. Ladies and gentlemen, as you know the acquisition of International Rectifier has closed on the 30th January 2015, so combination of our business creates tremendous potential. For one thing, the two companies together form the clear market share leader in power discrete worldwide by a wide margin. Second the combination of our two companies create by far the broadest portfolio of low-voltage MOSFETs, high MOSFETs and IGBTs worldwide addressing multiple high growth applications, and the combination of Infineon with International Rectifier also generates the clear leader at the promising wide band-gap material, silicon carbide and gallium nitride. As we put the combined capabilities of both companies to productive us, we are confident that we will generate not only superior solutions for our customers but also superior growth and profitability for employees and shareholders alike. As such we remain convinced that International Rectifier on a pro forma basis excluding the amortization of acquisition related intangible and restructuring expenses, we’ll make a positive contribution to our earnings per share right from the get go. Furthermore we remain convinced that acquired business will feed the segment result margins at lease in line with our corporate goal of 15% at the latest in the second full fiscal year post closing. We are excited by the prospect of realizing the strategic and financial benefits of the combination with International Rectifier over the quarters to come. Ladies and gentlemen this concludes our introductory remarks, and my colleagues and I will now be happy to answer your questions. At that time typically I would turn back to Uli Pelzer and just say Uli do you job, but I think now some, I would -- Era comes to an end. Uli has served and supported us for nearly one decade 38 quarters of investor communication I think he’s done a tremendous job and I also want to thank him personally. When I stepped in as CEO he was a big help to me to get known to the investor communication and understand what are the requirements and continue the communication we had. Uli will move on to a very challenging new position power management and multimarket the division which is most affected by the integration of International Rectifier. He will become the Division CFO experiencing new challenges but I am very sure he will manage this as well as he’s done the communication to the finance community. He will hand over to Jürgen [Noriben] for sure continue the open and trustful communication we had up to now. So this is the last day at least in this rough of Uli and with this I give back to Uli to guide us through. Thank you.

Thanks for that. I am slightly caught by surprise. Thanks very much for your kinds remarks. It’s certainly been my pleasure doing this for the last 38 quarters and I shall be watching from the far and I am sure that will be a pleasant exercise as well. And thank also the listeners on the phone for continued interest in the company. I wish you a lot of fun working with Jürgen going forward and Jürgen a lot of fun working with you all going forward. So then without further ado we should proceed to the Q&A session. Operator if you could please call for questions. Thank you.

(Operator Instructions) And we’ll take our first question from Jerome Ramel of Exane. Please go ahead your line is open.

Good morning. Two questions, if I may. The first one is -- I'm not sure I heard this, have you disclosed the book-to-bill per division? And second one; Just if you could explain us the EBIT margin, the segment result margin for Q2, which is a little bit light. You mentioned price renegotiation. Can you quantify it a little bit? Thank you.

Let’s start with the segment result margin for Q2 Dominik will comment on this book-to-bill and then Arun and I will comment on the following.

Sure. I think if you look at the segment result margin this is actually a relatively normal development comparing Q1 to Q2 because of the price decline we usually experienced in the March quarter and you should of course bear in mind that we had special effect which we just commented related to Campeon in the December quarter last year you should keep in mind that there was a special positive effect in the second quarter. And if you then eliminate all that you will see that that sequential development and kind of also sequential development in revenues and segment result margin are actually pretty much what is the usual trend we see because of the price decline at that point in time.

Okay, on the book to bill per division since we not had mentioned it on the speech I’ll repeat that. Automotive we had 1.1 in the last quarter IPC 1.0, PMM 1.1 and chip card 1.4.

Okay, thank you very much.

Thank you. We will now take our next question from Achal Sultania of Credit Suisse. Please go ahead your line is open.

Thanks, just two clarifications on your full-year guidance. I see there is a slight change in the wording around growth expectations for automotive and industrial business for 2015. Can you just clarify as to what's changed and why there is a small change in the wording? And then the second thing is on the full-year guidance for 10% to 14% growth for top line. Is it like -- last quarter, if I remember, you said 6% to 10%, and within that, there was a 2% FX tailwind so I'm just trying to see. Is it like 5% FX tailwind in this 10% to 14% growth guidance, or is it a different number? Thanks.

Okay. Dominik, please.

So let me start with the second part of the question which is the tailwind from the FX. Actually this is pretty much the part of the change in the guidance so you can simply back solve. We have not really raised fundamentally the second half of the year and the guidance in total so from that perspective we have a relatively moderate compared to normal seasonality and moderate increase in the second half of the fiscal year. So it’s pretty much the full effect is the FX. So the second question was the wording I am not sure we really had a big thought about behind that wording, there is no major message behind that.

But is it fair to assume that the industrial business probably -- you talked about significantly below Group average and now you're talking about below Group average. Is it -- are you seeing slightly better trends now in industrial, or is it still going to be much weaker?

This was simply to avoid the confusion that it appears we now may have created which is that the industrial business is not growing at a very low rates or in fact perhaps even a negative growth rate it was simply to say there is positive growth that just slightly below the group average. No other major thought behind it.

Okay, great, thanks for the clarification.

Thank you. We’ll now take next question from Kai Korschelt of Merrill Lynch. Please go ahead. Your line is open.

Best of luck to you, Uli in your new role. I had a couple. The first one was on the Rectifier and the overall impact. Based on what you've told us, 7% margins, possibly a different base due to difference in accounting. So I'm just wondering roughly speaking, do you have any idea on the magnitude of the margin impact that the -- on a full-year basis that the acquisition may have as the margins seem to be meaningfully lower? But again, there may then be difference in the accounting? That was my first one. And the second one was if you could give us some color on China maybe excluding the automotive segment. I'm just wondering. It does look like the economy is structurally slowing down. Which areas are you strong for you; which are weak? That would be interesting. Thank you.

So Dominik will start the year. The China, I will answer.

Sure and regarding the diluted effective segment results in the current year it’s pretty straight forward. The transaction from U.S. GAAP to IFRS, if anything should be little bit positive because we have to capitalize some R&D some really special R&D under IFRS which International Rectifier has not done under U.S. GAAP, but we have not quantify this because this is a very complicated project by project evaluation of each single R&D project. So this will take some time but next time we will tell you. Now it is just start of the kind of 7% I mentioned and that was kind of December quarter and the prior quarter they were significantly higher. You see there is kind of -- they have about very roughly half in margin we have and the size of business is well somewhere between actually 17%, 18%, 19% of our revenues. So you can simply blend in that dilutive effect but as we move over the quarters of course we'll start reaping some synergies. There are some log handing fruit which we can harvest quite quickly but of course it will be hard to bring it up very significantly very shortly. The bigger step will then follow in the following fiscal year and then as we said in the second full year of operation we want to bring them to our own margin and that point in time there should be no dilution whatsoever in the margin anymore.

Okay now China, this is a very diverse picture, you cannot say very simply what is going on there. Currently we recognized that from a revenue point of view in the IPC area more the consumer business and the low voltage business is getting I would stronger while the industrial equipment is weaker. The biggest driver will come from infrastructure and traction which is a five years plan of Chinese government where we definitely see increase demand and there is voltage, high voltage power modules to come. I think as I said, the rest is a little bit depending on the industrial growth. For my mobile, we definitely see a significant pull from the Chinese market with the overall strengthen of the growing segment there and we are well positioned to benefit from this and high frequency devices as well and the microphones as subsequently. Also about developing chip card here of despite the fact that you always can assume some political hurdles. Nevertheless, we make good in road here so overall I would state China being a net positive any would at automotive this is strong positive effect for our business.

Thank you. We will now take our next question from Sandeep Deshpande at JPMorgan. Please go ahead. Your line is open.

I have a couple of questions. Firstly, on -- within IPC, historically, you've had exposure in the renewable energy market. Can you possibly tell us how much exposure at this point you have in the renewable energy market given that there have been some -- there are some ups and downs in that market at this point? And secondly, my question is regarding the growth you are seeing at this point in terms of your book-to-bill. Your book-to-bills in the various segments, as Arun just gave the numbers, have increased from the previous quarter, so the order intake in the past quarter clearly was very strong. And so where are these orders improving for Infineon at this point? Thank you.

Yes, Sandeep, revenue has always been 20% or so, 15% to 20% of IPC business and you’re very right within renewable we have seen some changes between wind and solar where solar is a bit soft. Having said that in the last quarter, fourth quarter of calendar year typically tends to be slow with winter season coming on and Western hemispheres less installments of solar panels go live. Wind, on the other hand, we see some trends which encourage us. Reinhard said in his speech that by June 2015, the Chinese government wants to change their so called feed-in tariff system and therefore we see some pull coming from that market to ensure installations ahead of time. So that’s about renewals. The second question was on book-to-bill, there, there are different messages I think clear message was that in every division we’re seeing a book-to-bill of more than one ranging from one in IPC which is nothing exiting but definitely nothing which we’re upset about to 1.4 in chip card where banking and payment as a whole in addition to NFC business is driving the bookings.

Maybe some general comment here, what we see is that due to the high load -- I would say we are not on allocation but on tight delivery and we see that some of the booking behavior might be affected from this. So we are careful in accessing the book to bill ratio as a forecast on the total business development moving on in the months now we will get more clarification on this and also the effect of Chinese New Year and then we are sure we will see clear for the rest of the year.

Thank you. We will now take our next question from Adithya Metuku from Bank of America. Please go ahead your line is open.

Good morning guys. Thanks, just a quick follow-up to Kai's question. A lot of the industrial companies are talking about weakness in the oil and gas space and CapEx cuts in that space. I was just wondering if you could give us your views on how you see the effect from that on your business. Thank you.

The effects of this business for us is pretty small the major I would say use is for the compressors of gas and the drilling and there is I think very specific and overall this had never been a real huge effect on our business. So the exposure to oil and gas is limited in the up and down. Maybe with the coming business of the high reliability devices we call HiRel you might see some effects for the high temperature devices which go down with the drilling so on and so forth but also it is I would say interesting but revenue wise of anecdotal effect.

Thank you. We will now take our next question from Gareth Jenkins with UBS. Please go ahead your line is open.

Thanks, one follow-up on IRF, and one other short one, if I could. Just on IRF, I think the growth rate year-over-year is low single digit now in dollar terms. Consensus was somewhere between 9% and 10% when you announced the acquisition. I just wondered what revenue growth in dollar terms is baked into your plan of getting to 15% over the next two years. And then just secondly, I wondered if you could talk about the inventories downstream; what you're seeing in terms of just the inventories and at your end customers. Thank you.

Okay, maybe Dominik can comment on the plans we have for IRF and Arun will explain on the inventory.

So yes absolutely the year-on-year growth was low single digits in the number of course we have digested the headwind base experienced in terms of competitiveness coming from the U.S. dollar it’s kind of the flipside from the tailwind we enjoyed on Infineon side. With regards to our growth ambitions to bring the business to 15% we have clearly said that we still aim for the same kind of combined growth rates of 8% in the mid to long term and this is also true after the combination of International Rectifier so that means we have to bring them up to that level. The challenge in kind of dissecting the contribution from both companies is that there are some areas where the products are very similar where we have to decide which products we are going to continue or discontinue so it will be very tough to really allocate that to one of the two companies. But in total we are still confident about that type of growth level and then that is what we have as we go so in terms of how we can get to that 15% plus margin level.

Okay, Arun here Gareth on the inventory at channel distributors we had quarter-over-quarter flat inventory so no increase no decrease. On a global basis sell through via the inventory channel we had an increase of single digit 4%-5% so very healthy there. Direct customer is varying of course but all in all if we assume 45% of our business comes from automotive the car makers have a very descent inventory which has gone down at least in the U.S. and now to 67 days of inventory which is a very healthy number.

Thank you. We will now take our next question from Pierre Ferragu of Bernstein. Please go ahead your line is open.

Good morning. This is [Jasmeet Chadha] speaking on behalf of Pierre but thank you my question has already been answered.

Thank you. We will now take our next question from Andrew Gardiner of Barclays. Please go ahead your line is open.

Good morning. Thank you just a quick congrats to Uli as well. My question's really around FX, firstly on the book-to-bill. You've highlighted the FX benefit in revenue. I'm just wondering how much of it is due to rising book-to-bill. was a boost from FX? And also you mentioned related to that you’ve been a bit cautious giving the allocation also tight delivery timelines. Can you give us an idea of which segments in particular or products you might be on allocation with?

So the effect on the exchange rate Dominik well.

On the book to bill we have a little bit of a different effects from the change of an exchange rates we basically book at the kind of prevailing exchange rate at any point in time but then the backlog is only kind of adjusted every month and due to no exchange rates. So this is how this is how it’s going kind of feeding to our booking numbers, but in total I’d say given -- the affect pretty much similar in both number it’s not a big major thing you have to worry about.

I think definitely already in the current revenue numbers we also have the exchange rate in so I think cannot isolate it at the movement. Regarding the delivery situation, I think here we cannot give a detailed picture or even hint on product, I would say here we have some very fast I would say renting business which is by platform and I would relive in some automotive area, so you have a compound effect on improving and becoming tighter so that you cannot derive a certain assessment by the divisions. The only point is that we can see some potential effects on the booking behavior of our customers not from the revenue side as in a total.

Okay. Thank you, if I could just follow up on the FX, thinking through revenue then to margin. If I look at your full-year revenue guidance of about 12% growth, you're still implying sequential growth into the fiscal third and fourth quarter from the very healthy level in the second quarter. And pairing that with 14% to 15% operating or segment result margin, you're expecting a little bit of margin expansion in that third quarter and fourth quarter, but on my math only to about 15% or so, a normal type of seasonal gain. Why, given the FX tailwind, wouldn't we be seeing more? And perhaps what's going on within either gross margin or OpEx to be limiting that? Thank you.

So if you compare that number to our prior guidance and as you pointed out it’s kind of about half of percentage point to kind of midpoint increase and this is one-to-one or more pretty the dollar exchange rate. There kind of seasonal recovery in the EBIT margin, I mean this is also a question about how we increase our OpEx them to sustain further growth and how we make progress on the gross margin but I think we don’t think that this is a kind of a very typical behavior, so I think I don’t want to comment anymore in that. We will see, we will need us a certain margin improvement and don’t forget very important we had a special effect in the December quarter related to Campeon, which I mentioned and of course the tailwind from the dollar, if the dollar stays at the current level will continue but that onetime effect on Campeon will go away and then you’ll see a pretty significant increase over the quarters to come. If the down quarter in March which is very normal as I mentioned before on the call and then you need some sequential increase to get to that 14% to 15% guidance. Of course if dollar is staying at 1.10 or 1.12 there is upside because we’ve assumed 1.2 in the assumptions.

Thank you. We will now take our next question from Guenther Hollfelder of Baader Bank. Please go ahead. Your line is open.

Just one on the gross margin in the second quarter, if we will compare it then with the second quarter last year, I think there's a 20 basis points negative impact coming from D&A. Are there any other special impacts? I think you mentioned something from last year in the second quarter. How do these two numbers, or will they, compare?

I think last quarter if I recall correctly and please jump in if that's not right, I think it was 24 million from inventory reserves last second quarter which was a positive one time effect and that is not going to be reoccurring, so you will see that actually if you adjust for that it takes you pretty decent gross margin development.

Okay, great. Last question again on the currency impact, I think you disclosed that in the first quarter there was an 8 million or a 70 basis point positive impact on the segment results. What about the second quarter? Shouldn't it increase in the second quarter?

I recall that we always bring that rule of some that for every single change in the Euro dollar exchange rate by Euro $0.01 that translates into about 1 million per quarter and I think this kind of impact in the quarter was more above 10.

Small remark here of course this will change with the integration of the International Rectifier business where we are becoming more dollar heavy.

And is there any hedging in place right now which is limiting the positive impact on segment results?

Yes, we do our normal 2 to 3 months hedging so there is a little bit of deferrals so to speak but it’s not very major.

Thank you. We will now take our next question from Johannes Schaller from Deutsche Bank. Please go ahead. Your line is open.

Just on automotive, could you maybe give us a bit of an update on your capacity utilization at the moment? And then also with the investments to come in Kulim, maybe give us a bit of a view on how your capacity should look for, say, by the end of 2015 or the end of 2016? And then also just a quick follow-up on the slightly higher CapEx number, is that mostly an FX impact as well, or is there an underlying increase here too? Thank you.

So very briefly we do not have specific capacity for automotive in place or the enlarge here the capacity with others of course the growth of the 200 millimeter production and the pull in of Kulim 2 production readiness is due to the stronger development of the automotive business and we will increase the capacity here as we continue to grow the only reminder I want us have here is that typically the lead time between investment revenue is between six to nine months for automotive.

On the CapEx question yes you’re absolutely right the U.S. dollar plays a role here we buy a lot of equipment denominated in U.S. dollar and as it appreciates we have to pay more for the same equipment. On the other hand there is also an effect which is the structure has been slightly changed that we see more demand even more demand in the wireless applications where there is dedicated products we need to invest into sustain that growth. And last but not least I mean we have come out at the high end of our revenue guidance range if you adjust for U.S. dollar and that gives us also more confidence in the kind of mid to long term growth.

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

Thank you very much. In terms of the International Rectifier results for the quarter, 7% margins, just wanted to know if you had any more details; if it's the usual quarter whereas like 75%-80% of the profit comes from HiRel?

I mean there is nothing really abnormal I can report -- it was a little abnormal in September quarter where they had a very high share of HiRel business because of that changes in legislation and as you know HiRel is very profitable so that distorted the number slightly to the upside I think this quarter is that returned to normality I’d say.

Thank you. We will now take our next question from Janardan Menon of Liberum. Please go ahead your line is open.

Thanks for taking the question. Two small questions, one is, can you just give us an update on the 300 millimeter fab, how the qualifications are going both on the MOSFET side as well as potentially on IGBTs and what the utilization trends are likely to be through the course of the year? And secondly, just looking at your automotive business, your guidance is for 8% roughly, which is 4% of vehicle production and 2% to 4% of content. But 2% to 4% is quite a wide range and you grew at about 14.5% in automotive, I think, last year and this year, you're guiding to about 12% with, I agree, some currency benefit. But how do you see the 2% to 4%? Is that a number which needs some updating? I remember that some time ago you were at 10% and then you brought the number down to 8%. Is that a number -- given the increasing content in cars, is it a number which requires updating? And is there any chance that in reality it could be even higher than 4% going forward?

Especially the automotive is a little bit difficult question for the moment the 2% to 4% range reflects the uncertainty of the content or the percentage of electric driving car on the other side last year we were caught a little bit by surprise on the penetration of electric operated trunk and so our expectation is that it will move up and down significantly due to how fast the advanced driver system take place and security elements come in on the electric drive train side we are cautious with an upside potential for a very low voltage extremely mild hybrid for the 48 volt so I think here we are still feeling pretty confident on it and I think we look back we even had communicated 1% to 2% range for the content which we have now increased. We believe that for instance LED I would say a lot of comfort but mainly the advanced driver system will drive it for the moment. So I think here we have to wait to see, there is not a clear picture for the moment if you can take up this number which from our point of view are the number is pretty solid already.

And the 300 millimeter?

The 300 millimeter thank you for reminding me, the 300 millimeter here we have to I would say address a little bit weaker growth of the power business which is the total capacity growth and not utilization growth coming in the MOSFET clarification is very much in plan CoolMOS and low voltage MOSFETs are qualified to the lower power IGBT are qualified too and ramping so here we ramp the capacity according demand being a little bit behind the originally planned total capacity curve but utilization I think here is not the element it’s more the economy of scale which we are targeting for. Currently currently we also expect to develop increasingly number of new technologies directly in 300 millimeter. I think it will contribute moving forward, but major effect there is slower PPM power business.

And where is that slower effect coming from? Your PPM is doing quite well on the top line?

I think here we have some effects that for instants for the PCs and others. The total power consumption of the devices has moved down so the power content as reduced to a certain degree just not about marked share losses and therefore it is we expect this will recover sooner or later and we continue to grow. The major growth in PPM was, for sure, coming from the mobile phone business.

Thank you. We will now take a follow-up question from Sandeep Deshpande at JPMorgan. Please go ahead. Your line is open.

I was just wondering whether you have given any indication at all about how the orders at International Rectifier are at this point looking into 2015.

Obviously we look at that and as we mentioned we’re going to provide full year guidance in the next quarter and for the time being, I think it’s wise in that particular business we’re going to wait for Chinese New Year and then we’ll have a clearer picture.

Thank you. We will now take a follow-up question from Guenther Hollfelder at Baader Helvea. Please go ahead. Your line is open.

You mentioned major design wins for the automotive business. I was just wondering about margin potential over the medium term. I think right now, margin is probably negatively impacted by the microcontroller business in automotive where you have right now a relatively small market share and high R&D expenses. So looking at the new design wins and over the medium term, what's the outlook for automotive? Thanks.

So I think here commenting on the automotive, it is -- while the market share for microcontroller in automotive we feel I think pretty confident that our 32 bit architecture is now making any increasingly inroad. We have still substantial share in the power trend. I think here you know all the micros are more or less sold on a tough negotiation, so I think here not a matter the expense. Here we also make very good progress in the expense because since we are using manufacturing partners like partners like TSMC and GlobalFoundries, we could reduce the technology development cost significantly. We will drive this strategy further and increasingly use existing technologies that will contribute positively on the OpEx side. On the side most of the business is the project business or prices are long term agreed while only a smaller part is shorter term. Here we are cautious to -- I would say -- I would give a clear number because we expect that from the high dollar many American customer they’re now show up and as for price reduction. I think of course we will fight against this, but I think the margin development and automotives will be pretty flat.

So I am afraid we’ve reached the end of this time slot. We have to cut it short here. And thank you everyone for dialing in and I do look forward to all of you and myself dialing into the next call on the 5th of May. Thanks everyone bye-bye.