Jürgen Rebel - Corporate Vice President, Investor Relations Reinhard Ploss - Chief Executive Officer Dominik Asam - Chief Financial Officer Arunjai Mittal - Member of the Management Board, Marketing, Strategy Development and M&A

Andrew Gardiner - Barclays Sandeep Deshpande - JPMorgan David Mulholland - UBS Achal Sultania - Credit Suisse Janardan Menon - Liberum Johannes Schaller - Deutsche Bank Kai Korschelt - Merrill Lynch Amit Harchandani - Citigroup Jérôme Ramel - Exane BNP Paribas François Meunier - Morgan Stanley Tammy Qiu - Berenberg Adithya Metuku - Bank of America Günther Hollfelder - Baader-Helvea

Good morning, everyone. Welcome to the conference call for the analysts and investors for Infineon Technologies 2016 Fiscal Second Quarter Results. Today's call will be hosted by Jürgen Rebel, Corporate Vice President, Investor Relations of Infineon Technologies. As a reminder, today's call is being record. This conference may contain forward-looking statements based on current expectations or beliefs, as well a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these statements and they should not put undue reliance on them. For a detailed discussion of important facts that could actual results to differ materially from the statements made on this conference call, please refer to our quarterly and annual reports available on our website. At this time, I'd like to turn the call over to Infineon. Please go ahead. Jürgen Rebel: Good morning, ladies and gentlemen. Welcome to the conference call for analysts and investors to Infineon Technologies 2016 Fiscal Second Quarter Results. With us today, we have Reinhard Ploss, our CEO; Dominik Asam, CFO; Arunjai Mittal, Member of the Management Board, representing Region Sales, Marketing, Strategy Development and M&A. We'll start with an introduction by Reinhard. Then the entire management board will be happy to answer your questions. A recording of this conference call and a copy about 2016 fiscal second quarter results and earnings press release will also be available on our website at infineon.com Reinhard, please go ahead.

Thank you, Jürgen. Good morning, everyone and welcome to the telephone conference for our second quarter fiscal year 2016 results. I will begin today's call with some remarks, improvement divisions results on market developments and on our achievements during the quarter. Dominik will then comment on financials before I conclude with the outlook. After that, we are happy to take your questions. Let me begin with group performance in the March quarter. We experienced a challenging environment, but we managed to get revenues and segment results to come in slightly better than expected. Revenues flow sequentially by 4% to €1.611 million. They were driven primarily by strength in Automotive. On the other hand, Industrial Power Control and Chip Card & Security also experienced a good seasonal upswing in March quarter. Power Management & Multimarket showed a slight decline as we had expected. Segment result was slightly up €228 million representing a segment result margin of 14.2%. The book-to-bill ratio for the second quarter came in at 1.1, the absolute booking figures stood at a solid €1.7 billion. Let us now take a look at the division. Automotive revenue jumped by 9% to €670 million for the quarter, up by €56 million as a result of strong markets in North America, Western Europe and China. Demand for electric drive train solution continued to be very strong. The book-to-bill ratio came in at 1. The segment result increased to €94 million from €81 million in the preceding quarter. These translate into a segment result margin of 14% compared to 13.2% in December quarter. The increase is a result of higher sales. The strong momentum that we saw in electric mobility in the December quarter continued. The Chinese Association of Auto Manufacturers confirmed the expectation that in 2016, the number of so-called new energy releases sold in China might more than double compared to 2015 to about 700,000 units. Besides the strong demand from running platforms, we could also further strengthen our position in the [indiscernible] market for future platforms during the quarter. We secured several design wins for power components in [indiscernible] for next generation plug-in-hybrid and purely electric vehicles at leading OEMs. During the quarter, we were also able to build further designs for our AURIX 32-bit microcontroller platform in advanced driver assistance systems and in classic power train. This further strengthened our position in these markets and supports our growth in the future. A few days ago, market research from strategic analytics published the vendor share data for the year 2015. I'm very proud that after many years of hard work, we are able to surpass our strongest Japanese competitor and keep our number one - number two position in the market. Let us now take a look at Industrial Power Control. IPC generated revenues of €265 million compared to €249 million in the preceding quarter. This marks a 6% increase quarter-on-quarter. Key drivers for the seasonal upswing where the renewables and major home appliances. Outside China, demand from major home appliances was strong. Inside China, we still see inventories of Chinese OEMs. The traction market also showed some good momentum. The book-to-bill ratio came in at 1.2 in the March quarter, pointing towards a typical seasonal upswing in Q3 and Q4. The segment result improved by €3 million to €26 million compared to €23 million in the December quarter. This equals the segment result margin of 9.8%. The increase in segment result comes on the back of higher revenues. The seasonal development in renewables started a bit earlier this year than typical. This also translated into a strong demand for our silicon carbide diodes and hybrid modules, which feature a combination of our benchmark silicon IGBTs and silicon carbide diodes. Overall, we continue to be pleased with the strength that we see in renewables, particularly in China. We remain very confident for the long-term outlook. Let us now come to Power Management & Multimarket. Revenues of PMM decreased by 3% to €496 million, €14 million down from €510 million in the December quarter. We have expected a slight regression as PMM had a very strong first quarter that showed only half the normal seasonal decline if you remember. The boom in electric vehicles in China is also felt in PMM. We delivered our 650-volt CoolMOS Power MOSFETs into charging stations. China is currently setting up a network of those. The outstanding performance of our superjunction technology provides advantages on system level. This allows for a very compact design of these charging stations and drove a strong demand for our CoolMOS product. This momentum will continue. Looking at the Power business as a whole, the business was more or less flat when comparing the margin in the December quarters, this AC-DC a bit better and DC-DC a bit softer. However, this is also as a result of the strong December quarter that experienced a much better seasonality in the power business at the time. As anticipated, the demand for components for smartphones was weaker. However, to the positive, we saw our design wins with Chinese handset OEMs starting to ramp and thus, strengthening our customer diversification. The mobile base station business continued to show a very nice recovery with a strong demand for our RF power components. The book-to-bill ratio came in at 1. The PMM segment result declined in line with volumes to €74 million translating into a segment result margin of 14.9%. Let us now move on to Chip Card & Security. Revenues increased by 4% quarter-on-quarter to €180 million compared €173 million in the first quarter. The positive revenue development was mainly driven by strong demand for our solutions for government identification documents and payment application. But also, solutions for security mobile devices were in high demand. The book-to-bill ratio came in at 1.2. It also includes a significant portion of long-term orders and should not to be taken as an indicator for another sequential increase. Segment result increased moderately to €36 million which equals a segment result margin of 20%. During the second quarter, we saw further demand for Infineon's IoT security solution. Leading device manufacturers choose the Infineon OPTIGA Trusted Platform Modules for securing their IoT devices. In addition, Lenovo selected OPTIGA TPM clips for its new line of ThinkPad notebooks. Likewise, our strength in securing mobile devices was underlined further. Samsung's newly-launched flagship, Galaxy S7, as well as Galaxy A smartphone featured our embedded secure element chip. The March quarter also marked key wins for our solid flash-based products for government identification, as well as payment applications. Ladies and gentlemen, this concludes the business review. Let me now hand over to Dominik who will comment in more detail on second quarter financials.

Thank you, Reinhard and good morning, everyone. Second quarter revenues were €1.611 billion, a sequential increase by €55 million or 4%. The average U.S. dollar-euro exchange rate for the quarter was about 1.10 and as such, in line with the assumed exchange rate underlying our guidance for the second quarter. Gross profit, research and development, as well as selling, general and administrative expenses continued to be influenced by the effects of the consolidation of International Rectifier. Gross profit increased to €566 million, up from €558 million in the December quarter, resulting in a gross margin of 35.1%. Research and development expenses decreased slightly by €3 million and stood at €195 million. Selling, general and administrative expenses decreased by €5 million to €195 million. Net, other operating expenses amounted to €2 million. Included in these numbers are €54 million of non-segment result charges. Of that amount, €49 million are amortization and other charges related to the acquisition of International Rectifier. €22 million of these charges hit our cost of goods sold. In R&D and SG&A, we booked International Rectifier acquisition-related charges of €2 million and €23 million respectively. €2 million were other charges included in other operating expenses. This acquisition with a cost predominantly include amortization of acquisition-related intangibles, special retention plans and other integration-related expenses. Excluding acquisition-related and other non-segment result effects related to International Rectifier, the gross margin stood at 36.5%. We recorded the segment result of €228 million for the March quarter compared to €220 million in the December quarter, a sequential increase by 4%. The segment result margin came in 14.2%. The increase in segment result is due to the higher revenues in the March quarter. Strict cost management helped to come in better in our guidance of 13% at the midpoint of the revenue guidance. The operating income improved to €174 million from €166 million in the December quarter. The non-segment result stays flat at minus €54 million, but still meaningful negative non-segment result continues to be predominantly a result of the already mentioned acquisition-related expenses. Now, let me comment on depreciation and amortization. It remained essentially flat at €230 million after €211 million in the previous quarter. Included in these figures are €35 million related to the amortization and depreciation of fair value step-up from the purchase price allocation. The financial results continue to be driven by financing expenses for the acquisition of International Rectifier and showed a negative figure of €18 million. Included in this figure is a one-time effect of €7 million caused by a refinancing I'm going to comment on in a bit. Since the last quarterly call, we've made good progress in further solidifying our balance sheet. The rating agency, Standard and Poor's, for the first time in our history, awarded us a solid BBB flat investment grade rating with stable outlook. This is the highest rating of any semiconductor manufacturer headquartered in Europe. Another first to Infineon, we just completed a U.S. private placement of notes amounting to $935 million and subsequently repaid the remaining International Rectifier acquisition term loan due 2019 in full. It represents the largest cross-border U.S. private placement in more than two years. We are pleased by the very positive reception of the offering by a broad and diversified group of close to 30 predominantly long-term-oriented institutional investors. Amongst those are various insurance companies, investors signed up for nodes and three tranches with tenures ranging from 8 to 12 years. After the placement of two euro bonds to refinance the acquisition bridge loan last year, this further optimizes our maturity profile and funding diversification. So, by now, we have repaid all of the bank financing related to the International Rectifier acquisition. We currently have a good couple of billion of debt capacity left within our target capital structure and are thus very well positioned to raise acquisition finance if and when the right opportunity arises. Continuing with tax, we recorded an income tax benefit of €21 million in the March quarter. Consequently, this represents an effective tax rate of minus 14%. Here, a one-time benefit from certain integration steps of International Rectifier kicked in. Nevertheless, for your modeling purposes, a cash tax rate of about 15% continues to be a reasonable assumption. Net income from continuing operations increased to €177 million, up by €25 million from €152 million in the December quarter. The net income from discontinued operations came in with €3 million. Basic and diluted earnings per share came in at €0.16 for the fiscal second quarter, up from €0.14 in the preceding quarter. The adjusted earnings per share improved by 6% to €0.18 from the fiscal second quarter compared to €0.17 in the previous quarter. Free cash flow from continuing operations came in at €45 million, up from €0 in the December quarter. The net cash provided by operating activities came in at €195 million compared to €175 million in the December quarter. We paid out €225 million of dividend for the last fiscal year to our shareholders in February. This led to a gross cash position of €1.803 billion at the end of the March quarter, decreasing from €1.994 billion at the end of the previous quarter. Consequently, our net cash position decreased to €27 million after net cash position of €204 million at the end of the December quarter. Let me now comment on our after-tax return on capital employed or ROCE. It improved to 14.5% in the fiscal second quarter after 12.1% in the first fiscal quarter. The improvement is essentially driven by the increase in net operating profit after taxes or NOPAT. ROCE continues to be strongly affected by bookings related to the acquisition of International Rectifier, in particular, goodwill, fair value step-ups in the context of the purchase price allocation, and the related amortization. Let me now hand back to Reinhard who will comment on our outlook.

Thank you, Dominik. Let me now come to the outlook for the fiscal third quarter, we expect the seasonal upswing to continue leading to revenues improving 2% sequentially plus or minus 2 percentage points. This is based on a rate of 1.15 for the U.S. dollar against euro reflecting the weaker U.S. dollar we have seen so far in the running quarter. This explains a 7% increase quarter-over-quarter if you look at it in the U.S. dollars. We expect revenues in ATV, IPC and PMM to increase, while Chip Card should come in flat or slightly down compared to this March quarter. At the midpoint of the revenue guidance, the segment result margin should come in with 16%. For the full 2016 fiscal year, we now expect growth rate of about 12% plus or minus 2 percentage points, assuming rate of 1.15 for U.S. dollar against euro for the remaining two quarters of the fiscal year. The segment result margin should come in between 15% and 16% of sales to the midpoint of that range. Other than the impact of adjusting the assumption regarding the U.S. dollar to euro exchange rate, we stick to our previous guidance. You can easily derive the adjustment from our previously indicated rule of some formulas while the exchange rate sensitivity of revenues in segment result. However, on a comparative basis adjusted for the full year, you think of the International Rectifier consolidation. We still want to grow close to our trend line growth rate in this fiscal year. Many market prognosticators see for 2016, a stagnation in the overall semiconductor industry. For this, we believe this is strong testimony to our ability to sustain the high-single digit average organic growth rate we have delivered by our current portfolio since the foundation of Infineon going forward. We are deeply convinced that while M&A can certainly nicely complement to enhance our strategy, the biggest and most reliable source of value creation is our proven capability to grow organically at returns for in excess of our cost of capital. With regards to investment defined as sum of outlays for property, plant and equipment and intangible as well, capitalization of R&D spending, our budget remains unchanged at €850 million. We also continue to expect depreciation and amortization of approximately €850 million for the fiscal year 2016. Therein, included our approximately €135 million related to the purchase price allocation. Ladies and gentlemen, the second quarter of 2016 financial year presented a challenging environment. Nevertheless, we were able to grow as planned in revenues and also marked some challenges on the earnings side. The second quarter also marked the confirmation that we continue to be the number two in automotive semiconductor market finally overtaking our biggest Japanese competitor who took the crown from us through a merger in 2010. Primarily, we achieved this by focusing on long-term organic growth. A conviction which we will continue to pursue. We also were very pleased with the continued momentum in electromobility and advanced driver assistance system, pointing the rate to further market share gains in the automotive semiconductor market. I also want to highlight that in spite of some general doubts in the market, on the growth momentum in China, we see some key verticals that have not only solid long-term growth trajectories but also on the short and midterm. Among these are electric vehicles, charging stations, renewables, traction will provide infrastructure but also the Chinese smartphones. In all these Chinese markets, Infineon is present with excellent products in leading position. As you already know, the temporary weakness in the smartphone markets has been felt in by our PMM business. However, we saw efforts to diversify our customer base into China's phone OEMs for these components starting to pay off already in second quarter. The next two quarters would not be easy from a macro environment point of view, but there are enough growth pockets in our key verticals, Automotive, Power and Security that give us confidence about reaching our guidance for everything full fiscal year 2016. Besides, we will stay very disciplined on the cost side just as we have demonstrated so far. Ladies and gentlemen, this concludes our introductory remarks, and we want to open the call for your question. And with this, back to Jürgen. Jürgen Rebel: Operator?

Thank you. Our question-and-answer section will be conducted electronically today. [Operator Instructions] We will now take our first question from Andrew Gardiner from Barclays. Please go ahead.

Good morning, gentlemen. Thank you for taking the question. First, if I could start on the automotive side. I was just interested in a bit more, sort of color in terms of the demand drivers that you're seeing at the moment. I know when we last spoke in early February you're talking of higher content, a slightly higher content, more than offsetting some of the potentials or pockets of unit weakness. Since then, the unit side of things has been surprisingly robust compared to what some people have been expecting, particularly in Europe and in China and reasonably consistent in the U.S. I'm just wondering if how you're seeing that through your business. Is there more reason to be optimistic on the unit side of things?

Okay, Andrew. I think this is the question Arun will take. Sorry.

Yeah. So, Andrew, we are still planning with about 2% growth year-over-year in the number of car sales, if this is what you are asking for. And in terms of penetration, clearly, we see an increase driven by two factors. One is the normal focus on CO2 reduction and the other one is so-called new technologies whether it is the ADAS or whether it's the HEV. So, a combination of these two leads us to a prognosis which is very positive for this year.

Yeah. Just one additional comment from my side. I just visited China and here, the people are very positive in looking forward about the total numbers of car build and so we believe it will continue to be strong in both effects as Arun explained.

Okay. Thank you. Also, just if I could have another quick one. Just can you give us an update on 300 millimeter, where we are on utilization at present and just update us to when you're expecting that sort of 25% to 30% loading, sort of tipping point to be reached? Thank you.

Yeah. It's Dominik here. We think that this tipping point from current prognosis is going to be reached by end of 2017.

Thank you, Dominik.

We will now take our next question from Sandeep Deshpande from UBS (sic) JPMorgan.

Yeah. Hi. Sandeep Deshpande from JPMorgan. My question is regarding the PMM market. I mean there has been some short-term softness in the PMM market. Can you talk about how do you expect that market to behave in the latter half of the year? And then, my follow-up will be on Chip Card, I mean the EMV card transition in the U.S. is coming to an end. Do you see that business declining or having some impact from an end to the EMV transition in the U.S, please? Thank you.

So, Chip Card, I will answer. Arun will then comment on the PMM market. I think in our numbers, we already have reflected with Chip Card being flat or slightly down these effects, but we see all the other business which we are winning, so we have figured this in in our guidance. But we also expect that some of the replacement will continue to take place in the general market of banking. But in general, we see a saw a softer banking market also considered. Arun?

Okay. On PMM, Sandeep, clearly, we see three aspects which are in our favor right now, why we are so bullish about the second half. And maybe bullish is too strong a word, but at least positive, let's say. The three aspects are first, around smartphones. In smartphones, we have new models by top OEMs. We believe we have a good penetration and this will ramp up somewhere in May, June. The second one is the customer diversification where we've had excellent success with Chinese smartphone makers. Reinhard mentioned it earlier. And the third one is we also see higher content per phone in the smartphone business. So, although you're right that this sluggish, the smartphone market, but our share in that was so low in the past that with these three trends we see a year-to-year growth in our smartphone business. Apart from that, there is the RF power business which is related to the installation of the infrastructure for mobile phones. And there, we also see a nice come back. And last but not the least, in the field of DC-DC and AC-DC whether it is for server applications or for low voltage drives, we also see good traction. So, all of these reasons together give us the confidence on our guidance.

Thank you.

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

Hi. Thanks for taking the questions. Firstly, just on fiscal Q2, just for the overall business on a few comments on what utilization rates you saw and what your expectations are going forward? And then secondly just going back to the Chip Card business, you mentioned in your comments that you've seen very strong bookings in the quarter, and if so, that was long-term contract. I just wonder if you can give us some color as to what those are related to. Thanks very much.

Okay. Dominik, please the utilization and Arun will comment...

Yeah. I mean utilization has, if you compare it sequentially, been quite kind of stable at very high level. So, in our frontend, it's very well utilized. And if you look at the backend, the utilization tends to be a little bit lower, but that's very structural because it's more granular portfolio. So, it's still, what I would call, almost full year-like levels. On your second question, I'll refer to Arun.

Sure. Chip Card, yes, we have book-to-bill as Reinhard said in Q2 of 1.2 and this is significantly high. It's coming primarily from government ID, lump sum orders or lump orders for a couple of quarters and therefore it disturbs the book-to-bill accordingly. Clearly, in payment area, we see a kind of a saturation. I think it was mentioned earlier but saturation not reflecting in terms of now a decrease on a year-to-year basis. But clearly, on a quarter-to-quarter basis, we will see the decrease in the payment area. Now, having said that, the penetration of contact-less and contact-based cars both in China and in U.S., we remain optimistic about. And finally, the authentication aspects regarding IoT is also something we are very excited about.

Thanks very much.

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

Hi. Thanks. Two questions if I may. First, just looking at the comment on the outlook statements for the different businesses. Obviously, there is a small uptick on autos in terms of year-on-year growth. I'm just trying to understand like is the reduction of guidance at the top line, is it all driven by the FX impact and the underlying business is slightly better than expected? That's what I read of it. I just want to understand whether I'm reading this correctly or not?

Yeah. I think Dominik will comment on that.

I mean, I can confirm. Yes, basically the entire impact of the change is currency-related. So, it's basically very simple calculation. If you use our sensitivities of about 8 million per cent per quarter, you get exactly to these numbers in the same kind of ways you can build on the segment results. So there's no other changes to that guidance.

And below, we had some structural changes between the divisions but stronger auto, a little bit soft to the rest.

Thank you. Thank you. That's clear. And then, just a follow-up. This is on a different issue all together. I recently came across an article around some of patent issues that you're having on gallium nitride technology with a company called MACOM. Can you just clarify on this what the issue here is and what impact it could have on whether you want to have a patent agreement with this company or what the real solution - what the end solution could be? Thanks.

Okay. So, let me see. It was [ph] Aditya, right? Did I get the name right?

It's Achal, sorry. It's Achal.

Achal. Sorry, Achal. Yes. Yeah. So, generally, we don't go into the details of such lawsuits because it tends to bias the whole process. Bu tin short, what I can say is that we are pretty clear about where we stand. And in the complaint, MACOM alleges breach of contract of an agreement, licensing Infineon patents. Infineon regards the allegation as baseless. So, more than that, I would say we would hesitate to comment in the call right now. We have a good reputation of licensing and we also have a good reputation of winning our cases regarding IP. So, I remain very confident here that we have a very good base for where we are.

Thank you. Thanks.

We will now take our next call from Janardan Menon from Liberum. Please go ahead.

Hi. Good morning. Thanks for taking the question. Questions on Dominik, actually. You said that you beat your guidance of 30%, you came in at 42.2% on segment margin which you attributed mainly to strict cost management. I was just wondering can you elaborate a little bit more on that and is there scope for any more of that to happen, either this year or in the coming years? And the follow-up is also - I mean, you have a situation where presumably when you look at your growth drivers, I take on all your points about how PMM is looking good into the second half, et cetera. But ultimately, your growth drivers in automotive seem to be the strongest from a longer term perspective. And so does that have to be a sort of a margin, structural margin headwind that you go through because that's a lower margin business or is there something that can be done to increase the margins of the Automotive business up to sort of a PMM kind of levels. So that strong growth there does not become a structural sort of softening of margins effectively.

Yeah. Dominik will answer the questions.

So, Janardan, hi. On the cost management side, you recall that when we had the last quarter call, there was a lot of discussion about the CBRAM, towards and segment result margins in the second half. So there's meant to be a really pushing our initiatives to manage the cost and keep it at low levels to ensure that we can really deliver on the second half recovery. So we basically got some benefit from that a little bit ahead of time in our planning. There is basically not a cost reduction in the sense expected that we're going to bring down OpEx or something like that, but we are simply kind of containing the growth in these numbers which normally is scaled to a certain degree with the revenue growth. But we try to kind of maintain them at lower levels than revenue growth, so that's on the cost management side. On the margin from structural differences between the higher and lower margin divisions. First of all, yes, there is, of course a need to also improve the margin on the automotive side. There is not a single division within Infineon which should be below the target of 15% and part of it has to really get there. There are factors like, for instance, some of the ramp-up cost we always discuss on 300 millimeter is borne by automotive. So, there are some opportunities to basically that falling off. And once we get to that famous loading point, I mentioned earlier on the call, by the end of 2017. And then there are some also effects on higher margin products which we have designed in, and the combination of these efforts gives us confidence that you should not assume that auto is [indiscernible] on our overall group margin at all. So, if you enjoy good growth there, then we think that they will converge actually.

And just a quick follow up again. On IPC at lower levels of revenue two years ago, you were reporting much higher margins, almost in the high teens. Is that something that you can achieve once again at these levels of revenue?

I mean also for IPC, it's a clear target to bring them back to the 15% group targets, and that they should not kind of lag the overall group performance either. The reasons why we are still lagging on margin are very specific, and a lot of that is related to the business we've got from International Rectifier where we've got very solid margin on the PMM side out of that and very good margin also on automotive. This is basically the division that bears the more difficult part of it. And we have a very clear path to recovering on these topics once we get out of certain structural or legal arrangements that can be way on our results there. So, we also see them improving there.

Got it. Thank you very much.

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

Hi, gentlemen. Thanks a lot for letting me on. Quickly coming back to auto margins, they actually improved quite meaningfully by more than 300 basis points, I think, year-on-year. Can you maybe walk us through that a little bit? I know you're talking about more revenues, but also maybe give us a bit more color. And should we now think that really for this year we should be coming out ahead of 14% here on the automotive side? And then just a quick second question. Some of your auto end customers or the OEMs have complained in Q1 that they had less working days. Basically said that they started the quarter a little bit now saying that this is reversing now in the June quarter where you have more working days. Is that a dynamic that is in any way kind of meaningful for you from the German and European OEMs? Thanks.

So, I will share the answer with Dominik. Within Automotive, we have quite a number of product where we have very good margins especially in the area of sensors. And here also very positive the radar one. We also, due to our good manufacturing base and most of our power product, we have also very good margin situation, which should continue to drive the margin of Automotive overall especially now as the xEV business is starting significantly to grow. And we also gained in this area scale of economy. The other, Dominik will comment.

Yeah. On the question of where we will come out for the full fiscal year, you should assume that the second half of the fiscal year has slightly higher margin than the first half. So, that means that you'll most likely exceed the 14%. If we had midpoint of our guidance, I don't think we'll get quite to the kind of level where we would kind of be in 15% territory, i.e., go beyond 14.5% or that type of number. I think that's a little bit too high. So, it's kind of somewhere in between is what we see for the current fiscal year here simply by looking at where we are in the first half and then assuming a slight improvement in the second half

Thanks. And just on the quarterly dynamics in terms of working days. Has that played any role for you in Q1 and is that positive maybe for the second quarter we should be thinking about? Like your third quarter.

No. We won't see that. I mean...

Yeah.

No. We of course have fully reflected any type of working days or seasonality in our guidance we've given for the June quarter and it's already reflected there. So, there is no kind of working day windfall or something of that nature.

And they are total value chain is dampening this FX to a certain degree even so we can definitely stay, that we are very - it will take close and have a good insight in the overall level or stocking on the value chain. So, we don't expect special effects from there.

That's helpful. Thank you.

We will now take our next question form Kai Korschelt from Merrill Lynch. Please go ahead.

Yeah. Thanks for taking my questions. I just had a couple. So, the first one was just on the FX side. It's obviously becoming a lot more volatile. But I think based on our calculations, it looks like the organic revenue growth in the March quarter was around 5% year-on-year. So, my first question is could you confirm that that's roughly the right ballpark? And then the other question is what does your full year guidance now imply on an organic basis particularly now with sort of rectify on the mix? And the reason why I'm asking is the semiconductor industry has obviously been declining, low single-digit in the last couple of quarters. So, it looks like you're still outperforming very meaningfully. And then my second question was just briefly on the announced hybrid electric vehicle initiative in Germany. Just wondering if you have any view on when or by how much that might benefit you? Thank you.

So, I know they're kind of clean numbers so to speak for March quarter year-on-year. It's - you're right. It's mid-single digit. That's correct, I don't have on top of my head the precise number for the full fiscal year, it should not be far off that but we are going to do a quick calculation, maybe follow up at the end of the call on that. But I would guess it's not far off that. So it's kind of close to our trend line growth in what you correctly characterize as a pretty sluggish market environment as Reinhard mentioned. Most markets prognosticators actually see a calendar year which is kind of stagnated.

Regarding the xEV of course we appreciate everything which will drive the electric cars, but here do you expect that this will have a smaller effect on our revenues. The higher gross and the total overall dominating volume definitely comes from China and welcome from China. We perceive ourselves to be in an excellent position and being designed in German cars as well as in Asian cars except of course the high Japanese brand. But we will benefit from all these trends. But we cannot state when it may kick in and as said, it is overall for the xEV smaller portion.

Okay. Thank you.

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

Good morning, Amit Harchandani from Citi and thanks for taking my questions. Firstly, with regards to M&A, you talked about the fact that Infosys is a very much an organic growth but at the same time you have the balance sheet trend to do further M&A if the need arises. Just wanted to get your latest thought in terms of whether your thinking has changed in terms of your thoughts on M&A or whether you continue to look at opportunities and evaluate them as they come? Or is maybe more focused on International Rectifier for now and a bit of a pause in M&A strategy? So, that would be my first question, and I have an unrelated follow-up.

So, here our strategy has not changed, probably we'll go more in deep. But we have, I would say, digested the acquisition of IR fairly well, and we are able continue to look around for further potential. But maybe Arun can add some elements here.

Yeah. I'll repeat the same, which we have always said, Amit, that the strategic fit is very important. So, as Reinhard indicated, nothing has changed. We keep our eyes and ears open, but we are not desperate. Post-merger integration is very important. And there we have very good experience with the IR integration. And last but not the least, on the financial aspect, it has to be accretive. And Dominik is also just literally next to mine, so I can't pass through without saying hi to him out of the building. So, to make the long story short, yes, we look at all the opportunities which come by but are also very selective.

Thank you.

Sorry. Let me just add this question, which were assumed I've answered on a full-year kind of clean organic growth and it's actually nor far off the 8%. It's maybe a touch lower if you adjust for the currency effect and the International Rectifier full-year effect. But given the market environment, we think it totally confirms the kind of long-term growth target of 8% because we are in that kind of sluggish market right now.

Great. And thanks for the comments earlier, Arun and Dr. Ploss. But in terms of unrelated follow-up from my side, and, Dominik, I think earlier you said that with regards to the revision and guidance particularly for segment result and profitability, it was primarily FX. But I was just trying to do a back-of-the-envelope math here looking at the strong cost control in the second quarter and looking at the FX impact based on the thumb rule, seems like there's a bit more softer underlying profitability evolution as well. So, I don't know if I'm missing something or can you definitely say it's all related to FX for the second half of this year when it comes to segment profitability?

Yeah. I mean, the way we look at it and what we think is the right way to look at it is simply you take the rules of thumb formulas which you multiply them by the €0.05 difference for the second half. You look at what's happening to the revenues. You look at what's happening to the segments results. So you subtract the reduction of revenues compared to the previous guidance and the reduction in segment result and you figure out that you end up somewhere in between the 15% and 16% margin as opposed to the guidance we've given on the exchange rate of 1.1. That's the way we calculated it. I'm not sure why you think that's related to the cost containment in the first half of the fiscal year or in the March quarter to be now precise. That is simply a measure that we have done independently of that, which was necessary basically to get to the 16% guidance for the full year, the prior 16% at the $1.10 guidance.

Okay. We just ended up at around 15.8 versus a midpoint of the 15.5 and factoring in a strong cost control, I was hoping that maybe there might be more upside in the second half of this year. Okay. Thank you.

Well, if you take €3 million for the segment results, which is simply what we currently have, if you look at the real sensitivities we measure and we do have $8 million for the revenues, I think you get out a slightly lower margin. And then, now you can argue where 10 basis points, up or down, but we normally tend to kind of round to the closest half percentage point so to speak. And that's otherwise we get into a kind of artificial preciseness here.

That's clear. Thank you, Dominik.

We will now take our next question Jérôme Ramel, Exane BNP Paribas. Please go ahead. Jérôme Ramel: Yes. Good morning. A question on Automotive. How much of the - what percentage of your Automotive division is currently made by electromobility? And second question for ADAS. NXP, during their analyst day shared their target by 2019 10% of the Automotive division should come from ADAS. So, it would be helpful if you could share some number with us on this side of things. Thank you.

Jérôme, yes. So, xEV, I think we mentioned it also in the last call last year. It's a three-digit million figure we will have as a percentage. You can calculate that from our ATV revenue. We don't have that often. So around €100 million is what we had commented last time. And I think it's the same or even rising slightly faster in the case of ADAS where the penetration is much faster than the penetration of xEV as a percentage of normal cars. So, ADAS seems to have a very high penetration there.

And let me just add that the number for xEV is growing as we speak. So, we think we guided that in the last fiscal year. We got the highest double digit. And now we are growing above 50% on top of that. So, it's about 5% on the revenues we are going to generate in this fiscal year with electric drivetrain-related products.

And another comment from my side because we are so much fascinated by ADAS. In order - many people considered ADAS mainly about some sensors, cameras and radar, but in order to really make an car autonomous or semi-autonomous you have a lot of elements in the car like power steering, like other areas where the car has to be increased in performance to high reliability, and these are all areas we strongly and so believe our potential in ADAS is much higher than it is just as it is accounted for these special partial ECUs which we are talking about. Jérôme Ramel: Okay. Thank you. And adding to that, we heard about STMicro gaining silicon carbide [indiscernible] automotive OEMs, so [indiscernible] I was just wondering when are you going to announce some silicon carbide wins from inverter, for instance, in cars? And also, for gallium nitride, I'm a little bit confused about your strategy for the acquisition of International Rectifier and the Panasonic deal. If you could just clarify which technology you are going to use going forward? Thank you.

So, silicon carbide, we will have announcement pretty soon. I do not want to anticipate this. But definitely for the drivetrain which will be the most focused for silicon carbide for the car. You need devices which have a very high robustness, which I think we have only very few sources on the market. Nevertheless, we do not comment on our competitors or may comment on again portion.

Okay. Gallium nitride is very simple. You have to think about gallium nitride in three aspects. Aspect one is for low voltage, Aspect 2 is for high voltage and Aspect 3 is for RF. These are three different applications in which you can use gallium nitride. So, our discussions with Panasonic were focused on completely different concept of device, which is independent of the gallium nitride technology per se. So, what we have developed internally and we've got from International Rectifier was what we would call normally on-switch. Whereas from Panasonic and the collaboration with Panasonic, we'd be working on is for normally off-switch. Jérôme Ramel: Okay. Thank you. Very clear.

We will now take our next question from François Meunier from Morgan Stanley. Please go ahead. François Meunier: Yes. So, the first question really is about the cash and the working capital, which has been relatively soft in H1. Are you expecting the cash purchases shown and the working cap to improve in the second half? That's the first question. I also have a few questions about the opportunities around electrical vehicles and ADAS, talking more about dollars than components. So, if you think about charging stations in China, maybe you could quantify the number of stations which are about to be built and the xEV that you're going to get on those stations?

Also on ADAS, I know you don't comment on competitors, but NXP on Thursday or Friday last week that the incremental revenue from ADAS from 2015 to 2020 would be about $1.2 billion, so it's about €1 billion. How much market share do you expect to get from that €1 billion? Is it going to be more or less from your current market share in Auto? Thank you very much. François Meunier: Thank you very much.

Jürgen will take these questions. Yeah. Maybe Dominik can talk on the questions.

So, François, with regards to the cash, if you look back into our results, you will see that basically, we have always generated almost entirely the complete full fiscal year free cash flow in the second half of the fiscal year. This is because of certain seasonality. Also because of the fact that all the bonuses are paid out in the first half of the fiscal year. And we are fully on track to hit the guidance we have given for free cash flow in our end report for the full fiscal year guidance of €0.5 billion free cash flow still very much intact. And this is a combination of course of the CapEx pattern, the working capital developments we see. And you might have seen that our inventory turns have actually reduced now. So, the absolute inventories have come down slightly. The reaches has been slightly reduced. And from that perspective, we are fully on track there. Despite the fact that there are some inventories we have come to building in anticipation of the ramp down of the new port factory in Wales.

Okay. On ADAS. So, what I have here, François, is 2015 data, second half 2015. And there, you see clearly that Infineon has 43% market share in the radar sensor market. Now, predicting the future is very difficult, in that sense that we don't want to guess what our revenue will be in 2020. But clearly, our confidence is that we won't be losing share or increasing shares. So, if any extrapolation you want to make out of any analytics, please don't hesitate to use similar or higher market share. And from there, you can guess what our revenue might be.

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

Hi. Thank you for squeezing me in. Firstly, I would like to have a little bit clarity on IPC margin going to the second half. You mentioned that you are working towards the 15% through the cycle target but for the second half if I assume revenue to increase from here, what will be the scope for confined leverage from operating margin perspective? And also secondly on EV opportunity, would you say you are more positive on that opportunity from three months ago or would you say it's pretty much the same? And also China has been talking about setting up their own EV infrastructure. Would you be worried about competition from the local players at certain point over the next few years? Thanks.

So, I think Dominik will start with IPC.

Yes. I mean on IPC you see that we are basically scratching the 10% from the loan in the March quarter and we clearly want to go into the teens. I'm not quite sure we can reach coming out of the fiscal year in Q4 of the 15% yet but we should not be too far off because of the revenue increase we anticipate there. And then for the full fiscal year you get definitely into double-digit territory on the margin side there. But seasonality is always there. So, you have to figure that seasonality into this and the second half in IPC has the higher margin always and then the first half.

Yeah. Then EV in China. Yeah, we had been positive in the last quarter and we continue our expectation that the government will support that the numbers will be made and you can see a very strong take there. And the advantages of the owners of electric vehicles are especially for the very - for the big cities, very interesting. So, we continue to expect the growth from €330,000 to €700,000 in 2016. Regarding the competition, of course, we always take Chinese competition serious, but here, we believe that today and even on a longer term, we will be able to offer technology and products on an excellent quality level. Don't forget zero defect is not easy to achieve and it's also expected by our Chinese customers, so we believe we can maintain our strong position in China.

Okay. Thanks.

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

Yes. Good morning, gents. I have a couple - a quick follow-up actually on the 300 millimeter headwinds, can you comment a bit on how the 300 millimeter headwinds are split between the different divisions? And secondly, can you comment a bit on any capacity constraints you're having at the moment in your facts and where you're adding capacity at the moment. Thank you.

So, it's Dominik here. On 300 millimeter, we don't split it by divisions. The total number I think we indicated is still around €50 million per year which is very significant and, as I mentioned, we try very hard at driving it out of the run rate by the end of calendar year 2017. With regards to split, again, no details. That is not totally different from the revenue numbers it's delivered different but not much. With regards to the - I lost my thought on the second question, that was the loading to unloading the constraints. It's a very mixed picture and we have, of course, still some capacity into the millimeter as you can guess from what I just told you and there are various areas where we're still debottlenecking our capacity. But obviously, we try everything we can to accommodate the amount we have to make sure we capture that incremental demand.

Okay. Thank you. Jürgen Rebel: This is Jürgen. We may have time for one last question.

Thank you. We will now take our final question from Günther Hollfelder from Baader-Helvea. Please go ahead. Günther Hollfelder: Yeah. Many thanks. Concerning the charging pile opportunity in China, so would you expect a market share in line with your global market share for power semiconductors here? And could this also be a possibility maybe not right now but over the next year or so to use 300 millimeter capacity for the ramp up here? And a second question, last one, a follow up on the silicon carbide. Here you mentioned on the gallium nitride side the normally on and normally off switches. And I think they're similar situation on the silicon carbide side why you have a normally on switch [indiscernible] but not yet a normally off one. And so I was wondering whether this is an area where we, as you said, should expect an announcement based on the internal development or whether this is an area for M&A. Thanks.

So, very briefly, silicon carbide, you can expect a pretty soon announcement of a new technology we have developed ourselves, which is definitely highly robust and as stated before also designed in order to be used in the drive train which requires much higher robustness than many other application. But please give us some time in order to use the right platform. We believe with a need for further improvement in drivetrain efficiency or the reduce in battery costs has a very good potential similar to renewables. The charging station, we are, to a certain bit cautious. We also believe that you have - we have to have a good - very good chance to enter the silicon carbide there. Currently, it is a special technology from the CoolMOS family which we are building in there. But here we are - I said, cautious on how the further investment in China will be because here, let me say, initiative that they do, every 50 kilometers at the major highways and where you have to see how these infrastructure development will continue. Nevertheless, from our positioning, we believe that we are positioned superior in market share in this area.

300 millimeter production for these CoolMOS?

The 300 millimeter production is even more - well, it is possible to do this on 300 millimeter. More important is to be ready for the continued strong growth in electric drivetrains where we believe that from the capacity and capability Infineon will be outstanding to competition, managing the ramp up of EV.

Many thanks. Jürgen Rebel: Okay. Thank you very much for all your questions. With that, we would like to conclude this conference call. For any further questions, please feel free to contact our team here in Munich as always. Thank you very much and have a nice day.

That concludes the conference call today. Thank you for your participation, ladies and gentlemen. You may now disconnect.