Jürgen Rebel - Corporate Vice President, IR Reinhard Ploss - CEO Dominik Asam - CFO Helmut Gassel - CMO Jochen Hanebeck - Member of the Management Board

Sandeep Deshpande - JPMorgan Kai Korschelt - Bank of America Amit Harchandani - Citigroup Matthew Morrison - Bernstein Janardan Menon - Liberum Achal Sultania - Credit Suisse Johannes Schaller - Deutsche Bank Gareth Jenkins - UBS François Meunier - Morgan Stanley Andrew Gardiner - Barclays Lee Simpson - Stifel

Good morning everyone. Welcome to the conference call for analysts and investors for Infineon Technologies' 2017 fiscal first 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 call may contain forward-looking statements based on current expectations or belief as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside of 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 results anticipated or projected in any of these statements and they should not put undue reliance on them. For a detailed discussion of important factors that could cause actual results to differ materially from the statements made on this conference call please refer to our quarterly and annual reports available on our website. At this time I would 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 for Infineon Technologies 2017 fiscal first quarter results. With us today we have Reinhard Ploss, CEO; Dominik Asam, CFO; Helmut Gassel, CMO; and Jochen Hanebeck, Member of the Management Board responsive for operations. 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 of our 2017 fiscal first 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 first quarter of fiscal year 2017 results. I will begin today's call with some remarks on group and division results, on market developments and our achievements during the quarter. Dominik will then comment on financials before I conclude with the outlook. After that we are happy to take your questions. Let me begin with group performance in the December quarter. Revenues declined seasonally by 2% to EUR1.645 billion. This slight season decline was much softer than usual. The strong performance was driven by secular growth in electro-mobility and advanced driver assistance system in automotive and market share gains in the chip card and security business. Power management and multi-market and industrial power control showed a typical seasonal decline. Segment result decreased quarter on quarter to EUR206 million representing a second result margin of 15%. The book to bill ratio for the first quarter came in at 1.3. The absolute booking figure stood at a solid EUR2.1 billion. Let us now take a look at the divisions. Against normal seasonal trends, automotive revenues increased by 2% to EUR705 million for the quarter, up by EUR14 million in particular as a result of strong demand for electric drivetrain solutions and components for ADAS system. But also the car markets in North America, Western Europe and especially China proved resilient in the December quarter. The book to bill ratio came in at 1.4. As in previous quarters, this figure contains a significant share of long-term orders but even without considering these, the book to bill ratio stood at around 1.2. The segment result increased to EUR114 million from EUR112 million in the preceding quarter. This translate into a segment result margin of 16.2% in the December quarter. The strong momentum that we saw in electro-mobility in the last fiscal year continued into the December quarter. China came in with about 507,000 so-called new energy vehicles sold in 2016 according to the China Association of Auto Manufacturers. In terms of ADAS solutions, AURIX 32-bit safe and secure microcontrollers are contributing more and more to the ADAS revenue stream. We’re also are very pleased that by the keynote speech delivered by NVIDIA at the CS Las Vegas show, it exemplified nicely our strong traction with our AURIX 32-bit microcontroller, the safe and secure host complementing the high performance processor on key sensor fusion platforms. These include platforms from NVIDIA as well as internal. Beside this strong traction and the two main mega trends, we also see very nice momentum in classic body applications. Examples are power solutions from our LITIX family for LED front and rear lighting as well as more and more business with this relay replacement applications. This contributes to remarkably high bond shares on specific OEM platforms. Looking at the performance of the calendar year 2016, we posted a year-on-year growth of 12% for the automotive segment. The revenues, with products for electric drivetrain and advanced driver assistance systems grew in the order of 50% in the same timeframe. Let us now take a look at industrial power control. IPC generated revenues of EUR264 million compared to EUR279 million in the September quarter. This marks a 5% decline quarter-on-quarter very much in line with normal seasonality. The market segments, industrial drives traction and photovoltaics showed broadly typical seasonal declines. Major home appliance came in flat signaling that the inventory overhang in China is digested and we should see again growing business. Within this segment, we are gaining more and more traction in small home appliance. Infineon’s compact motion control IC finds a lot of demand in hairdryers, vacuum cleaners and the like. They are ideally suited to meet the number one challenge in these application, space constraints at the right cost performance point. Like in previous quarters, the demand for inverter solutions for commercial vehicles in China continued strong momentum. It is currently driven by demand for electric buses but other commercial vehicles such as delivery vehicles are likely to drive the future demand. The book to bill ratio came in at 1.2 in the December quarter pointing towards a typical seasonal upswing in the coming quarters. The segment result finished with EUR24 million compared to EUR37 million in the September quarter. This equal segment result margin of 9.1%. Let us now come to power management and multi markets. Revenues of PMM decreased by 7% to EUR497 million, down by EUR36 million from EUR533 million in the September quarter. Our strong power business compensated partially the seasonal weakness in the smartphone component business. Looking at the power business in more detail. In AC-DC, revenues were seasonally down but in DC-DC revenues were up against normal seasonal trends. In AC-DC demands for 650 volt CoolMOS power MOSFETs for electric vehicle charging stations remain on a high level. We are also very pleased by the ever increasing momentum of our 300-millimeter based CoolMOS products where we see a design in pipeline in the excess of EUR100 million. In DC-DC, we saw a very nice momentum in server business stemming from demand for the VR12 and VR12.5 platforms. Order entry and design win momentum for the upcoming VR13 platform remained high. While we experienced a seasonal revenue weakness in smartphone component business, we were able to achieve design wins from multiple RF products on a reference platform used by most Chinese smartphone vendors. This will significantly contribute to further diversifying our customer base in this segment. The business with RF power components for cellular base stations stabilized on a low level quarter on quarter. We noted a very good order entry across the entire MOSFET business particularly driven by our distribution partners. Coupled with a stable order intake in the RF and sensor space, the strengths in power orders lead to a strong overall PMM book to bill ratio of 1.3 for the quarter. The PMM segment result declined in line with the topline to EUR81 million translating into a segment result margin of 16.3%. Let us not move to chip guard and security. Revenues stayed flat quarter on quarter coming in at EUR174 million in the first quarter. This actually means further gaining market share in a currently declining market. A strong business in government identification, SIM applications and trusted platform modules compensated the seasonal weakness in the payment market. On top, we recorded the highest quarterly revenue ever in government identification. Besides our flagship electronic passport project in the US and China, we are proud that more than 150 projects across all government ID applications in more than 70 countries rely on our security chips. The book to bill ratio came in at 1.1. Segment results decreased to EUR29 million. This translates into a segment result margin of 16.7%. During the first quarter we saw further demand for Infineon security solutions. We recorded several project wins at various OEM engaged in IoT markets like cars security and smart building applications amongst us. Additionally, this quarter marked key business wins with major electronic identity card projects in Europe. Ladies and gentleman this concludes the business review. Let me now hand over to Dominik who will comment in more detail on first quarter financials.

Thank you Reinhard and good morning everyone. First quarter revenues were EUR1.645 billion, a sequential decline of EUR30 million or 2%. The average euro US dollar exchange rate for the quarter was about $1.08 compared to the assumed exchange rate of $1.10 at the beginning of the quarter enjoyed a slight tailwind from the stronger US dollar in the order of 1 percentage point. Gross profit, research and development, and selling, general and administrative expenses continue to be influenced by the effects of the consolidation of International Rectifier. Gross profit declined to EUR592 million down EUR608 million in the September quarter. This represents a sequential decrease by EUR16 million resulting in a gross margin of 36.0%. R&D expenses stood at EUR200 million or 12% of sales. As indicated during last quarter's call, the EUR180 million of R&D expenses in the previous quarter benefited from some R&D funding items. SG&A expenses were flat at EUR196 million, net other operating expenses amounted to EUR12 million. Included in these numbers are EUR62 million of non-segment result charges. Thereof EUR46 million are International Rectifier acquisition related amortization and other charges. EUR25 million of these charges hit our cost of goods sold. In R&D and SG&A, we booked International Rectifier acquisition-related charges of EUR1 million and EUR18 million respectively. The acquisition-related expenses 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 37.6%. We recorded a segment result of EUR246 million for the December quarter compared to EUR280 million in the September quarter, a sequentially decrease of 12%. The segment result margin came in at 15.0%, the highest segment result margin compared to the midpoint of our guidance range is simply the consequence of sales ending up at the higher end of the guided revenue range. The operating income declined to EUR184 million from EUR229 million in the September quarter. The non-segment result came in with a negative EUR62 million after negative EUR51 million in the fourth quarter of last fiscal year. The negative non-secular result continues to be predominantly a result of the already mentioned acquisition-related expenses. Now let me comment on depreciation and amortization, it decreased slightly to EUR200 million after EUR203 million in the previous quarter. Included in this figure are EUR36 million mostly 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 EUR17 million. Continuing with tax, we recorded an income tax expense of EUR2 million in the December quarter. Consequently this represents an effective tax rate of 1% as in previous quarters we benefited from the reversal of write-offs previously taken on deferred tax assets. For your modeling purposes, the cash tax rate of about 15% continues to be a reasonable assumption. Net income from continuing operations decrease to EUR165 million, in the September quarter we had recorded a figure of EUR228 million. The net income from discontinued operations came in with a negative EUR4 million. Basic and diluted EPS came in at EUR0.14 for the fiscal first quarter, down from EUR0.20 in the fourth quarter of last fiscal year. Adjusted earnings per share declined by 19% to EUR0.17 for the fiscal first quarter compared to EUR0.21 in the previous quarter. Free cash flow from continuing operations came in at minus EUR39 million, significantly down from EUR169 million in the September quarter. Included in this number is the net cash outflow of EUR112 million for acquiring a 93% equity stake in the lessor of Campeon, the office complex which is home to Infineon’s headquarters. The net cash provided by operating activities came in at EUR282 million compared to EUR447 million in the September quarter. At the end of the December quarter, the gross cash position stood at EUR2.209 billion decreasing from EUR2.240 billion at the end of the previous quarter. Our net cash position decreased by EUR305 million to EUR136 million at the end of the December quarter. As just described, the cash outflow for acquiring our Campeon headquarters played a key role here. In addition, we consolidated EUR219 million of debt carried by the acquired lessor of Campeon. Let me also comment on our after-tax return on capital employed or RoCE. It came in at 12.1% in the fiscal first quarter after 18.2% in the prior quarter. The reduction is essentially driven by the decrease in net operating profit after taxes or NOPAT. However also the first time consolidation of all assets and liabilities of the company that owns Campeon contributed to the decline in RoCE. Besides RoCE continues to be strongly affected by bookings related to the acquisition of International Rectifier in particular goodwill, fair-value step ups in the context of the purchase price allocation and the related depreciation and amortization. Excluding acquisition-related bookings and effects, the underlying RoCE stood at around 18% about twice as high as our cost of capital. Let me now hand back to Reinhard who will comment on our outlook.

Thank you, Dominik. Let me know come to the outlook for the fiscal second quarter. We expect a normal seasonal upswing in the March quarter leading to revenues improving 5% sequentially plus or minus 2 percentage points. This outlook continues to be based on a rate of 1.1 for the euro against the US dollar. We expect revenues in ATV, IPC and PMM to increase while chip card should come in flat to slightly down compared to the December quarter. At the midpoint of the revenue guidance, the segment result margin should come in with 15%. Please bear in mind that in the March quarter the annual VPA price declined kicked in for almost all of our contract business which affects more than half of our revenues. For the full 2017 fiscal year we gain further confidence that we can grow revenues at about 6% plus or minus 2 percentage points assuming a rate of 1.1 for the US dollar against the euro. The segment result margin should come in at 16% of sales at the midpoint of that range again as previously guided. Ladies and gentleman, the first quarter of the 2017 fiscal year came in at the high end of the guided range on the back of a strong secular growth driver in automotive, market share gains in chip card and a strong MOSFET business in PMM. Other end markets still presented significant challenges. Given the unabated momentum in the automotive megatrends such as electro-mobility and advanced driver assistance system, an early indication that the MOSFET markets are strengthening and stabilizing environment in other segment such as payment in major home appliances, we have a high degree of confidence to achieve our full year’s guidance. The positive momentum is also reflected and the growing traction in the market we fight with our products from our unique 300-millimeter thin wafer power manufacturing. For this, we are confident that the ramp up costs that impact still impact our segment result negatively are digested with increased loading by the end of this calendar year. Besides, we are very pleased with the results Cree reported for Wolfspeed. At 29% year over year increase in revenues for the quarter was reported. This should give you a very good confidence in the business plan we detailed last summer when we announced the intended acquisition. For this, we are very much looking forward to closing the Wolfspeed anytime soon and are working very closely with the relevant authorities in the US. Ladies and gentlemen this concludes our introductory remarks and we want to open the call for your questions. Jürgen Rebel: And dear operator, please start the Q&A session.

[Operator Instructions] We will take our first question today from Sandeep Deshpande from JP Morgan. Please go ahead.

My first question is regarding your sales. Reinhard, I mean, this year, you’re seeing slightly softer sales than you’ve seen in the past couple of years. When do you think that Infineon will go back to the normalized 8% sort of sales growth and where will the delta come from when that happens? And secondly a question for Dominik, I mean your D&A seems to be rolling off I mean year-on-year you’re seeing a clear improvement in your D&A. How do expect to model that, how should we model that into 2018 and does that [indiscernible] tailwind continue into 2018. Thank you.

Yeah Sandeep, thank you for your question. The 8% growth year-on-year we expect to return to when we further can grow our power business and PMM and overcome I would say the transition in the mobile phone area and as well when chip card comes back to growth and many of the - I would say sub-segment effect there compensated or digested. And finally, we also expect that sooner or later the automation business or the very flat automation business, which is affecting the growth of IPC is strengthening again. So we see several effects which will support to compensate that 2 percentage points which are missing to the overall growth compared to overall semiconductor market behavior. I think we are with 6% doing very well. Therefore, we expect when the market gets stronger we can make the 8%. Dominik, the D&A question?

I think on D&A, we have - I think seen a bit over the trough now about 200 million. As you know in that number is also some acquisition related depreciation amortization which is a little bit of a different animal because it’s triggered by the purchase price allocation process. So if you back that out, you will see that basically in the current fiscal year, we are more or less flat compared to prior year. And 2018, we will see that number increase again, not massively so there might be a little bit of a help still but the kind of very positive effect we see in the current fiscal year because revenues will increase significantly while D&A will actually stay stable. You will not see that resume so to speak or repeat it in the 2018 timeframe. 2018 is of course benefiting from the fact that we will have by then eliminated the 300-millimter ramp up costs and then there is also some improvement related to the discontinuing or the sale or if not, if no sale is possible, the discontinuation of our Newport activities.

Thank you. Our next question today comes from Kai Korschelt from Bank of America. Please go ahead.

I had - the first one was on automotive, so it looks - was up 15% year-on-year and I think that was the strongest growth over the last few quarters. I think you highlighted ADAS driving growth, but I'm just wondering in terms of electric vehicles it seems like it's still a very low part of the overall tumultuous mix. When should we expect sort of power semis to start contributing more meaningfully to growth in the automotive division? That’s the first question. The second one was just to go back on the chip card. So I think your main competitor is seeing revenue declines of 30%, 40%, I think you are still up slightly, you’re clearly gaining market share. I'm just wondering can you maybe give a bit more color on what you think is driving those share gains and then also how sustainable is this. Thank you.

So Kai, thank you for your question. Automotive, I will answer in general, Helmut may add some flavor on the electric drivetrain. But here already today the part of power semiconductors in our revenue is very significant. Of course the power semiconductors contains revenues from the electric drivetrain and hybrids and here definitely the overall share is not yet very high but is starting to grow. But we have significant power semiconductors, this relay replacement LED drivers, motor drivers in many other areas. So it is a very significant portion overall in automotive. So Helmut, chip card and electric drivetrain?

Roughly the xEV market grew 50% year on year and power in automotive is about 60% of the total. So there is a significant momentum in there. On chip card, yes, we have held flat in a significantly declining market, some major contributions are coming from a strong position in payment. We continue to gain share there in a market that is tough because it has grown so much in the year before. And secondly, government ID as pointed out also by Reinhard earlier, we have made very good wins in several projects, several countries and market itself is still gaining some momentum in the government ID market. So two drivers, payment; second, government ID.

And just maybe a quick follow up then, if and when some of these larger EV programs particularly with Europe OEMs ramps up, I guess that’s sort of 2018, maybe 2019. Would be fair to assume that you should see another quite meaningful step up in growth because right now, you know, again as part of the mix it's still fairly small. Would that be the right way to think about it?

Yeah Kai, so here definitely major revenue streams for EV are coming from China. We do not depend so much on the Europeans there yet as you rightly point out. If they come in they will of course contribute, but we expect that the increase in new energy vehicle in China and other parts of Asia too will be a much stronger driver. But of course there is for us also a significant uncertainty in both directions, maybe it is not growing, well both direction is wrong, means higher - very high slower growth. Just to remind, in China, the number of vehicles sold was around 500,000, full electric respective type of vehicle which is considered as new energy vehicles. But I agree, Europe should give us quite some tailwind when it comes, but you see the consumer behavior, which for me is the biggest uncertainty.

Thank you. Our next question comes from Amit Harchandani from Citigroup. Please go ahead.

Amit Harchandani from Citigroup and thanks for taking my question, two if I may. Firstly, maybe on the near term, there is a bit of a debate right now in terms of where we are in the cycle. And I was wondering how you yourself internally think about the cycle and in that context could you maybe talk about inventory levels across supply chain and the sentiment that at your distributors. And then I have a follow up. Thank you.

So Amit, considering the expected growth today communicated by the market analysts which is, for instance, IHS and others around 4 to 5, a little bit higher percentage points for the market without micros and memory, we consider this as a strong market environment, but still we have - we are cautious if these predictions will kick in. So regarding the cycle, we are above average from the potential we see. Therefore, we expect that our market growth should be - expected revenue growth for this fiscal year should be clearly supported. Regarding the inventory, Dominik will take that answer.

Yeah. I mean in terms of inventories, we have actually a situation that our distributors are ordering quite strongly. So the inventory reaches have not shown any abnormality. To the contrary, they're quite stable. In our own inventories, you know that always in the December fiscal year, our inventories are increasing, because we prepare for the seasonal upswing we see every year. So from our perspective, there are no concerns about inventories at present.

Thank you. And maybe as a longer term dynamic, you touched upon Wolfspeed, but could you may be broadly outline your thoughts on wide band gap semiconductors or next generation semiconductors, the silicon carbide, gallium nitride, when should we think about these translating into materials, design wins that we can see flowing through the P&L just wanted to understand where your thoughts are in terms of evaluation in that area? And your competitive positioning?

Well, regarding this situation, it is very diverse. Silicon carbide has been successful for the diodes, but this market developed pretty flattish over the time. Also, silicon carbide MOSFETs and various types have been around, but what we're seeing now that in the markets for photovoltaic, this seems to really be a different shade on the system level, overall system performance means efficiency and total size. There is a high momentum in the market and the customers are highly interested. So in this specific market, we expect that silicon carbide will show design wins pretty soon and revenue stream should come in overtime, but of course this is only one part of the IPC business. The other driver in automotive, we expect that the onboard charges for the first one to use silicon carbide, but you know about automotive. It normally takes some time from design win and here, definitely, people are extremely cautious on the reliability of these devices until revenue comes, but also for the inverter part, in the broader scale, I expect that this photovoltaic time and the portion of people taking silicon carbide for the inverter will be overall small. Our belief there is that we will have still silicon dominating in this area for long, but the ability to deliver both silicon carbide and silicon is I will say significant differentiation for Infineon. And not to forget, in order to harvest from silicon carbide, you have to adopt the application. A little bit different the situation in gallium nitride, we expect this will have a, I would say, inflow, the high performance, high power, power supplies in the higher and medium voltage range, maybe even in some DC-DC, but this is moving slowly, these devices are still significantly expensive, but as a learning curve, we will see it. Maybe, also we’ll see in market entry, in audio of these devices. The part of RF power, I think we have covered quite well. There is no new expectations. Again on silicon carbide, we’ll have a clear take over together with silicon, with GaN on silicon for the future. So, but here again the question is the market here is a little bit flattish. The question is what, when will it take over. So, here I only can talk for these areas. There is of course other areas where it can be used, but we believe that both leaving the area of R&D, silicon carbide faster than Gallium nitride.

Our next question today comes from Pierre Ferragu from Bernstein. Please go ahead.

Good morning. Matthew Morrison from Bernstein on behalf of Pierre. Thank you for taking our question. And a couple of question if I may. Firstly, could you please provide an update on the utilization level of your 300-millimeter fab and how you see utilization ramping in the context of growth in automotive in particular. And a quick follow-on on that is do you seen any of your competitors reacting to this investment in the 300-millimeter and then I’ve got a follow-up after that. Thanks.

Yeah. Thank you, Pierre. The question Jochen will answer.

Yeah. So first question on the utilization on 300-millimeter, we are very well on track to achieve our milestone end of calendar year and that is supported by the demands, mainly from the PMM side. This is the typical way we ramp up fabs, not with the automotive parts, but with the more consumer industrial related parts and we have also ordered all their equipment required to achieve this milestone now for end of this calendar year. So, well on track. Competition in 300-millimeter for power, still nothing really obvious to see. Of course, other companies are working on 300-millimeter for integrated power or CMOS, but that is not exactly what we are doing.

Okay. Perfect. And then just quickly on your IPC segment this quarter, the margin came in at around 9%, which was a one point decline year-on-year. I was just wondering how we should understand this decline and whether there is some mix effect at things that drag on profitability.

Yeah. Dominik here. There were some kind of compound negative effects, which I don't want to go into detail about. But to give you the perspective about how we see that segment evolve, you'll recall that last year, in IPC, we had about a little bit less than 12% segment result margin and despite that slow start into the fiscal year, margin wise, a weak start margin wise, we think we can improve that in the current fiscal year, which implies that we clearly see the segment recover over the quarters to come into kind of the teens, mid-teens margin range.

Thank you. Our next question today comes from Janardan Menon from Liberum. Please go ahead.

Hi, good morning. My first question is just on the PMM side from a smartphone perspective. I understand, I think you've lost some share at the big top tier smartphone vendors on your RF and to a certain extent on the microphone side as well. And while you're doing quite well at the Chinese vendors, if you don't get back into the big tier 1s, is that going to be a profitable - sufficiently profitable business from a R&D/revenue point of view. And given the competitive dynamics between your immediate customers, which are the module makers, what confidence is there that you will be able to penetrate the top tier again and get to high level, I mean reasonable levels of market share would justify that business on a long-term basis. Just be interested in your thoughts on what you’re thinking about smartphones in general from a long-term for Infineon. My second question is on silicon carbide. You previously have said that, you expect reasonably large volumes only in three to four years in the inverter side, but Wolfspeed recently, a few weeks ago, announced, I think it is a commercial product, which is a 900-volt silicon carbide MOSFET for car inverters. Does the announcement of that product change your view that this could move a little bit faster than your previous expectations because the company you're planning to acquire already seems to have that technology, maybe not in a completely commercial way, but at least in some form that can be used in a car already?

Yeah. Janardan, let me step in PMM, the business with mobile. Here, we see that the invest to revenue or the R&D invest to revenue is still very healthy and it is very profitable business there. So from the current point of view, we do not have a question mark here. The problems you pointed out that we have, might not be in the forefront as we deliver our tips to the module maker, here, we have to put it into two buckets. We of course have components which go directly to the phone manufacturers and one which go to the module makers. Here, of course, we have to look into, but the superior performance of our silicon is still a very good argument to come in there. And the reason was not that we lost the share at the module maker, it is that the module maker were not being successful at all phones. Nevertheless, we definitely see that for our high frequency device, there's a good market entry in the broader area and also here, the margins are quite acceptable. Microphone is a different situation, because here, we have more or less a direct interaction with the end markets over the mobile phone makers and we see that with the next generation, with a very good performance and development, we will continue to be successful and please consider that it is a declined growth or I would say a weaker situation, but still business on a high level. Long term, we believe that these components, microphones especially will also move into other devices like the echo box of Amazon and respecting products from other major IoT vendors there. RF, we have to see how the fifth generation will influence that. We believe that this is also changing again the game and will be a good opening for us. The silicon carbide question, yes, of course, we are looking forward about these new types of transistors coming along with the acquisition, but here, I'm always cautious because in automotive, we have seen the people to be I would say some are more aggressive, some are less. In total, of the revenue stream from inverters for our overall power business and automotive will not so clearly push overall revenues. Silicon carbide revenue stream, which we consider to grow by 20% annually, will of course have the potential to accelerate. But let's wait until we have the qualification of that part in the car.

Our next question today comes from Achal Sultania from Credit Suisse. Please go ahead.

Hi, good morning. Thanks. A question on cash flow. So Dominik, I think you mentioned that there was 10 million of cash consumed for the acquisition and then there was another 290 million of debt, which you had to take on your balance sheet, again relating to Campeon, so even if I adjust for those two things, which is about EUR400 million, it seems like the net cash position would have only gone up by less than 100 million in this particular quarter. And so I'm just surprised like what else has been dragging the cash flow in this particular quarter, because clearly 100 million run rate on a quarterly basis is much lower than what Infineon should be doing if you try look at the full year number?

Yeah. I mean, we have, in every single fiscal year so far, almost no free cash flow in the first half and the lion's share of the free cash flow in the second half. The reason being that a big chunk of our personnel expenses, namely the performance bonuses get accrued over the full year and are only paid out in the December quarter and the March quarter, mostly the bulk in the December quarter and then the rest in the March quarter. And then we have also the effect that I mentioned that we build inventory in the December quarter for the seasonal pick-up in the rest of the fiscal year when we see the March and then the June and September quarter usually ramp. And from that perspective, we’re actually very pleased if you back out the 112 million of free cash flow related to the acquisition of the Campeon stake, with the performance significant year-on-year improvement and given the strong growth we see in the business and the investment needs for that, this actually I think ties pretty well.

Okay. Makes sense. And maybe one follow-up on the automotive business for Reinhard. Obviously, we've seen some of the recent comments from China about the impact of subsidy reduction on car volumes. I guess, like, are you seeing any of that impact, especially as we’ve gone through January and what it could mean for the quarterly sales for auto units in China specifically, because it doesn't seem like any of the auto peers are kind of implying any weakness if I look at the guidance for March quarter.

So I hand over the question to Helmut to answer these.

Yes. Achal, thank you. Fifty 50% growth in ‘16 as compared to ‘16 was what we have seen. I think with the subsidy reduction, we expect a slight normalization of that growth. It will not continue at the same rate. Nevertheless, it will continue to be a strong growth and with the potential structural effect, there might be actually on the semiconductor consumption a better growth than on the vehicle side.

Our next question today comes from Johannes Schaller from Deutsche Bank. Please go ahead.

Yeah. Thanks for taking my question. If I look at your full-year margin guidance, the 16% basically implies a roughly 80 bps improvement year-on-year. Now, if I look at your H1, you’re already kind of delivering 80% to 90%, 80 to 90 basis point improvement and you have guided in the past to basically more the point in the second half from things like 300-millimeter and a few other sectors. So could you just give us a bit of an update how conservative you think your 16% guidance is for the year at the moment or is there anything in the second half that may prove to be a headwind that we’re maybe not seeing at the moment?

So Johannes thank you for your question. We have two elements. One, we answered regarding the cost and other developments. Dominik, I think here we have pointed out that there are quite some market uncertainties still there, IPC in automation, chip card, others are going down. We achieve I would say a flat market. Mobile phone, there's a certain uncertainty. So we have to consider, clearly, the revenue stream is required to fulfill. Currently, order intake is good, but still I think here in the business where we pointed out, a lot of turns, business is in and we stay on this side cautious, but maybe the rest will be answered by Dominik.

Yeah. So let's not forget that on the first of January, we usually have the enterprise adjustments, which are always weighing a little bit on the gross margin. And then of course, we bring in productivity during the course of the year. I would say that the question whether we might be able to significantly outperform or underperform, let’s stay with outperform the 16% is very much related to the revenue. If we can generate more revenues because we find a strong recovery in the second half and we've seen that in many years before this year, we've been a little cautious, because last year, the second half was a little bit sluggish than usual and this year, we have all the uncertainty with what happens in the US and so forth. So that's the real driver from my perspective, not so much that we have a weak or a conservative segment result guides. It's very much the question how much revenues can we generate really in the second half. For March quarter, we’ve extremely high visibility. There's not much to be guessed about, but second half is still pretty uncertain.

That’s helpful. Just a follow-up from my side, could you share with us the latest utilization rates on 300-millimeter maybe at the end of the year or where you’re running currently. And then also, what’s the strategy with some of those other 300-millimeter pilot lines in Villach for example, is there also anything happening or is the focus really on Dresden at the moment?

So the focus is indeed mainly in terms of capacity in Dresden and to give you a feeling, we are two-thirds on the way towards this breakeven point, which we will achieve by the end of calendar year. Villach is here mainly the innovation side, we will also grow the capacity here, but focus is on Dresden and again, the markets that we need for - to load this factory, which is basically AC-DC and DC-DC are doing very well on the power side and we audit all the equipment required to achieve this milestone by the end of the calendar year.

Our next question today comes from Gareth Jenkins from UBS. Please go ahead.

Thanks. I have a few if I could. Firstly, it seems like you and your peers are all growing double-digit within automotive currently against kind of low single digit production growth. So I just wondered how that fits with your 4% content growth in autos. Is it too prudent or should we expect growth to moderate on the automotive side going forward. And then secondly on auto also, it seems like you're doing very well in auto MCU maybe against Freescale and Renesas along with SC Micro and I just wondered whether you could talk about the margin profile on the MCU side into autos? Thank you.

So your question about the content, I think here when you remember some years back, we were considering a 2% growth in content. Now, we are moving up 4%, some of, I think, special effects may kick in, in radar and others. So I'm currently a little bit cautious to guide the content growth in auto, significantly up there of course when xEV or the new energy vehicle kicks in, vendors can give an upside, but we should not forget that ADAS content has pushed a lot and has pushed a lot the revenue there and of course the number of cars too. So here, my experience over the year that we, looking at the long term content growth, we should be careful. I still can remember content grows at 8% to 10%, but this will not come back. So I think the current 4% to 6%, we are very well off. Regarding MCU, I think here, we do not disclose I would say subdivision segments. But I think here, what definitely can be said that our ability to deliver high reliability micros is also considered in to value, which we provide to the customer.

Okay. Thank you. And can I just ask one more, just on time of licensing. I think PMM has some Time-of-Flight sensors into smartphones, drones, tablets, et cetera. Just wondered what your outlook for Time-of-Flight within the PMM sub-segment is please?

Currently, Time-of-Flight is with automotive mainly, but I think here, you have two applications. One in the car, we highlighted with cost of driver, I would say, driver monitoring as well as now in the mobile phones. Here, I am still cautious on the growth of the Time-of-Flight 3D sensors and mobile phones. We have to see how the use case will develop, but currently still, I think it is a great technology, but the revenue is, I would say, still not that big.

Thank you. Our next question today comes from François Meunier from Morgan Stanley. Please go ahead. François Meunier: Yeah. I think all my question have been answered. Thank you very much.

Thank you. We will go to our next question from Andrew Gardiner from Barclays. Please go ahead.

Good morning, gentlemen. Thank you. Just, I had a general one on the revenue outlook. I suppose, Dominik, to your answer from a few questions ago and the margin trajectory later this year heavily dependent on the revenue side as you’re saying, I'm just wondering given the very strong book to bill, 1.3 overall for the company and you mentioned 2.1 billion of absolute bookings. And I think even if you adjust for some of the longer term within automotive, you seem to be close to that 2 billion mark, maybe 1.9 billion to 2 billion, so a very strong bookings number, yet, the sequential growth that you are effectively guiding for through fiscal 2017 still remains very, very light, low single digits sequentially through the year. And I understand your near-term visibility is much better than the medium-term visibility, but I'm just trying to gauge your sense of cautiousness there. It does seem as though you've got some very good bookings that would, in theory, support a stronger second half.

Well, Andrew, this is a good question, which we are asking ourselves too, but we want to wait until Chinese New Year is over. We have quite some uncertainty there. Andrew, we also haven’t here seen that some of the bookings shifted or you have a period of extremely low bookings. And therefore, I think your visibility will increase for the remainder of the fiscal year after that and we can debate it then. I agree that the actual booking situation is a very strong one.

Thanks. Also just on Wolfspeed, given that the closing is expected soon, can you give a quick update in terms of intent around integration, how quickly that can happen and any issues that have come up through the planning process?

Well, here, we’re very well prepared from, for the integration Helmut is running that and I think here, everybody is really eager to join. So we do not see any major hurdle, but maybe Helmut, you can add some words to that.

Running through the authorities in the US, expecting closing by the end of the fiscal quarter or the quarter, of course, with remaining uncertainty as it is not in our control, preparation for integration is complete. We are ready to go.

Just one addition to that on the numbers, you can obviously see some indications, how they run as Cree discloses the discontinued operations, which is pretty much what we buy and you see there that as Reinhard has already mentioned, strong revenue traction and also the margin, the gross margins improving. So we feel that we're on a very nice track there.

Integration will be made more a challenge for IT and HR processes, not so much for the business. Therefore, because it is I think a carve-out entity, which is a little bit more effort than buying a complete company where you get some more time, but it, I think we have proven that we can.

Right. So just to that point, Dominik, you're expecting the momentum that Cree have been seeing within Wolfspeed to continue pretty seamlessly through the integration. This isn't a case that they may have been motivated to finish life within Cree very strongly and, therefore, there could be a bit of a hiccup as you integrate?

Well, I take that question from Dominik, I think here, what we see that the customer, the trust level is increasing that when a company like Infineon is taking over that business, that long term, the delivery and the required invest will be done and the delivery base there. So I think here, we will even see a positive momentum as a potential on this business.

Thank you. Our next question comes from Lee Simpson from Stifel. Please go ahead.

Thanks for letting me on. Earlier on, I heard you just call out the 50% growth in electric vehicles and in ADAS. I was just trying to understand what the variability between those two might be. Are we looking at 70% growth ADAS, 20%, 30% in electric vehicles and potentially the reverse of that next year? And maybe just this follow-up, the AURIX microcontroller which you, again, called out as being quite strong. I wonder if you can give us a sense for the attach rates that you have with your ADAS solutions. Thanks.

Yes. Helmut Gassel taking that one. As far as these two growth areas are concerned, I think we see pretty strong growth in both and we can say that roughly comparable, not going into any further details there. Going forward, I think, yes, we - as somebody pointed out a question earlier, we expect, in particular, on the drive train, more xEV to kick in, in the coming years.

Great. And maybe just a quick follow-up one. On the PMD partnership you have for the REAL3 solution, I think Gareth talked to this earlier, but it's a little unclear. Do you have sales currently and expecting more in the second half of calendar year 2017, or is this more a 2018 pickup? Thanks. Well, it will ram up, but it is very small revenue portion. So you may not see it in the top line. The announced, in between 2 I think will grow over the - should grow over the year, as the typical mobile phone cycle is taken. I think here, meaningful revenues may kick in, in the fiscal year 2018, but we have to see how the market success of these phones switches out of our ability to predict. Jürgen Rebel: So our time is up. Thank you very much for your questions. With this, we would like to close the call. And if there are any further questions, please contact us here from Investor Relations. Thank you and goodbye.