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January 12, 2012 2:41 pm
For companies looking to hedge themselves against a possible collapse of the eurozone, Peter Bauer, chief executive of Infineon Technologies, the German chipmaker, has one piece of advice: do not panic.
Mr Bauer, 51, has little time for prophecies of imminent economic doom, due to a belief that Europe’s politicians will do what is necessary to avoid a collapse of the single currency.
“[But] If dramatic changes occur – for example the currency union breaks apart or banks run into serious problems – no one can predict what will happen,” he said. “There are too many ‘what ifs’ in the analyses. Thus, it makes absolutely no sense to close a factory in anticipation of an unpredictable market crash.”
Infineon emerged strongly from the last recession, increasing revenues by 21 per cent to a record €4bn in its 2011 fiscal year as net income rose from €660m to €1.1bn.
But like other semiconductor manufacturers, which are among the earliest corporate indicators of a struggling economy, Infineon has since the summer registered a weakening in demand, particularly for products used in consumer electronics.
Unveiling new guidance in November, Infineon cautioned that revenues would decline by a mid-single digit percentage range in the 2012 fiscal year while its operating margin would decline from 20 per cent to a low to mid-teens percentage level.
Infineon’s shares fell sharply on its new outlook before recovering some of that ground but remain 25 per cent below their peak in May. Still, Mr Bauer argues the current situation is totally different to the 2009 crisis, when for two weeks the company did not receive a single order, triggering a request for state aid.
Long a restructuring case, Infineon has cut costs, improved its capital position and narrowed its focus over the past two years to making semiconductors for use in the automotive sector, security systems and improving energy efficiency in industrial electronics.
The company now has €2.4bn in net cash, helped by proceeds from the $1.4bn sale in January of its mobile phone business to Intel. Meanwhile, Infineon continues to profit from strong demand from German automakers which have enjoyed record sales this year.
“Infineon is in good shape. We don’t have high inventories and we’re not running into the overcapacity trap – that is completely different to 2008-2009,” Mr Bauer said.
“There is a big debate about whether the global economy is going into a recession or a slowdown. The consensus so far is a slowdown. And that is what we see as well.”
Infineon forecasts an upturn in its more consumer-computing orientated businesses during the first two quarters of the current fiscal year but the outlook for automotive and industrial is more opaque.
“We do not see a decline in orders from German machinery industry. But I’m sure it is going to come within the next quarters. It may well coincide with a bottoming out of the more consumer-orientated businesses,” he said.
Almost 50 per cent of the company’s sales are in Europe, the Middle East and Africa and around 40 per cent in Asia, including Japan. Germany accounts for 27 per cent of the total.
“If China is relatively stable then [export-reliant] companies especially in Germany will continue to do well,” Mr Bauer said.
Infineon’s chief said the company would adjust capacity and keep its costs flexible in order to respond to fluctuations in demand. But cutting investment is not part of the plan.
Infineon invested €887m in 2011 and expects to spend a similar amount in fiscal 2012. For example, in July the company announced plans to expand an existing production site in Kulim, Malaysia.
“In general, the most money is made or lost in the upturn. If you miss that phase and you are not serving your customers, you will lose them,” Mr Bauer said. “It’s hard to get them back.”
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