Infineon (IFNNY) Q2 Earnings Miss, Revenues Beat Estimates

Infineon Technologies AG (OTC:IFNNY) reported second-quarter adjusted earnings of 21 cents per share, which missed the Zacks Consensus Estimate by 4 cents but increased almost 9% on a year-over-year basis.

Moreover, revenues increased 9.7% year over year to $1.89 billion in the quarter, slightly better than the Zacks Consensus Estimate of $1.88 billion. The top-line growth came on the back of strong sales in three of the company’s four business segments. Power now represents almost 60% of revenues in the reported quarter.

The quarterly results demonstrated Infineon’s strong growth prospects in the automotive market. The company’s products are currently used by eight of the top-10 electric vehicle makers including Tesla (NASDAQ:TSLA) , BMW and Renault (PA:RENA). Moreover, the company’s focus on developing energy-efficient solutions will be a key catalyst going ahead.

We note that Infineon has outperformed the Zacks Electronics Semiconductors industry on a year-to-date basis. While the stock returned 19.6%, the industry gained 17%.

Quarter Details

Automotive (ATV) revenues increased 16.7% year over year to $836.2 million. Continued high demand for driver assistance systems and products deployed in hybrid and electric vehicles drove the results.

Industrial Power Control (IPC) revenues increased 10.6% year over year to $312.9 million. The growth was attributed to strong demand in home appliances, traction, electric drives, photovoltaic’s and win power.

Power Management & Multi-market (PMM) revenues increased 5.3% on a year-over-year basis to $555.4 million. Strong demand in AC/DC conversion and DC/DC conversion drove the results.

Moreover, Chip Card & Security (CCS) revenues declined 6.6% from the year-ago quarter to $180.5 million. Lower demand for conventional SIM cards was primarily responsible for the decline.

Segment-wise, ATV, Industrial Power Control, and Power Management & Multi-market operating margins expanded 420 basis points (bps), 450 bps and 90 bps, respectively. Chip Card & Security operating margins contracted 270 bps from the year-ago quarter.

In total, operating margin expanded 210 bps on a year-over-year basis to 12.8%.

Guidance

For third-quarter 2017, Infineon expects revenues to increase 3% (+/- 2%) sequentially. At the mid-point of the forecast revenue range, the segment operating margin is expected to be 17.5%.

For fiscal 2017, Infineon continues to forecast revenue growth around 8%-11% and a segment operating margin of 17% at the mid-point of revenue guidance.

Zacks Rank & Key Picks

Infineon currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader sector include Applied Optoelectronics (NASDAQ:AAOI) and Texas Instruments (NASDAQ:TXN) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Applied Optoelectronics and Texas Instrument is currently pegged at 20% and 9.6%, respectively.

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