Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.
Infineon To Cut Capex-Sales Ratio; Raise Divi.
Despite Neelie Kroes’ 10/100/20 plan to increase European semiconductor output to 20% of the world market, Infineon is intending to reduce its ratio of capex to sales from 15% to 13%. Instead, of maintaining the ratio, Infineon will pay shareholders a bigger dividend.
“Infineon is determined to ensure excellent product availability and to grow faster than its competitors. The fact that we will need to employ less capital in future to achieve this, clearly demonstrates that we are on the right track with our manufacturing strategy”, says Infineon CEO Dr. Reinhard Ploss. “it is justified that shareholders should also now benefit from the progress made. Therefore it is our intention to raise the dividend significantly for the current fiscal year.”
‘Even with the reduced capital intensity, it will still be possible to achieve the targeted average revenue growth rate of approximately 8% p.a,’ says Infineon.
The reduction of the target ratio for investments as a percentage of revenue is being driven primarily by the following factors:
. Infineon is beginning to reap the fruits of 300-millimeter thin-wafer technology for power semiconductors, enabling it to achieve growth with a substantially lower level of capital employed compared with 200-millimeter wafers. The level of investments required to increase manufacturing capacities for power semiconductors in order to achieve the targeted growth rate is therefore decreasing.
. Infineon is also in the early stages of a growth curve for products manufactured using standard-CMOS-based technologies with 65-nanometer and lower process structures. Unlike with power semiconductors, these technologies do not entail any major differentiating features from a manufacturing perspective and, as a result, Infineon intends to outsource the relevant production volumes to contract manufacturers, thus obviating the need in future to invest in in-house facilities to process these wafers.
. The Company intends to allocate a greater share of backend manufacturing to subcontractors for those package types that offer no meaningful differentiation. Similarly, unlike in-house production, this will not involve any investment.
. Great strides have been made over the course of the 2014 fiscal year to date to improve both current and future productivity by means of a whole raft of measures implemented in conjunction with a dedicated productivity improvement program. This enables higher production volumes for a given amount of capital investment.
A detailed analysis of the medium- to long-term impact of these factors, undertaken as part of the annual planning process, showed that the target ratio for investments to revenue can be reduced in future fiscal years by 2 percentage points to an average of about 13%..
In view of the expected sustainable improvement in free cash flow, it is planned to increase the dividend significantly from as early as the current financial year. Subject to there being an appropriate level of unappropriated profit available for distribution and the corresponding resolutions being taken by Infineon’s representative bodies, the aim is to increase the dividend by between four and six cents.