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In its recent announcement, Infineon Technologies AG revealed its plan to invest an additional €5 billion in expanding its production capacity in Malaysia. This move reflects the company’s strong belief in the growing demand for electric vehicles in the automotive sector.
On Thursday, Infineon announced that its initial investment of €2 billion in the silicon carbon chip fabrication plant in Kulim, Malaysia will be increased to €7 billion. This significant increase can be attributed to purchase commitments and prepayments from regional clients, including SAIC and Chery, prominent Chinese car manufacturers.
With approximately half of its revenues coming from serving the automotive industry, Infineon aims to capitalize on the shift towards electric vehicles. These vehicles require a greater number of chips compared to those used in combustion engines.
However, the pressure on its existing automotive business has led to a contraction in margins for the division, from 31% in the previous quarter to 27% in the three months ending June 30. Infineon warns that margins across all four segments, including connected systems, green technology, and sensor systems, are expected to reach 25% next quarter, slightly below analyst expectations.
Following the announcement, the company’s share price initially dropped by over 10% on Thursday morning, but later recovered slightly.
“The semiconductor market trends present a mixed picture with both positive and negative aspects,” said Jochen Hanebeck, Chief Executive Officer of Infineon. He highlighted the strong demand in the automotive and renewable energy industries, while acknowledging the slowdown in the home electronics sector, such as smartphones and laptops.
Hanebeck emphasized that the additional investment in Malaysia is driven by “structural growth drivers.” Infineon, along with other German companies like Volkswagen and BASF, has faced pressure to reduce its reliance on China, where it generated 29% of its revenues last year and has a significant manufacturing presence.
Given the mounting geopolitical tensions and the need for secure access to crucial components, nations are taking steps to safeguard their interests. Recently, Berlin pledged €10 billion in subsidies to Intel after the American chipmaker threatened to abandon plans for two new fabs in eastern Germany due to rising costs.
Infineon reaffirmed its full-year sales guidance of €16.2 billion and announced a profit before tax of €3 billion for the nine-month period ending in June.
The drop in Infineon’s share price exerted pressure on other European semiconductor groups, including ASML and STMicroelectronics, which experienced declines of over 3% and nearly 2% respectively on Thursday morning.
Jürgen Wagner, an analyst at broker Stifel, expressed positivity regarding the prepayments from Asian customers that prompted the additional investments in Malaysia. These prepayments are expected to contribute to Infineon’s cash flow in the coming years and be fully repaid through sales by 2030.
Infineon is also expanding its semiconductor fab in Dresden, with a previously announced investment of €5 billion. Additionally, the company recently inaugurated a new fab in Villach, Austria in 2021.
Infineon anticipates that these investments will enable it to capture approximately one-third of the global market share for silicone carbide chips by the end of the decade.
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