Infineon reported solid 1QFY23 results in a choppy environment. The company posted revenue of EUR 3.951 billion, up 25%, slightly below analyst expectations of EUR 4.0 billion. Substantial part of the business has proved robust even in a weaker macro environment. In particular, the energy transition and expansion of electromobility are causing a continuously high need for our solutions in industrial and automotive applications. In contrast, Infineon is seeing significantly weaker demand in areas such as smartphones, PCs and data centers. 

The adjusted gross margin increased 290 basis points to 49.2% from 46.3% in the quarter. The Segment Result increased in the first quarter to EUR 1.107 billion, up 54% YoY (+5% QoQ), beating analyst estimate of EUR 976.5 million by 13.3%. The Segment Result margin improved from 22.7% a year ago (25.5% in 4Q22) to 28% in 1QFY23. Earnings performance in the first quarter is mainly related to strong pricing and mix effects. Operating profit improved in the first quarter of the 2023 fiscal year to EUR 966 million, up from EUR 920 million in the previous three-month period. Adjusted earnings per share increased in the first quarter of the current fiscal year to EUR 0.64 (+56% YoY), beating analyst expectations of EUR 0.558 by 14.7%. 

Valuation: Infineon Technologies currently trades at 15.3x P/E 24E, below its 5-year historical average of 20x and below the MSCI EUROPE Semiconductors & Semiconductor Equipment Index (22.5x). On a 2024E EV/EBITDA basis, the stock is trading at 8.6x, below its 5-year average of 9.8x and below the MSCI EUROPE Semiconductors & Semiconductor Equipment Index (15.1x). On a P/S 24E basis, the stock is trading at 2.8x, below its 5-year average of 2.9x and below the MSCI EUROPE Semiconductors & Semiconductor Equipment Index (5.5x).                                                                                                                                                                                                                                                                                                                           

We reiterate our strong buy recommendation. 

Management Outlook

Management sees 2Q23 segment results margin about 25%, analysts were expecting 23.7%. Infineon is expecting revenue about EUR 3.9 billion, above consensus expectations of EUR 3.83 billion. For the full year the company is still expecting revenue in the range of EUR 15 to 16 billion (estimate EUR 15.36 billion).