Infineon Technologies AG

XETRA:IFX

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon 2018 Fiscal First [ Year ] Results. This call will be hosted by Juergen Rebel, Corporate Vice President, Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded.This conference call may contain forward-looking statements based on current expectations or beliefs as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these statements, and they should not put undue reliance on them.For a detailed discussion of important factors that could cause actual results to differ materially from the statements made on this conference call, please refer to our quarterly and annual reports available on our website.At this time, I'd turn the conference over to Infineon. Please go ahead.

[Juergen Rebel]

Good morning and welcome, ladies and gentlemen. With us today we have Reinhard Ploss, CEO; Dominik Asam, CFO; Helmut Gassel, CMO and Jochen Hanebeck, Member of the Management Board responsible for operations. As usual, Reinhard will start with some remarks on group and division results, market developments, and our achievements during the quarter. Dominik will then comment on some selected key financials. After those introductory remarks, the entire management will be happy to answer your questions. In order for everyone to have a chance to ask their questions, please restrict yourself to one question and one follow-up question in the first round. A recording of this conference call and a copy of our 2018 fiscal first quarter earnings press release and also the investor presentations is available on our website at infineon.com. Reinhard, please go ahead.

[Reinhard Ploss]

Thank you. Juergen. Good morning, everyone. Here are our latest news. In the December quarter revenues came in at EUR 1,775 million for the group, a year-over-year increase of 8% and a quarter-over-quarter decline of 2%. At a constant euro-U.S. dollar exchange rate, in the later text I will abbreviate this a little bit because [ we have a habit very often ] we have grown by about 13% year-over-year. This actually represents an acceleration from the about 11% year-over-year growth at a constant exchange rate to the dollar, which we had generated in the prior quarter. So our underlying growth has gained further momentum.Segment result increased year-over-year by 15% and decreased quarter-over-quarter by 14% to EUR 283 million. The segment result margin came in at 15.9%. Order entry also accelerated during the December quarter and the book to bill ratio came in at 1.4.With this fiscal first quarter performance, we met our quarter one guidance for revenues and actually [ over ] achieved our segment result margin guidance in spite of the headwind from the weaker U.S. dollar compared to the assumed exchange rate of $1.15.Now let's take a look at the divisions. Automotive revenues came in at EUR 770 million for the quarter. This represents a 9% year-over-year increase and a 5% increase quarter-over-quarter. At a constant dollar exchange rate, we would have grown 13% year-over-year. If you look at our Automotive year-over-year growth in U.S. dollar terms, we actually grew by 19%.The book-to-bill ratio came in at a strong 1.3 supporting our confidence in another year of above trend line growth in Automotive. The segment result decreased in contrast to the growth in revenues quarter-over-quarter to EUR 103 million from EUR 109 million previously. The segment result margin stood at 13.4%. The primary reason for this unexpected development is a production-related one-off charge.On the top of the very steep ramp that we're currently managing for electric drivetrain related modules weighs on the margin before the output will kick in in the second half of the fiscal year. For this, we expect to gradually snap back of the ATV segment result margin in the next 3 quarters to the levels seen throughout the last fiscal year.The key messages for our automotive business are as follows. We achieved a major design win for our automotive MOSFETs of several hundred million euros life-time revenue at a leading European Tier 1. The design win includes a wide variety of classic applications such as braking and power steering. Design wins like this one confirms our view that still about half of our growth in automotive will come from these conventional applications.We are also very proud that the world first true Level 3 car on the road for autonomous driving Level 3, the new Audi A8, features plenty of Infineon semiconductor in critical application. This includes our RADAR ICs or the [ AURIX ] microcontroller as the safety host controller in the sensor fusion box.We also realize that innovative xEV drivetrain technologies are hitting the market and require even more power semiconductor. As illustrated in our quarterly presentation the new NIO ES8 SUV requires for HybridPACK Drive IGBT modules. There is one more at the front axle and one more at the rear axle. There is 2 modules per motor. This results in about EUR 800 power semiconductors for the drivetrain, the highest value ever. Second, the electric drivetrain business continues to ramp extremely strongly. Third, the automotive business remains very solid across the board.Industrial Power Control, we posted revenues of EUR 296 million compared to EUR 328 million in the September quarter. Year-over-year this marks a 12% increase. Quarter-over-quarter, this means a seasonal decline of 10%. At a constant U.S. dollar exchange rate, we would even have grown 15% year-over-year. Again seasonal trend, demand for solar inverter solutions continued to be high. All other primary application areas showed a typical seasonal decline. Order entry remained very strong and the book-to-bill ratio came in at 1.4. The segment result came in at EUR 48 million, down from EUR 60 million in the September quarter, however doubling year-over-year. The segment result margin came in at 16.2%.This quarter's highlight for IPC. You will see a continuous design win momentum across all product classes, be it our latest generation IGBT5 based modules or our integrated power controllers for motor control, molded IPMs for major home appliance at leading Asian suppliers or finally new product tenders for our silicon carbide modules. Let me also comment on the IGBT market in general. After we saw a very strong growth in 2017, we expect the growth momentum to normalize in 2018.Turning to Power Management & Multimarket. Revenues of PMM increased by 10% year-over-year and declined seasonally by 5% quarter-over-quarter to EUR 545 million. At a constant dollar exchange rate, PMM would have grown 18 year-over-year. The power business remained very strong across all applications and products. We actually saw inventory levels declining at distributors. We noted the highest order entry ever leading to a book-to-bill ratio of a staggering 1.6. The smartphone component business showed a typical seasonal decline. The RF power amplifier business for base stations is stable. In AC-DC, we saw solid demand across all applications with an increasing order backlog, especially demand for server power supply remains strong. Also still from a small base, our power AC in AC-DC business is developing nicely with a year-over-year growth of almost 40%. Adding further to this momentum, we are ramping our XDP digital controller now also into lighting applications. And we are beginning to ramp our new line of analog-mix-signal CoolSET products, integrated power and driver IC products.In DC-DC, we also saw solid demand across all applications and again order backlog is increasing. Demand for server platforms remained high. We also made progress expanding our expertise in server power stages into telecom base stations. With the smartphone component business, we noted a strong year-over-year increase of more than 60% in the silicon microphone business indicating a further increase in market share. The PMM segment result decreased to EUR 107 million. The segment result margin stood at 19.6%.Now, a look at Chip Card & Security. Revenues decreased year-over-year by 7% and quarter-over-quarter by 10% coming in at EUR 162 million. However, at a constant dollar exchange rate the year-over-year decline would only have been about 4%. The security controller market remains difficult for the moment. As we noted some stabilization in the payment card market, we saw a seasonal decline in all other areas. In our eSIM business for the emergency call function in newly registered [ car ], we saw some temporary inventory adjustments at our customer. The book-to-bill ratio slightly improved compared to the previous quarter and came in at 1.1.Segment result stood at EUR 25 million, marking a segment result margin of 15.4%.In spite of the difficult overall market, the foundations for future return to growth are continuously laid. We won both ePassport and eID project and government ID including projects in Asia and Africa. We also secured further design wins for embedded security controller application such as TPM at major [ PC OEM ], embedded SIM for machine-to-machine assets tracking and embedded security solution for smarthomes.With this, I would like to hand over to Dominik, who will comment in more details on some selected key financial figures.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

Thank you, Reinhard and good morning everyone. Quarter-over-quarter, the euro strengthened only slightly against U.S. dollar from $1.17 in the September quarter to $1.18 in the December quarter. However, against the exchange rate assumption of $1.15 for the December quarter, we had to cope with some headwind, which amounted to EUR 24 million for the top line. In a year-over-year comparison, we actually see a significant headwind from the U.S. dollar as the exchange rate depreciated by about 8% as compared to the average exchange rate of $1.08 in the December quarter 2017. Note that this implies an 18% year-on-year revenue growth for the fiscal first quarter in U.S. dollar terms. And this is obviously the measure we need to use for an apples to apples comparison of our growth momentum against our major competitors and industry statistics such as WSTS. Gross profit decreased to EUR 646 million. This implies a gross margin of 36.4% after 37.5% in the September quarter.Research and development expenses and selling, general and administrative expenses came in at EUR 195 million and EUR 205 million respectively. Included in these numbers are EUR 35 million of non-segment result charges, a significant improvement compared to the September quarter. Of that amount EUR 30 million are International Rectifier acquisition-related amortization and other charges. EUR 17 million of these acquisition-related charges hit our cost of goods sold EUR 13 million SG&A. Excluding acquisition-related and all other non-segment result effects, the adjusted gross margin stood at 37.4% compared with 38.6% in the September quarter. Depreciation and amortization, including non-segment result effects, remained essentially flat at EUR 204 million. Included in this figure are EUR 27 million related to the amortization and depreciation of fair value step-ups from the purchase price allocation from International Rectifier.Continuing with tax. We booked an income tax expense of EUR 28 million in the December quarter, which included a mid-single-digit million gain from the U.S. tax reform. For cash flow modeling a tax rate of 15% continues to be a reasonable assumption going forward. Please consider that the low tax rate is primarily a result of the existing German tax loss carryforwards. We expect to benefit from these for about another 5 years.When modeling the P&L, you have to bear in mind that the effective tax rate will gradually increase a couple of years ahead of the actual full usage of the tax loss carryforwards. For this expect the P&L tax rate to rise to about 25% already by around 2020 and to roughly stay on this level beyond with impacts of the U.S. tax reform already considered. But we obviously cannot judge at this point in time if and how other jurisdiction will react to the reductions in U.S. corporation income tax and the preferential treatment of profits related to the exports from the United States.Free cash flow from continuing operations came in at a negative EUR 135 million after positive EUR 249 million in the September quarter. This more pronounced seasonal decline is a result of the accelerated investments into capacity expansions in face of the low-teens underlying growth at a constant euro-U.S. dollar exchange rate as compared to our 8% trend line growth model.Our after-tax return on capital employed came in at 14.6% in the December quarter after 13.3% in the September quarter. The increase is essentially driven by the increase in net operating profit after taxes, or NOPAT, as a consequence of the lower tax expenses in the December quarter. Return on capital employed continues to be strongly affected by bookings related to the acquisition of International Rectifier, in particular goodwill, fair value step-ups in the context of the purchase price allocation, and the related depreciation and amortization. Excluding acquisition-related bookings and effects as well as deferred tax effects, the adjusted return on capital employed stood at roughly 21%, i.e., about twice as high as our cost of capital.Let me now hand back to Reinhard who will comment on our outlook.

[Reinhard Ploss]

Thank you, Dominik. For the 2018 fiscal year, we now expect revenues to grow 5%, plus or minus 2 percentage points, assuming a rate of $1.25 for the dollar against the euro for the remainder of the fiscal year. You have to remember that we guided at an exchange rate of $1.15 in November 2017 and more than half of our revenues are in U.S. dollars. Even with a very good momentum, we are unable to compensate for this. If the dollar were at the same level as in the 2017 fiscal year, we would expect a euro revenue growth of 11% at the midpoint of the guidance. If you look at our growth outlook for the 2018 fiscal year in U.S. dollar terms, we are actually guiding about 16% growth at the midpoint of the guidance.Taking the impact from the weaker dollar into account, the relative growth expectation of the divisions are as follows. ATV will grow meaningful above group average, IPC should come in around group average and PMM should come in below group average. CCS might see a revenue decline. We cannot fully compensate the impact of the weaker U.S. dollar on the segment result margin which should come in at 16.5% of sales at the midpoint of the guided revenue range.Looking into the March quarter. Our fiscal second quarter, we expect revenues to increase seasonal by 4%, plus or minus 2 percentage points. This also assumes a rate of $1.25 for the dollar against euro for the remainder of the quarter. The segment result margin should come in at 16% at the midpoint of the guided revenue range.Ladies and gentlemen, let me summarize the key points for the first fiscal quarter. First, the order entry stays on a very high level and even accelerated in some areas. For this, we are very confident for the March quarter. For the rest of the 2018 fiscal year, the [ exchange effect ] and unchanged business momentum only affected by the significantly weaker U.S. dollar. This is reflected on our adjusted guidance. However, the underlying growth for this year remains strong.At a constant dollar exchange rate, our growth outlook would be at 11% at the midpoint. And obviously, if you're reported in U.S. dollar, as most of our competitors, we would even guide for 16% growth at the midpoint. Second, in spite of the headwind from the weaker U.S. dollar, our profitability came in slightly better in the first quarter. For this, you only have to reduce our full-year segment result margin guidance by 0.5 percentage point which is slightly less than you would expect from our currency sensitivity rule of thumb. Third, we have reached the crossover for our Dresden 300-millimeter power fab compared to 200-millimeter relative to our original ramp-up scenario. Due to the booming demand for power discretes, we decided to significantly accelerate the ramp at Dresden 300 and are ramping as fast as we can to add new capacity. This pull-in of course triggers incremental cost in the near term for the benefit of fast growth and higher profits in the coming years. However, adding the same capacity on 200-millimeter would have cost even higher ramp-up costs and CapEx. As such, our 300-millimeter project not only provides us a great run rate to drive growth and fulfill the strong demand of our customer, but it's also accretive for Infineon's margins and earnings.Ladies and gentlemen, this concludes our introductory remarks and we are happy to take your questions.

[Juergen Rebel]

Operator, please start the Q&A session.

[Operator]

[Operator Instructions] We'll take our first question from David Mulholland from UBS.

[David Terence Mulholland, Director and Equity Research Analyst]

Just 2 questions if I may. Firstly on the design win you commented on, potential is as much as over $900 within the NIO SUV. Obviously, I think in all the commentary we've had before the power semi content is expected to be somewhere around $400 give or take. Is this something that's changing the game in a sense of where the average content [ and NAV ] might end up in 3 or 4 years time or should we treat this as an exception? And then just a quick second question on -- in terms of the ramp that you're now accelerating in 300-millimeter, does that mean -- you've commented before you expect to be fully utilized and using the space you have by 2020, does that mean you could reach that kind of full point quicker [ now ]? And what does that mean in terms of the longer-term capacity planning for the business and when you might need to kick-start something else?

[Reinhard Ploss]

David, I will answer the first one and Johann will talk on the 300-millimeter. The design win for NIO [ is for me -- for us is really ] remarkable because it of course also shows that the range which we expect for the EVs is very broad. In the near term, we expect that a lot of OEMs will decide in order to improve their CO2 balance for their fleet to introduce 48 valve systems, which we would call a very mild hybrid solution. This can range up to the level which we have seen in the NIO. And for the time being we will not change the average expectation for hybrids or full-electric cars and the content for that. Nevertheless, long term it can range up to their especially when a significant share of silicon carbide will kick in.

[David Terence Mulholland, Director and Equity Research Analyst]

Maybe if I can just follow up and ask the question in a slight different way. Is this represent -- is this an exception within the mix of deals that you've been winning for full EV platforms, is this an exception or is the -- way you have been winning before consistent with the $400 type range for full EV ignoring the high rates and so on?

[Reinhard Ploss]

Yes, so the average is $400, this is exceptionally high.

[David Terence Mulholland, Director and Equity Research Analyst]

Okay.

[Johann Dechant, Deputy Chairman of Supervisory Board]

David, so turning back to your 300-millimeter question, you are right. We said that we expect the full load of the clean room early next decade and currently we accelerate. So the year of -- for full load is probably close to what you mentioned with 2020 now.

[David Terence Mulholland, Director and Equity Research Analyst]

But this -- I mean, -- how do you think about sort of planning to do something beyond that then? When should we start hearing about what the plan is to continue growing beyond 2020?

[Johann Dechant, Deputy Chairman of Supervisory Board]

Yes, you have to assume --

[David Terence Mulholland, Director and Equity Research Analyst]

[indiscernible]

[Johann Dechant, Deputy Chairman of Supervisory Board]

Sure. So typically we have to assume 2 years of construction for new [ asset ] facility. So we are in the midst of making up our thoughts and we will communicate this in due time. Yes, 2 years lead time, yes.

[Operator]

We'll now take the next question from Adithya Metuku from Bank of America.

[Adithya Satyanarayana Metuku, Associate]

So I had 2 questions. Firstly on silicon carbide. You guys have said in 3Q '17 numbers that you expect that you had more than 15 Tier 1s looking at your solutions. Can you give us some update on how the traction is with silicon carbide in the EV market? And secondly, I just wondered whether you have priced in any conservatism for any potential double ordering that might be happening in the space currently.

[Reinhard Ploss]

So the first question will be answered by Helmut and I'd just jump on the conservatism. Look the current situation in Infineon is our revenue guidance is, to a large degree, defined by our manufacturing capabilities where Jochen already told that we are ramping significantly. So yes, of course, with this situation we expect that there are some double ordering in, but we have figured this into our growth expectation. But again currently a significant part is limited by adding capacity.

[Helmut Gassel]

Adi, Helmut Gassel here. We have received a phenomenal feedback from these Tier 1s so far on our SiC MOSFET in particular to the terms of reliability. However, they are still in progress and we have nothing to public at this point yet. But, yes, you can expect more coming.

[Adithya Satyanarayana Metuku, Associate]

Okay. Just a quick clarification on the conservatism. So if you hadn't priced in any conservatism for double ordering, how much higher could your guidance be, roughly?

[Helmut Gassel]

While this is a good question, again the same answer. If you would have more capacity, we might have guided differently. But I think this is nothing which is in -- just think about what we communicated as book-to-bill ratios and many of these book to -- bookings are in the, I would say, near to mid term. So the potential would be significantly -- there significantly, I would say, to a certain degree higher. But this is nothing where we base on -- our guidance on. Nevertheless, the momentum is stronger in the market than you can read from our revenue guidance.

[Operator]

We'll now take the next question from Sandeep Deshpande from JPMorgan.

[Sandeep Sudhir Deshpande, Research Analyst]

My question is regarding, I mean you've talked about in your presentation on silicon carbide in -- on the roadside chargers as well as my question is regarding silicon carbide in the automotive itself. Firstly on the automotive, what kind of content do you expect when silicon carbide starts getting introduced in the auto engine? And with these chargers probably taking off before the automotive market takes off, I mean when should we expect revenues on these roadside chargers?

[Reinhard Ploss]

Sandeep, thank you for the questions. I think Helmut can answer this on the chargers. Just one general comment on silicon carbide. I think we expect that silicon carbide will kick in and will kick in on the high-power cars mainly where the benefit is the most significant. The smaller cars with a smaller power the benefit of silicon carbide is much more limited. The next point which is for me also very much defining the inroad of silicon carbide into the drivetrain of the car is the automotive people, the Tier 1s and OEM, have to adapt to different way how they design their ECUs in order to benefit from the silicon carbide which takes place gradually. Currently, the major focus is definitely to build up the portfolio. So we -- it is very difficult to tell you, but we expect that silicon carbide in the car will come. There are some, I would say, OEMs already around today. But in a broader range will come in the car drivetrain at the beginning of the next decade.

[Helmut Gassel]

Sandeep, some comments on silicon carbide in xEVs. As we have said earlier, it is all about cost performance at the end of the day and it factors in the cost of the battery as well as the cost of the inverter and designs. One of the reasons why we said onboard chargers for hybrid vehicles will be potentially first is because additional constraints are there in terms of space. And obviously silicon carbide designs are much smaller -- slimmer designs and lighter. So therefore you will see them first there. The exact modeling on how silicon carbide will be adopted for the main inverter as well is still work in progress. As we just said, we see OEMs and Tier 1s really exploring capability of silicon carbide. So it's not possible to give you a very exact figure when it will come. Nevertheless the content per inverter on silicon carbide is significantly higher as we talked about as compared to silicon. When it comes to the roadside, we see that if you want to go beyond 100 kilowatt of charging power, the design calls out for the use of silicon carbide. Again, at this early stage hard to tell how exactly the charging stations will be installed. So please bear with us that we do not have a precise model at this point and time on how silicon carbide will be deployed.

[Sandeep Sudhir Deshpande, Research Analyst]

Just a quick follow-up for Dominik on your sales number itself, Dominik. I mean underlying dollar you had higher growth as you have reported the numbers today because of probably you've seen better trends in the fourth quarter. Are you saying at this point in terms of the guidance you're giving for the rest of the year in terms of 5% plus-minus 2% that if there is incremental upside like you saw in the fourth quarter in terms of dollar year-on-year growth that there could be also incremental upside through the year for the revenue growth?

[Dominik Asam, CFO, Executive VP & Member of Management Board]

Sandeep, let me just clarify what is exactly underlying in terms of growth. I think it's very important to understand how sharp the dollar has actually depreciated on a year-on-year comparison. In the December quarter, we had $1.08 last year and are now at $1.18. And actually in the current quarter, in the March quarter, which we've just guided, we actually had last year, only $1.06 and are guiding now implicitly, to be very precise, $1.24. Why $1.24? That is basically the first month of January with the actuals you can read on Reuters, plus 2 months of $1.25. And if you hold that together with our guidance, you actually see that we are guiding in U.S. dollar terms, which is actually the comparable number to competition, 22%. So actually the March guidance is a strong further acceleration. After December quarter accelerated year-on-year to the September quarter again, we are accelerating in the March quarter. The issue is however why is there a lot more upside. First of all, I think it's very early in the fiscal year. So I think it's prudent not to get carried away too much at this point in time. And secondly, as Reinhard and Jochen mentioned, there are some capacity limits. So of course, if you got tons more demand in Chip Card suddenly, which we don't expect by the way, we could ship more. But in other products where we have this huge delta between confirmed and unconfirmed, we unfortunately have no capacity left. So that's why, as always, we give the best guidance we can give, which is the 5% plus-minus 2% in euro terms which has the headwinds I've described.

[Reinhard Ploss]

So just to make one comment on the capacity limitations. Even though we have noted this very clearly, I believe we should also underline that Infineon is, from a growth perspective and capacity, best positioned compared to our competitors.

[Operator]

The next question comes from Andrew Gardiner from Barclays.

[Andrew Michael Gardiner, Director]

Sticking on the automotive topic I'm afraid, but I was just interested in a little bit more detail around the profitability. You had highlighted that some of the pressure in the current -- sorry, the fiscal first quarter was due to ramp-up costs. Can you quantify that for us? And also, I'm just wondering on the continued impact of competition here, if I recall from the last conference call, you had flagged that some of the margin pressure that you're already seeing if the tail end of the fiscal '17 year was due to competition in the xEV space in general. So I am just trying to determine the balance between the ramp-up cost and competition.

[Reinhard Ploss]

Andrew, thank you for your questions. I'll answer the second one and then Dominik will go more in details with the profitability. In general, automotive is always a buyers' market and the pressure on the price is, I'd say, always the same. Yes, there are more people coming in and showing interest in the market, but does not -- this does not affect our price -- pricing situation for the time being.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

So on the margin side, I think we have been quite specific by saying that we're going to kind of see a convergence, so to speak, to the margin levels in the second half of the year, we've seen last year. Frankly the December quarter was an exceptionally weak quarter in terms of margin, not only because of the ramp-up cost because also operationally there were some things happening, which didn't help at all. So I'd really ask you to look a little bit beyond that. It's not so representative, so to speak, and Reinhard already gave the second part of the answer.

[Andrew Michael Gardiner, Director]

Okay. Dominik, just a quick follow-up on your statements on tax, just to be clear. When you're saying a step-up in the P&L rate by 2020, to what level?

[Dominik Asam, CFO, Executive VP & Member of Management Board]

So what happens is basically we have these tax loss carryforwards in Germany which provide us with a pretty low effective and cash tax rate. However, there is a timing difference between the cash tax rate and the effective tax rate in the P&L because of deferred taxes. This is why you should assume kind of a ramp to this 25% or so long-term sustainable level, absent any tax loss carryforwards in the P&L as early as 2020 whereas on the cash side, we can benefit from them a couple of years later so that that will lead you like 2022. Is that clear for you now or --?

[Andrew Michael Gardiner, Director]

Yes, it is.

[Operator]

We'll now take the next question from Achal Sultania from Credit Suisse.

[Achal Sultania, Director]

Just a question or a clarification on the EV/ADAS business. Can you just give us some color as to -- I think last time you said it was about 10% or 15% of your auto business and it was growing 70%, 80%. What kind of trends that you've already seen for this -- for the first 4 months of this year already like, is it expected to replicate what we saw last year and how much is today that number as a percentage of total sales in ATV?

[Reinhard Ploss]

Yes, Helmut would answer on that.

[Helmut Gassel]

Basically, I would say the momentum is unchanged, both as we always have said probably carrying half of the growth of the Automotive group and yes, of course, the percentage of Automotive is slightly changing but just from a smaller base. So yes, there is still -- maybe somewhere between 10% and 15% of the Automotive total business and are growing faster, continue to grow faster.

[Achal Sultania, Director]

Okay. And one question for maybe Dominik. When you talk about the 300-millimeter ramp in Dresden, can you just give us some color around how much of revenues out of total group revenues is coming from Dresden today and what's the capacity utilization? I think -- was it like 15%, 20% like couple of quarters back and has that numbers changed much in the last 6 months or so?

[Dominik Asam, CFO, Executive VP & Member of Management Board]

I mean the loading discussion is pretty unchanged. Of course, we ramp very fast, but at the turn of the year [ where the kind of quarter loaded ]. And now I would need to do the math and then I think [ Juergen ] follow up with that what that means precisely in terms of revenue contribution. You can backsolve actually, but [ Johann should ] comment on the situation with a more forward-looking view.

[Johann Dechant, Deputy Chairman of Supervisory Board]

Yes, the ramp-up plan is as expected, as described before and I would guess but we come -- can come back with a more precise number. It's about 10% of group revenue if I include everything, not only the in-house capacity currently, of course, increasing quickly.

[Operator]

We'll now take the next question from Amit Harchandani from Citi.

[Amit B. Harchandani, Vice President and Analyst]

Amit Harchandani from Citi. A question and a clarification, if I may. The question is with respect to the lead times evolution across your various segments suggests to meet the demand momentum was probably stronger than you anticipated over the course of the December quarter. So would it be fair to say that your lead times have -- are still continuing to stretch or are they starting to stabilize, albeit at a relatively elevated level? If you could comment on that, please, and then I have a quick follow-up.

[Reinhard Ploss]

Yes. So Helmut -- Amit, this question will be answered by Helmut.

[Helmut Gassel]

I am Helmut. As we've already said one important thing is that lead times very depending on which product we're talking about. Chip Card obviously is very different. On the other side, when we are completely full the only chance that we have is to confirm orders later, [ meaning ] orders that are coming today as the capacity is completely full. So, yes, lead times are continuing to stretch for the areas where we are in allocation. On the other hand, a confirmation in a very, very long time from today we'll have to see how much remains valid when finally the market demand turns. So at this point in time, yes they are stretching.

[Amit B. Harchandani, Vice President and Analyst]

Okay. And in terms of the follow-up, I was just wondering you've left your CapEx guidance unchanged at the moment for this year. Was there ever a thought process looking at how the demand was shaping up in the December quarter to potentially look to add even more capacity than what you had planned at the end of September? Or in other word, could you give us a sense for what is the maximum level of revenue your current CapEx would support exiting fiscal 2018?

[Reinhard Ploss]

So Amit, it is a good question. We will answer this question next time about CapEx when we have a clearer picture on long-term development of the market. The absolute revenue we could make out of the capacity which we have is very difficult to answer because we are ramping significantly. And I would say the investment as we record it and as it becomes effective on the revenue streams is a little bit, I'd say, shifted out in time frames. I think here this may be the best idea when Juergen comes [ with it and gives you these 8 ] answers later. And the next point is also that we see again and again structural changes in the portfolio. So the overall optimization of the revenue out of CapEx is significantly impacted there but we can prepare some hints on that. But the situation is so dynamic and in case we might see a positive further development in the business, we even have to prepare for the next level of growth. But again as we said, it is a matter of ability to add this capacity in our fabs which is very much dominating how we grow.

[Operator]

We'll now take the next questions from [ Adam Waller ] from Deutsche Bank.

[Unknown Analyst]

Just a quick one on the -- on M&A. Obviously, the way euro-dollar moved -- has moved this has kind of hurt your numbers, but potentially it could be quite favorable depending on how you're thinking about M&A going forward. So, yes, any thoughts you could share on that, please.

[Reinhard Ploss]

Well, the M&A strategy is not defined by the exchange rate. Nevertheless, yes, this can help us to move forward at the major targets in U.S., but maybe Dominik can add on that.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

I mean, it's -- I don't think it's really a big driver because -- also the revenues are impacted if I then convert them back into euros. However, in a certain sense dollar-denominated assets can be interesting if the dollar depreciates because the competitiveness of that target would be a little bit higher. But that's all I think that matters. Otherwise, I would say it's actually a kind of consequence of the lower cash flows [indiscernible] I'm not sure it really helps.

[Operator]

We'll now take the next question from Jerome Ramel from Exane BNP Paribas.

[Jerome Andre Charles Ramel, Analyst of IT hardware and Semiconductor]

First question on the capacity constraint. Can you share with us if you have increased prices in power? And also recently your competitor on semi declined their organic share in IGBT because you have been capacity constrained. So do you think it's just temporary and then when you have the ramp-up of the [ 300-millimeter Dresden ] when you get the tools, you are going to catch-up? And then I have a follow-up.

[Reinhard Ploss]

Jerome, I think related to pricing, Helmut will answer and same for the market share. And I think if we have further questions on the capacity constraints, Jochen will comment on those.

[Helmut Gassel]

Yes, like in every market when demands are high and capacity is low, there is a certain reaction of prices. But what you have to bear in mind is that a significant portion of our business has an annual contract base. So it's not moving as quickly. However, we see an average reduction in price decline for the time being and not always possible to completely pass forward also the cost increase that we see, for instance, on the wafer prices coming in as well. So I would say yes in the average slightly reduced price decline.

[Johann Dechant, Deputy Chairman of Supervisory Board]

Yes, and in terms of capacity buildup, I think in general what we get as a feedback from our customers is that we are the company that is building up capacity the fastest, especially in power discretes.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

And just -- sorry, Jerome, let me add that on the -- don't forget the currency. I'm not sure your statement is actually correct. If you include -- if you compare everything and WSTS data U.S. dollar denominated we had huge growth in IPC. I am not sure we lost market share, I don't think so.

[Helmut Gassel]

But if you think about the guidance, I think it's like 25% growth or more. So I'm not sure. We have since grown by so much in IGBTs.

[Reinhard Ploss]

I think here I only can confirm what is Dominik saying. Of course, the significant capacity addition is also for modules overall and we don't see that competitors are significantly better suited in delivery capability than we are. The market overall is constrained. And maybe there are some minor shifts in between but the majority may be due to the, I would say, the currencies.

[Jerome Andre Charles Ramel, Analyst of IT hardware and Semiconductor]

Okay. And maybe just to follow up on Automotive. Back from [ CES ] we saw your competitor being very aggressive especially for the radar, 77-gigahertz radar with TI coming, with Renesas coming, with NXP coming with a CMOS process, STMicro as well. So you've been a dominant player in this field for a couple of years now and I guess you will continue to gain market share probably this year. But my question is when you look forward, let's say, 2, 3 years from now what kind of market share you are assuming in radar specifically?

[Reinhard Ploss]

Yes, this is a difficult question when we ask about market share. But you're right, we are currently in an extreme nice position on -- with our radar system. But we expect that other solution will come in. Nevertheless, we also assume that we will be able to grow significantly in this area and it will be also dominated by the number of radar applications. And there are some applications which need less precision and less distance capability which may move to CMOS more quickly. So here I think the market as such will continue to grow. In our plans, we expect to have a reduced overall market share because today we are having a huge market share. On the other side, we also will step into CMOS radar and will enhance radar in the non-automotive application. But we cannot give precise expectation for this because we also don't know the intensity of application in the various cars that is extremely dynamic.

[Operator]

We'll now take the next question from Guenther Hollfelder from Baader-Helvea.

[Guenther Hollfelder, Analyst]

Just one follow-up question and then a second. The follow-up on the CapEx. I mean doesn't your unchanged CapEx guidance not include already like an increase given the U.S. dollar exchange rate?

[Reinhard Ploss]

Mr. Dominik will answer your question.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

Actually, you should know that the kind of fall through so to speak in the CapEx is much lower than it is on the revenue side. But it's -- as a trend, so to speak, we had a pretty broad range of [ 1.1 to 1.2 ]. So it would be a little bit kind of artificial precise to then also adjust because of the dollar, but you're right in principle. And by the way the CapEx we have right now is not taking into account any kind of huge incremental upswing. It's kind of more geared towards the normal trend line growth next year. So if we saw another year of above trend line growth, it would be -- it would need to be higher.

[Guenther Hollfelder, Analyst]

Okay. And then one question on your image sensor business. I mean you had some sales, some business in 2017. And now you presented an improved I think a shrinked image sensor. Also software partners that enable facial recognition. I just wanted to understand what the opportunity of this product and technology could be, let's say, looking into 2019.

[Reinhard Ploss]

Mr. Hollfelder this is a segment which is from our point an area of potential new growth depending on the areas of application. We're in the 3D imaging sensors since quite a while and especially in the mobile application. It is very obvious that it is a matter of the idea of how it can be used. Many of these ideas have not taken place. But now with the idea or the need for facial recognition and many other areas, the time of flight may come in more quickly. The advantage of it is that you can, I would say, have a 3-dimensional recognition without a lot of compute power. But here definitely the time of flight, the 3D time of light is a wild card. And well, give us some time in order to, let's say, tell you more as we move on. Nevertheless, the interesting is that compared to the time before the interest in using this as a [ at/on ] in various areas is moving on. But we cannot give you precise growth expectation for this as it is in many other areas of this human-machine interface topic. But we expect in this area, let's say, quite some dynamic. How it will come, we will see.

[Operator]

Will now take our next question from Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

My first question is about Auto revenue outlook. So basically for this year, next few quarters, auto is likely to drive the group revenue growth significantly. So just wondering what's your visibility on the Auto revenue into the near future. Are we likely to see the above-trend growth over medium term or is that going to return to a normalized 8% level at certain point?

[Reinhard Ploss]

Tammy, thanks for the question. Helmut will answer it.

[Helmut Gassel]

Yes, very rightfully stated. For this year, we expect Automotive again to be above group average and above normal or long-term trend line. We stick to our guidance for long term to be an 8%. However, when exactly it is lowering from its above trend line to trend down is very difficult to predict. At this point in time, we have no visibility to that yet. It is still a red-hot market, I would say, for us going forward.

[Reinhard Ploss]

And just adding if you consider these new applications where nobody clearly knows how xEVs will come in and the speed of ADAS, we can also assume that there is a potential for a higher growth above the average trend line but it has certain -- a significant uncertainty in this assumption.

[Tammy Qiu, Analyst]

So the second question is about margin. So you are saying you're going to keep ramping the 300-millimeter fab capacity. I remember previously you mentioned that the [Audio Gap] 300-millimeter will be offset by price decline. So can you give us a rough idea, how we should be modeling the margin on the back of 300-millimeter ramping together with the impact from pricing?

[Dominik Asam, CFO, Executive VP & Member of Management Board]

I think for the current fiscal year, the guidance is 16.5%, which by the way you could characterize a little bit as a kind of very, very small raise in segment result because if you just do the U.S. dollar sensitivity, you would see that that we would have actually lost a little bit more than that from the 17% we have guided at the outset of the year. So it's maybe 0.2% or -- basically the outperformance we had in the Q1, we have kind of added on the segment results which is a tiny raise. Going forward, we kind of give you guidance as always for the margin developing in 2019 at the beginning of next fiscal year, because then we will have much more clarity on important factors such as price decline you mentioned already. There is also a new kind of imponderability which is the wafer price increases which have eaten a lot away of our positive effects from 300-millimetre in the current fiscal year because the increases are very, very significant. So we have to watch how that will evolve. So the problem is that the longer we go out in time and add the productivity from 300-millimeter the more the compound effect of small variances in price decline can either make that fall through to the margin or eat it away. And we are actually not willing to really speculate on that.

[Operator]

We will now take our next question from Gianmarco Bonacina from Equita.

[Gianmarco Bonacina, European Equity Research Manager]

Just going back to your guidance for 2018, if I understand correctly in, let's say, constant currency, you are speaking about 11% top line growth. In the December quarter, I calculated it was about 13%, so keeping the currency constant and also for the March quarter it would be a similar rate of 13%. So is there a particular reason why you are indicating for the remaining of the year so the June, the September quarter, the year-over-year growth in constant currency should be, let's say, only high single digit doing the math?

[Dominik Asam, CFO, Executive VP & Member of Management Board]

Yes, it's very simple, it's capacity constraints.

[Gianmarco Bonacina, European Equity Research Manager]

Okay. And when is that issue solved so far in the next fiscal year already?

[Reinhard Ploss]

I think here, Johann can explain a little bit more on the strategies for capacity addition. But here, Gianmarco, it is very clear, we have to balance the growth and we also are cautious not to run into an overheated mode and it's a lot of matter of the ability. But here Johann has a great team and he will explain that.

[Johann Dechant, Deputy Chairman of Supervisory Board]

Yes, so again -- I think we can state that the factories are running at full steam. We are ramping maximum in Dresden. Even though we would prefer to do everything on 300-millimetre, we're also ramping in our cooling facility on 200-millimeters. We are also working with our subcontractors but they are also, of course, fully loaded these days. So we do everything that is possible. I think it's also reasonable that we are building up capacity, maybe not to the full demand customers show us at this point in time because we do have to assume double bookings. But we do everything in order to catch up. Whether we meet the demand, depends on the -- more on the demand and on our abilities.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

There is also one topic where we at Infineon might be a little bit different because of our customer structure than others, which is we are not going to run down the inventories to bare minimum because we need some delivery performance later on for certain important customers. So this is a little bit of a difference with huge customers where we have certain commitments where you cannot really do opportunistic like in a distribution business and then kind of in a good cycle like that go to really nothing in inventories anymore. We need certain delivery certainty for certain periods of time and I think that's a little bit different in our shop than in some other businesses.

[Reinhard Ploss]

Yes, that is a great comment and I want to add on. It had already been asked about the lead times and many other things. We want to be able to manage our customers and retain those customers which -- where we have a good growth potential. And therefore we can only accept orders I would say when we get closer to the time when the demand comes. And this is also something which Infineon has a clear strategy to come out stronger out of that race situation than we had been before.

[Juergen Rebel]

We may have time for one more question.

[Operator]

We'll now take our next question from Douglas Smith from Agency Partners.

[Douglas Smith]

You mentioned very briefly, you wanted to gain share in the smartphone market. Can you specify what you think today your smartphone contribution is as a percentage of total sales and what are the specific products you want to gain share in or get traction in for smartphones?

[Reinhard Ploss]

Thank you for the question, Douglas. Dominik will answer on this. We have a very selected strategy.

[Dominik Asam, CFO, Executive VP & Member of Management Board]

I mean on the share it's 7% more or less in last fiscal year.

[Reinhard Ploss]

And the number of products and the type of products very much around the silicon microphone where we have a unique position in technology and capability and around the highly differentiating, high-frequency products. So it's an extremely selective strategy on that. And we also [indiscernible] in order not to be, I would say, a victim of the in and out of the winning and losing platforms.

[Juergen Rebel]

All right. So thank you, everybody for all your questions and allow me one personal comment. Most of you will have seen that I am passing the baton as Head of IR to my colleague Alexander who is actually listening here and next to us as I'll take on an operational role within the Chip Card division. I would like to thank you all for the great and professional collaboration and the great discussions we had. And some of you I might still see on our handover road shows in March together with Alexander. To everybody else, all the best. Thank you and goodbye. With that I would --

[Reinhard Ploss]

Not yet. So also from Dominik and me, a big thank you to Juergen. He had done a great job in order to represent us in -- at the investors and analysts and we are looking forward to Mr. Foltin in order to continue this great performance Juergen has shown. So thank you a lot from the board side. And now you may close it as your last action on that.

[Juergen Rebel]

So thank you. That concludes our conference call and as usual for further questions, you can contact us anytime here in Munich. Thank you. Back to the operator.

[Operator]

Thank you. That concludes this conference call. Thank you everyone for joining. You may now disconnect.