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Infineon: Defies Weak Demand for e-Cars and Wants to Double Microcontroller Revenue to €6 Billion!

The weak demand for electric cars is not causing Infineon any worries because twice as many semiconductors are installed in them. In addition, the microcontroller business offers the potential to double sales over the next five years. As a leading automotive chip provider, Infineon is driving the transition to autonomous, electrified and connected vehicles. With a P/E25e of 12.7, the valuation is not expensive.

Infineon occupies a leading position in automotive chips!
The semiconductor manufacturer Infineon is known for its automotive chips. They are used in car body electronics and lighting when it comes to on-board power supply control units, LED lights, power distribution for start-stop systems or wireless charging in the car interior. The Group's semiconductors are also used in tire pressure monitoring, EPS, interior sensors and infotainment. For electric cars, inverters for auxiliary units, solutions for fast charging and thermal management are addressed. This makes Infineon a leading supplier of automotive chips. According to TechInsights, the Group achieved a market share of 14% in 2023, up from 13% in the previous year. The addressed market was worth a good $69.2 billion in the past period and grew by 16.5%. Infineon achieved a 26% increase in semiconductor sales in the automotive sector.

Electric cars are a growth opportunity. Microcontroller revenues are expected to double to €6 billion 
At the weekend, Infineon expressed its optimism about the electric car business to the media. Recently, there were concerns that Infineon would be significantly affected by weakening demand. But this does not seem to be the case. "Electromobility remains one of the biggest growth drivers for us, especially as twice as many semiconductors are used here compared to the combustion engine." Sales in China remain strong. A certain sales potential is also seen in microcontrollers. Microcontrollers are key components for the automotive industry, as they control and monitor various systems in cars, such as the electric powertrain, advanced driver assistance systems and radar. Revenue in this area is expected to double to six billion euros within five years. The forecast makes sense because microcontrollers are paving the way for the transition to autonomous, electrified and connected cars. Infineon is a beneficiary, as it is the leading group in microcontrollers with a 29% market share. It is also exciting that, following the lessons learned from the supply chain problems, automotive customers have booked around 20% of capacity, securing the business for the coming years.

AI data centers will also bring Infineon more business!
The outlook for the AI server market is very rosy, as experts recently commented. It is expected to grow from $41 billion in 2023 to $283 billion in 2028. The need for infrastructure for training AI models and inference will drive this growth. Infineon will benefit from the demand for AI data centers, as the energy requirements of the chips used to process the exploding data growth are growing. It is estimated that an AI server consumes three times more energy than conventional servers. Infineon is addressing the problem with a new two-phase power module that it claims offers industry-leading power density and quality and lowers the total cost of ownership of AI data centers. The mechanical design with high electrical and thermal performance allows data centers to operate with higher efficiency to meet high energy demands.

2024 will be a transition year. The forward P/E 2025 ratio falls to 12.7.
Infineon is targeting revenue of €16 billion (+ / - €500 million) in the current 2024 financial period. This would correspond to stagnation compared to the previous year. However, the automotive business is expected to perform better, with growth in the low double-digit percentage range. At the same time, the segment result margin is expected to be in the low to mid 20% range. On a net basis, the Factset consensus assumes €2.03 per share. In 2025, €2.53 per share is possible. This would bring the forward P/E 2025 ratio down to 12.7. Infineon is not expensive, which gives the share recovery potential.

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