Infineon Technologies, the German chipmaker, could attract takeover interest due to its foothold in growth sectors, including semiconductors for automated driving and electric vehicles, its chief executive believes.
But following a wave of multibillion dollar takeovers in the chip industry, Reinhard Ploss told the Financial Times that he considers the company to be “more the consolidator” — as opposed to the one being bought.
“There is one risk: we are busy in highly attractive markets. That is a strength but maybe we should be aware that people might be interested in Infineon because of that market position,” said Mr Ploss.
While technology companies including Apple and Google, as well as automobile makers, push to develop self-driving cars, Infineon has already become an important supplier of components for vehicles being sold now that have computer controlled features, such as automatic braking. It is also supplying products for the small but expanding electric car market.
The company has been partly expanding its competences through deal making. Last year Infineon agreed to pay $3bn to acquire California-based International Rectifier, to increase its US footprint and its range of compound semiconductors that enable mobile devices to use less bulky battery chargers, among other things.
“Because of the step we took last year we are much better off now than a year ago,” said Mr Ploss, an engineer by background, adding that for the time being Infineon was interested only in smaller acquisitions.
The International Rectifier deal was the harbinger of massive dealmaking in the semiconductor sector, including Intel’s $16.7bn takeover of Altera, Avago Technologies’ $37bn purchase of Broadcom and Netherlands-based NXP’s $11.8bn agreement to acquire Freescale.
Consolidation has been sparked by a maturing mobile and PC chip industry, rising development costs and the desire to profit from the next wave of innovation in the internet of things and energy — a future in which smart electricity grids connect decentralised renewable energy sources, consumer devices communicate with each other, and cars refuel at electric charger stations and then drive away autonomously.
Infineon made large losses during the 2008-09 financial crisis, but following a restructuring and divestments — including the sale of its wireless unit to Intel in 2010 — its performance has improved thanks to a focus on energy efficiency, mobility and security applications.
Having fallen to a low of €0.35 in 2009, a fraction of the €35 price when former owner Siemens floated the business in 2000, Infineon’s stock now trades at more than €9.50, giving it a €10.7bn market capitalisation. However, in tandem with other semiconductor stocks, Infineon has fallen more than 20 per cent since a peak in May due to worries about China’s economic slowdown.
Infineon’s revenues jumped 12 per cent to €4.3bn last year, putting it among Europe’s top three chipmakers, alongside STMicroelectronics and NXP.
Headquartered near Munich, the company aims to increase sales by 8 per cent a year on average over the cycle, and achieve a 15 per cent operating profit margin. Last year the margin was 14.4 per cent.
Commerzbank analysts said in April that due in part to the NXP-Freescale deal “competition is heating up . . . making it harder to gain market share as Infineon has done over recent years”. Meanwhile, Morgan Stanley analysts are concerned that a rise in US interest rates could slow auto-related growth.
Autos account for about 40 per cent of Infineon’s revenues — making it the global number two in that market behind Renesas, the Japanese group.
Making cars safer, more automated and increasingly environmentally friendly almost invariably means higher semiconductor and sensor content.
Infineon’s power semiconductors help improve energy efficiency in the BMW i3 and Tesla Model-S electric vehicles, and its micro-controller assists in managing the central “brain” of Audi’s driverless test vehicle.
Infineon also makes radar-based distance warning sensors, which cause the car to brake when the vehicle in front slows. It took six years for the company to sell 10m sensors, but Infineon expects to sell the next 10m in one year, in part because of their use in the Volkswagen Golf, Europe’s top-selling car.
Mr Ploss said that Infineon was well-placed to supply components for advanced driver assistance systems such as automatic braking — with a level of reliability found in aircraft but at a price acceptable to the car industry. “Not everybody can supply that,” he added.
Infineon has benefited from strong demand for its products by German premium manufacturers such as BMW, Audi and Mercedes-Benz, which offer driver-assistance features.
However, by driving down costs, Infineon aims to enable mid-market manufacturers to offer similar functionality. This trend is expected to help the automotive semiconductor market to grow at almost 6 per cent a year until 2019, according to IHS, the research firm.
Infineon also plans to use expertise gained from its chip card and security division to help protect vehicles from hacker attacks.
“Today’s car is not designed in a manner to be resistant against hacker attacks — but in order to hack today’s car you have in general to physically plug something in,” said Mr Ploss. “If you add internet to the car and do not do it in a diligent manner, then you have a problem.”