EUR 850.00 For Business Accounts Only

Morningstar | Infineon Remains a European Powerhouse in Power Semiconductors

Infineon is a leading broad-based European chipmaker with nice exposure to secular growth drivers in the industrial and automotive chip sectors. However, like most chipmakers, its business remains highly cyclical as demand ebbs and flows in line with the health of its various end markets.Looking at the automotive chip market, vehicles with advanced powertrain technology and safety systems require a variety of sensors and power management chips supplied by firms like Infineon. Similarly, the company's exposure to power management circuits positions it to benefit from trends in the electronics industry toward power conservation, not only in more efficient devices like industrial drives, but also in green energy solutions like solar panels. Infineon is also a leader in chip card and security products, such as chips for chip-and-pin credit cards. Finally, we think limiting exposure to challenging markets is just as important as increasing exposure to promising markets, and Infineon has done a good job of eliminating unattractive business segments in recent years, such as its spin-off of its wireless baseband chip business to Intel.Despite the recent changes, Infineon's product lines still face formidable competition. Many other large semiconductor firms also focus on power semiconductors and have similar products. Further, Infineon focuses on discrete power products rather than analog power management integrated circuits. While the former products are valuable to customers, the latter of which we view as more complex products that allow leading analog firms (such as several wide-moat names we cover) to enjoy stronger pricing power and relatively higher returns on invested capital. Infineon also has hefty manufacturing capacity for its products, which may lead to a higher fixed-cost structure and may cause significant margin compression when supply far exceeds demand.