Infineon continues consider DRAMs integral part business. existing tec

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Infineon continues consider DRAMs integral part business. existing tec

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audited group financial data 1999 financial year ("1999") 1998 financial year ("1998") based upon series assumptions which discussed greater detail section, "Selected Financial Data", explanatory notes Audited Consolidated Annual Accounts, which presented full prospectus initial public offering Infineon Technologies dated March 2000, available from Deutsche from Infineon.
Infineon continues consider DRAMs integral part business. existing technological leadership this field provides solid basis which Infineon will able remain competitive terms production costs profit margins. Rising manufacturing efficiency combined with product synergies with logic business advantages DRAM production.
Infineon leading innovator international semiconductor industry, designing, developing, manufacturing marketing broad portfolio sector-relevant semiconductor products specific target markets. newly established company, Infineon continues operate semiconductor business Siemens Group. such, Infineon been active semiconductor industry since 1952. recent years, company achieved significant increases revenues, gaining considerable share market. Total sales increased from 2.126 billion 1995 financial year 4.237 billion 1999. This corresponds average annual growth rate cent. first half financial year 2000 ("2000"), Infineon posted total sales 3.073 billion, comparison total sales 1.828 billion first months 1999. success Infineon following factors: Focusing growth segments semiconductor market, particular communications technologies security applications Shifting marketing operations away from emphasis mass market global customers with high-growth potential
continually high level research development expenses, even during last downturn semiconductor industry. This decision basis developing technologies products, putting Infineon optimal position benefit from future semiconductor growth. Strengthening portfolio logic products, sales which generally subject smallersized cyclical fluctuations than those storage products Increasing manufacturing productivity while retaining leading position semiconductor process technologies Reducing product time market
North Tyneside July 1998, company decided close production plant North Tyneside North England. original decision invest production facility made August 1995, based need manufacturing location logic products. However, instead logic products, Megabit DRAMs were selected start-up mass production North Tyneside. reason two-fold: first, company's greater level effectiveness producing this standardized, highvolume product compared manufacturing logic products, second, assessment that subsequent restructuring operations enable logic production could implemented reasonable costs. Construction started November 1995, with first production equipment being installed November 1996. However, meantime, developments were apparent. First, productivity improvements would allow demand logic products existing Infineon manufacturing locations. Second, there major decline price DRAMs. this reason, decided limit installation production equipment minimum. Once this minimum capacity completed 1997, company started first integrated production runs level 1,700 wafer starts week. order utilize production facility North Tyneside reasonable degree, company concluded strategic partnership produce Megabit DRAMs, simultaneously re-equipping plant production Megabit DRAMs, designated successor Megabit DRAMs. This would have allowed increase capacity 3,000 wafer starts week. However, light ongoing collapse prices Megabit DRAMs, strategic partner terminated cooperation agreement with Infineon, effective February 1998.
Following withdrawal strategic partner, Infineon attempted conclude partnership agreement, find buyer production facility. However, became increasingly apparent that required level production efficiency could achieved with factory's limited capacity. improve cost position stretching infrastructure full capacity would have required additional investments. Given that global semiconductor industry suffering from acute over-capacity, continuing collapse DRAM prices high level uncertainty concerning future market developments, decision favour increased investments would have made economic sense. same time, important note increase value English currency against German Mark, which created cost disadvantages North Tyneside facility. Therefore, July 1998, Infineon decided shut down production plant. restructuring charge 1998 amounted million. Production stopped November 1998. This followed initiation shut-down proceedings. These terminated March 1999. Expenses earnings connection with production facility North Tyneside, including expenditures restructuring measures, have been incorporated into preliminary consolidated income statement November 1998, which also encompasses time production ended. Siemens plc., member Siemens Group, remained owner site liabilities connected with this reason, Infineon does expect further expenses income derive from shutting-down North Tyneside. Siemens recently started negotiations with prospective partners concerning sale production site.
particular, world-wide DRAM market suffered from major downturn between 1996 early 1999. Market studies indicate that massive decline took place, from peak level 40.8 billion 1995 14.0 billion 1998. However, terms Megabits, total demand increased from billion Megabits 1995 billion 1999. collapse prices largely reflects considerable degree overcapacity DRAMS semiconductor industry. 1999, global market semiconductors once again expanded 20.7 billion. average sales price Megabit Infineon's DRAM products fell approximately cent 1997 financial year, cent 1998, around cent 1999. This negatively impacted profit situation Memory Products business group.
view market developments restructuring charge referred relation closure North Tyneside production facility, consolidated loss million posted 1998. Losses operational activities investments high cash outflows both financial years. Operations were funded such Siemens. This funding shown contributions financial data included this document, amounted
Market Despite considerable increase overall revenues, Infineon's past earnings have been significantly adversely affected decline prices various segments global semiconductor market.
million 1998 1.322 billion 1999. company received additional capital inflow million 1999 financial year. Siemens stated that further contributions other provision funding will made after October 1999, that Infineon itself will responsible further financing after that date. Siemens also announced intention reduce shareholding company direct indirect sales, nonparticipation capital increases, depending business market conditions. past, Infineon reimbursed Siemens administrative services rendered. This expense amounted million 1998 million 1999. According company's management board, expenses were approximately same level would have been incurred independent company. future, Infineon expects bear comparable level administrative expenses when operating independent company. process reorganizing company-wide system, Infineon anticipates increasing expenditures communications data technology. Infineon plans outsource lion's share infrastructure software requirements, with exception some strategic elements.
Analysis 1999 1998 Financial Years
subsidies received
million) Interest subsidies Research Development Miscellaneous Total 1998 1999
These explanatory notes relate Consolidated Profit Loss Account printed section, "Selected Financial Data" starting page They largely reflect information available February 2000, partly also taking account current developments which have been generally described notes first half year results 2000.
industrial applications, compensated somewhat upturn growth last quarter financial year. Increased capacity demand along with end-ofthe-year price increases DRAM market resulted cent rise total sales memory products. 1999, average sales price Megabit Infineon's chips fell relatively moderate rate cent. Volume increased overall 1999, because growth Megabit DRAMs more than offset decline sales older generations Megabit Megabit DRAMs. 1999, Infineon started massproducing Megabit DRAMs. September 1999, earthquake registering Richter scale devastated Taiwan, causing ten-day closure production facilities ProMOS, joint venture company. Infineon estimates loss sales revenues from resulting twelve-day loss production around million. Memory Products business group received income from licenses with Infineon's strategic partners amount million 1998 million 1999. Total revenues from other Infineon divisions include sales security chip card ICs, together with optical components produced joint venture company operated with OSRAM. Their total revenues 1999 increased cent over previous year. This upward trend primarily resulted from factors: first, growth sales chip card ICs, particular banking sector; second, significantly higher sales opto-electronic components, based strong demand automotive sector, e.g. displays. following table shows customers accounting more than cent total revenues 1998 1999. Sales Siemens Group include both direct sales Siemens Group sales Siemens' sales organizations resale third parties. Siemens Group's sales organization also supports Infineon commission basis sale products third parties. these cases, company does report these sales sales Siemens.
Infineon received interest subsidies from German federal state Saxony Dresden production facility. Subsidies research development applied large number individual projects, including production line development logic products (the so-called "logic initiative"). company received additional subsidies 1998 1999 production facilities Dresden Porto. addition, company attracted investment subsidies acquisition tangible assets (property, plant equipment), primarily production site Dresden, which deducted from acquisition costs these assets. These investment subsidies amounted million 1998 million 1999. Infineon expects continue receiving level investment subsidies future. subsidies received North Tyneside 1997 were repaid Siemens 1999, amount million. This amount included restructuring charge listed 1998.
Profitability
Total revenues increased cent from 3.175 billion 1998 4.237 billion 1999. divisions contributed this growth, spurred Memory Products business group. Total revenues derived from Wireless Products business group climbed cent, primarily result continuing world-wide growth mobile communications, particularly GSM. Total revenues Communications Peripherals division increased cent, resulting from increase production hard drives using integrated DRAM technology. This increase sales more than compensated approximately cent decline price business unit's products, well weak sales transceivers fibre optic components. Total revenues Automotive Industrial Electronics division increased cent. This growth derived from increase power sales automotive industry, and, lesser extent, micro-controllers used automotive industrial electronics applications. growth automotive power line with general increase demand Infineon automotive products 1999. decision favor these products been made years previously, within framework customer selection decisions (design-ins). terms microcontrollers, most growth demand micro-controller segment, well newly-launched micro-controllers with integrated, non-volatile memory. difficult market environment Infineon's customers first half 1999 resulted slight overall decline sales power semiconductors
recent years, Infineon been able reduce expenses being beneficiary public funding. following table provides summary subsidies received last financial years their allocation expenses:
Sales Siemens Group's sales organization resale third parties amounted million 1998 million 1999. income recorded from these sales calculated prices paid end-customers less distribution margin allocated Siemens. average, this distribution margin ranged from cent cent. This margin reduces sales revenues Infineon, shown selling expenses. Infineon renegotiating marketing sales agreements with Siemens Group companies, with view changing direct sales. those cases where these negotiations successfully concluded, Infineon will longer make sales Siemens Group's sales organization reduced prices, will only sell directly third parties. result this policy, those cases where Siemens sales organization involved sales chain, Infineon will commission, which will then shown selling expenses.
event that existing marketing sales agreements cannot terminated, company nevertheless assumes that amounts paid Siemens will further reduced extent that Infineon develops marketing activities important regional markets. 1999, Infineon reorganized marketing organizations Germany, United States Asia, including Japan. addition, company established marketing organizations major European markets outside Germany.
million resulted mainly from dollar hedging, whereas same time dollar earnings were lower than forecast. This result lower level sales dollar region also late dollar payments some customers. Changes exchange rates also affect disclosure total sales cost goods sold. relatively costs goods sold 1999 also attributable cessation high one-off costs start-up phases production facilities North Tyneside Porto previous year. cost goods sold item, Infineon also shows purchases from joint venture company ProMOS, September 30th 1999 purchases from White Semiconductor, joint venture with Motorola. White completely consolidated first time September 1999, time management takeover. Additional costs goods sold include purchases from ALTIS Semiconductor, joint venture company with IBM, from time earlier purchases from IBM's production facility Essonnes, which since been absorbed into ALTIS Semiconductor. purchases from these production facilities with other associated affiliated companies totalled million 1998 million 1999. addition, Infineon shows costs wafer manufacturing, installation tests third-party premises costs goods sold. potential taking advantage third-party manufacturing this kind differs from product product, partly limited adaptations required Infineon's customers. 1999, outsourcing accounted approximately cent production. increased demand, increasing made outsourcing more effectively fulfill customer requirements. When comes standard technology products, Infineon expects further increase proportion outsourced production. October 1999, least cent currency risks were hedged months rolling basis. commercial policy Infineon hedge least cent risk period three months rolling basis. 1999, Infineon recorded currency gains around million, particularly rise U.S. dollar Japanese yen. Currency losses 1998 almost 1998, write-offs amounted million 1999 million. Infineon anticipates higher write-offs future, company intends maintain investments level which competitive with other leading market players.
Costs goods sold increased cent from 2.727 billion 1998 3.010 billion 1999. However, same period, cost goods sold percentage total sales declined from cent cent. This decline success internal rationalization programs. recent years, Infineon made great efforts improve productivity. result, labor costs account relatively proportion operating expenses. ways which this been achieved ongoing relocation labor-intensive back-end manufacturing Asia. relative decline cost goods sold been achieved
Research development expenses essentially comprise expenditures staff, laboratory facilities, software, masks, test wafers purchase outsourced expertise, including relevant write-offs. Expenses research development increased cent from million 1998 million 1999. Despite 1999 increase staff around employees, expenses relation total revenues fell from cent 1998 cent 1999. This fact that sales increased considerably faster rate than increase planned expenses. 1999, research development expenses were primarily influenced Increased expenditures part Wireless Products business unit research development high frequency mixed-signal products next generation mobile telephones Increased product development costs Communications Peripheral division, including development applications products hard drive slight increase expenditures Automotive Industrial Electronics business group, result market launch technologies Higher developmental costs Memory Products division generation storage products technologies Infineon received public funding research developmental activities relevant company's income statement amounting million 1998 million 1999. These subsidies have been offset against corresponding expenses research development.
major Customers
Customer's name 1998 1999 Major products systems supplied
Siemens Direct Sales Siemens Group 16.6% Sales Siemens' sales organizations resale third parties 14.1% Semiconductors mobile communications, automotive industrial electronics products
Successful design-to-cost programs productivity gains Mobile Communications business unit Productivity increases improved procurement efficiency Communications Peripherals division, which more than compensated expenditures involved scrapping obsolete transceiver stocks start-up infra-red components relative increase operating expenses Automotive Industrial Electronics business unit, weak demand products with industrial applications. This resulted level utilization production capacity, which only partially offset productivity increases production plants. more favorable cost situaiton Memory Products business group, resulting from productivity improvements Dresden Porto production facilities joint ventures Hsinchu Richmond, well from stabilization product prices.
8.4%
8.7% Semiconductors automotive industry mobile communications
Bosch Group
6.6%
5.4%
percentage sales revenues
1998, restructuring charge amount million incurred connection with shutting-down North Tyneside production facility.
Selling, general administrat selling, general administrative expenses increased total cent, going from million 1998 million 1999. However, they declined from cent total sales 1998 cent 1999. 1998, selling expenses were million, climbed million 1999. This corresponds reduction from cent cent relation sales, fact that total selling expenses increased slower rate than sales. Selling, general administrative expenses basically encompass overhead, such labor costs consulting expenses, together with selling, general administrative costs sales organizations production sites owned company. 1999, general administrative costs increased absolute terms, slower rate than growth sales. 1999, selling costs, general administrative expenses were influenced following factors: Increased expenses both Communications Multimedia business group well Automotive Industrial Electronics business group order expand marketing activities Additional expenses related becoming independent company, such costs involved image advertising campaign setting independent infrastructure Administrative Infineon's expenses connection with
balance interest income interest expense been calculated basis capital structure consolidated annual accounts. Balanced against each other, negative interest balance million incurred 1998 positive interest balance million 1999. reduction interest expenses essentially results from lower-than-average level loans 1999. This result longer consolidating North Tyneside production site December 1998. 1998 1999, interest subsidies totalling million connection with financing production site Dresden were offset against corresponding interest expenses.
1999, balance other income expenses amounted million. This mainly includes profit divestitures totalling million. came from sale cent shares ProMOS time listing Taiwan Stock Exchange.
income benefit declined from million 1998 30.1 million 1999. This fact that positive effect resulting from consideration deferred income taxes connection with restructuring charge North Tyneside longer applied. disclosed income benefit essentially relates accounting periods prior establishment company. been presented submitted income statement though company been legally independent company, order depict situation accurately possible. fact, Siemens largely entitled benefit taxable losses April 1999, which took advantage
date acco this section, Infineon sets profit shares following associated companies: White Semiconductor, joint venture company with Motorola Richmond, USA. After takeover been carried out, this company fully consolidated September 1999.
ALTIS Semiconductor, joint venture company with Essonnes, France, since July 1999, date establishment. Semiconductor300, joint venture with Motorola Dresden. OSRAM Opto Semiconductor, joint venture with Siemens subsidiary OSRAM, Regensburg. 1998, proportionate annual loss companies consolidated accordance with equity method million. 1999, Infineon recorded proportionate annual profit million. This improvement largely successful completion start-up phases ProMOS White Oak, together with improved price situation DRAMs 1999.
ProMOS, joint venture company with Mosel Vitelic Hsinchu, Taiwan.
Liquid Resources Financing
Cash Flow Account
summary page shows inflow capital from current business activities, outflow capital investment activity inflow capital from financing activity recorded periods. increase million other provisions increase million other liabilities connection with purchase equipment Essonnes production site, together with higher personnel liabilities result larger number employees increase million trade liabilities affiliated companies increase million trade liabilities These developments correspond increased business volume 1999 comparison with previous year. reduction cash used investment activity current assets million 1998 particularly influenced increase million trade liabilities affiliated companies rise million short-term liabilities increase million other provisions These developments correspond increase business volume 1998, compared previous year. decline trade liabilities million connection with termination production North Tyneside more than offset above effects.
pita nvestm Capital outflows million, made acquisition shareholdings associated affiliated companies 1999, joined with capital outflows million capital expenditures, comprising high outflow capital from investment activities. acquisition shareholdings primarily involved investments ALTIS Semiconductor, joint venture with IBM. further investment 1999 involved million acquisition securities cover company's pension obligations. Capital outflows million investments 1998 focused acquisition property, plant equipment assets, with focus start production North Tyneside Porto. Capital outflows million related acquisition shareholdings associated affiliated companies, particular investments White joint venture.
Liquidity
negative liquidity position Infineon, defined balance liquid assets marketable securities against financial liabilities, amounted million September 1999 million September 1998. these dates, liquid assets amounted million million, respectively.
pita capital outflow 1998, contrast capital inflow funds 1999, results from high loss posted 1998. positive effect deferred taxation income statement impact here, because result capital inflow. Essentially, this income from deferred taxation million 1998 resulted from annual losses posted company's operations North Tyneside business activities Germany. These taxable losses were utilized Siemens. restructuring charge North Tyneside and, lesser extent, proportionate annual losses companies consolidated accordance with equity method, which were entered liabilities 1998 income statement, affect outgoing payments cash flow. capital inflow from current business activities 1999, contrast previous year's outflows, reflects clear improvement results 1999. capital inflow outflow from current business activities 1999 1998 significantly affected development current assets. increase cash used investment activity million 1999, disclosed current assets, particularly caused following factors: rise short-term accounts receivable million, increasing demand correspondingly high sales second half year, particular last months year. second semi-annual period, particular final quarter 1999, Infineon recorded significant increase total sales. Payment terms substantially remained unaltered. However, sales increased faster rate than incoming payments, which increase level accounts receivable comparison same period previous year.
Financing Requirements
company liabilities banks, repayments scheduled amount million 2000 million 2001. company anticipates that will able make these repayments drawing existing liquid assets securing loans within scope normal business activities. company anticipates considerable financing requirements upcoming years. expected that investments surpassing billion will required, with particular emphasis building facility using 300mm technology produce semiconductors. Infineon also intends devote considerable proportion total sales research development. Infineon projects require substantial financial resources, normal state affairs semiconductor industry. effect, level investments fluctuate considerably from period next. company plans finance investments drawing capital raised through initial public offering, through business operations, calling lines credit, public funding and, depending market conditions, taking loans equity-linked instruments.
disclosed capital inflow Siemens into equity capital amounted million 1998 total 1.348 billion 1999. financing contribution paid Siemens 1998 used primarily finance investments North Tyneside, Porto, Richmond Hsinchu. disclosed capital inflow into equity capital 1999 resulted from contributions equity capital connection with establishment company March 1999 allocation capital reserve company September 1999, extent that these investments were projected scope forma consolidated account previous periods.
inflow capital primarily caused investments made Siemens changes financial liabilities owed Siemens. financing contribution from increase balance financial claims financial liabilities relation affiliated companies amounted million 1998. increase financial liabilities Siemens 1998 essentially resulted from financing required production facilities North Tyneside Porto, together with investments joint venture companies White ProMOS. 1999, balance reduced million. This reduction essentially conversion claims Siemens company into equity capital investments connection with establishment company. first quarter 2000, offsetting accounts with Siemens were closed.
past, Infineon's business requirements outside capital were Siemens. Siemens announced that October 1999, will undertake further financing, that Infineon must find sources finance from this time onwards. Consequently, Infineon concluded financing agreements with various banks, basis covering unexpected short-term financing requirements company subsidiaries near future. These financing agreements include binding commitment provision short-term lines credit finance current assets, cash pooling interim day-to-day financing. Other financing agreements relate non-binding allocation shortterm credit lines credit lines local bank overdrafts international transactions guarantees. total financing agreements entered into March 2000 amounted volume around million variable interest rates, based standard market reference interest rates relevant currencies. Lines credit currency currency hedging transactions have also been concluded. addition, Infineon arranged revolving credit facility million with banks. amount facility divided into equal tranches: tranche term years other term days with extension option further days. drawings made either tranche Euros dollars subject variable interest rate based reference rate plus agreed margin. This margin dependent amount capital drawn level senior financial liabilities relation profit before interest, taxes write-offs (senior debt/EBITDA ratio). Under this facility, agreement been reached standard obligations conditions, including maintenance minimum tangible worth, specific gross level indebtedness specific interest cover.
Infineon currently also loan from Commerzbank amount million cent annual interest. This loan, which applies Dresden production facility, installments during period between 2000 2002. guaranteed bank credit balance, amount terms which correspond loan from Commerzbank. loan bank credit balance, together with associated interest income expenditures, have been mutually offset. March 2000, Infineon further repaid loan around million Siemens from receipts deriving from Infineon's initial public offering. loan relation construction start-up manufacturing operations White Oak. course establishing company, effective October 1999, Infineon exempted Siemens from risks small number guarantee financial obligations formerly made Siemens semiconductor segment. These individual contractual arrangements which, although they affect Infineon, cannot transferred Infineon legal, administrative practical reasons. These consist payment guarantee million benefit financial institutions course return liability declaration connection with Dresden production facility payment guarantee million ProMOS technologies payment guarantee million favor leasing company within framework leasing finance agreement production site Malacca, Malaysia
Quantitative Qualitative Explanatory Notes Market Risks
Infineon exposed market risks from commercial financial activities described below. company currently introducing guidelines limit some these risks, nevertheless exposed losses resulting from exchange rate fluctuations, interest changes price risks. Infineon does derivatives speculative purposes.
Effects Currency Rate Fluctuations
asset, financial profit situations Infineon affected changes exchange rates between Euro other currencies, particular with Dollar Japanese Singapore Dollar Sales series products, particular case sales Asia, calculated dollar, that fluctuations Euro against dollar have direct effects total sales. Sales Europe essentially invoiced Euro, that currency rate fluctuations have significant influence. Prices DRAMs essentially negotiated world-wide dollars, that changes dollar's rate exchange influence DRAM sales other currencies. significant proportion expenses production, personnel, research development, marketing, administration other expenses well write-offs incurred source currencies other than Euro. Changes exchange rates these currencies against Euro will influence profit situation. Differences arising from conversion foreign currencies have significant influence balance sheets. September 1999, Infineon concluded practically derivative financial instruments through Siemens Financial Services, division Siemens Effective October 1999, Infineon concluded agreements derivative financial instruments within certain limits with number financial institutions, order limit concentration credit risk.
Currency Management
Prior October 1999, least cent currency risks were hedged next months rolling basis accordance with Siemens group arrangements. Infineon's trading policy, designed limit foreign currency risks, requires company hedge least cent risk period least months. Infineon calculates this risk basis capital flow, taking account balance sheet items, orders actually received placed other planned income expenditure.
Management Interest Risk
Infineon's interest risk essentially results from borrowing. majority loans covered financial assets with same terms same rates interest, company believes that interest risk other loans restricted level with short repayment periods.
Material Price Risks
Infineon exposed price risks with regard materials used company. Infineon tries minimize these risks through procurement strategies using suitable instruments. Infineon does derivative financial instruments control residual risks from price fluctuations.
Euro Year 2000
Euro
Since October 1999, Infineon used Euro company-wide currency changed general business terms accordingly. Prior that date, company issued invoices German Marks other national currencies member states European Union which part Euro currency union. practical reasons, also included conversion into Euros. However, from initial launch Euro January 1999, Infineon capable making accepting payment Euros. Infineon largely completed project conversion processes systems Euro, does anticipate substantial additional costs relation conversion Euro.
Conversion Year 2000
possible that computer systems software products will operate properly year 2000 subsequent years result previously common programming standard which years were specified figures. Although some Year 2000 problems were reported number companies earlier this year, conceivable that further Year 2000 problems become evident until some time future. company opinion that products systems capable dealing with Year 2000 transition. April 2000, company experienced significant problems.
FINANCIAL YEARS 2000 1999
Regional Sales Trends
With this "Analysis first half-year financial years 2000 1999" subsequent "Selected financial data 2000, 1999 1998", hereby submitting Infineon Group interim report required under Section Stock Market when read together with Sections 53ff Stock Market Admissions Ordinance. interim report based Infineon's publications dated April 2000 second quarter first months financial year 2000) January 2000 first quarter financial year 2000) well information contained company's prospectus initial public offering version March 2000. financial data cited been generated according US-GAAP been audited. Financial data period from October 1998 through March 1999 been provided forma basis, since Infineon Technologies only been existence legally independent company since April 1999. focus about customers above-average, triple-digit growth rates Infineon throughout world. According Dataquest, European market research institute, Infineon ranks eighth among global semiconductor producers largest European chip supplier. Comparing first months 2000 1999, Infineon's sales rose cent 1.479 billion. this, million accounted Europe, with about cent attributable German market. Sales American/NAFTA region developed quite favorably company, with increase cent million. Asia-Pacific region also growth leader, with sales climbing cent million. Japanese sales rose cent first months million. penetration this important semiconductor market DRAM sales main reason this high growth rate. Dataquest confirmed disproportionately high growth Infineon outside Europe, reflected company's increased market shares Asia U.S. Dataquest statistics rank Infineon tenth largest semiconductor manufacturer Asia, from 15th spot previous year. U.S., company climbed from 16th place 13th expanding business with global customers.
Major Developments First Months 2000
highlight first six-month period 2000 initial public offering Infineon Technologies March Frankfurt York. capital raised value surpassing million. addition, framework private placement, Intel acquired Infineon shares worth million (EUR 258.8 million), thus holds about cent Infineon shares. result IPO, more than million financial resources available company. same time, Intel Infineon intend cooperate producing DRAMs swapping roadmaps (product development plans). Furthermore, Infineon exercised option purchase Motorola's share White Semiconductor manufacturing plant located Richmond, Virginia, U.S.A. Following approval U.S. anti-trust authorities, joint venture DRAMs production 100% owned Infineon. This step ensued logical result Motorola's withdrawal from DRAM business. taking over modern White plant, Infineon secured manufacturing presence vital American market long term, strengthened leading position against backdrop favorable semiconductor market conditions.
Consolidated Earnings Position
Infineon's consolidated sales first months 2000 climbed cent 3.073 billion, compared with 1.828 billion during same period last year. semi-annual consolidated EBIT million, compared with negative EBIT million first months 1999. These record results prove value commitment implementing strategy profitable growth logic DRAM business. particular, this includes greater concentration fast- growing market segments communications Internet sectors less more cyclical semiconductor markets. addition more balanced product portfolio, partnership with about global clients marked improvement profit margin. orders received first half 2000 achieved level billion, cent above equivalent period last year. Consolidated income amounted million March 2000, compared loss million same period last year. Based weighted average shares outstanding first months (602.4 million individual shares), this comes halfyear earnings 0.46 share, from minus 0.01 last year. improved cost structures, Infineon able raise gross margin first months from cent 1999 cent 2000. previously mentioned, Infineon reduced costs unrelated sales. Research development expenses correspond cent semi-annual sales, compared cent equivalent period last year. Nonetheless, absolute terms, investments increased million when comparing half-year periods. Selling, general administrative expenses equally declined first months cent sales, compared cent equivalent period last year.
Cooperation Agreements
Since January 2000, Infineon been developing new, high-performance DRAM technologies advanced DRAM technology alliance with Hyundai Electronics, Micron Technologies, NEC, Samsung Electronics Intel. consortium believes that this advanced DRAM generation will enable development significantly more cost-effective computer platforms, thus faster implementation modern multimedia graphics applications. addition, Taiwanese company become member strategic partnership Infineon 1997. Under terms agreement, companies will develop processing technology manufacturing logic chips with structural dimensions from 0.13 0.10 microns.
Employees
number employees rose from about 26,000 September 1999 more than 27,000 March 2000. ongoing expansion global manufacturing development capabilities will lead further recruitment, with much this undertaken before closing accounts financial year September 2000.
COMPARISON FIRST MONTHS 2000 1999 FINANCIAL YEARS
Overview Business Groups
mid-March, Infineon signed several agreements with Mosel Vitelic Inc. with joint subsidiary ProMOS Technologies Inc, according which ProMOS receive licenses from Infineon manufacturing DRAMS 0.17, 0.14 0.12 micron technology generations. 1999, Infineon opened developmental center Aviv, Israel. designed develop digital signal processors integrate them into future communications systems, e.g. mobile communications Internet.
Retooling production technology: sites Villach (Austria) Regensburg will expanded partially converted technology, that Infineon better meet growing demand from cellular phone communications equipment manufacturers well companies automotive industrial electronics sectors. Expansion contract production with foundry manufacturers: external wafer production further increase, with expanded outsourcing assembly testing well. This will provide basis raising short-term medium-term production capacity.
Wireless Communications
first months, Infineon increased share supplier leading cellular phone mobile communications equipment producers. doing Wireless Communications business group expanded sales, half-year comparison cent, million, increased semiannual EBIT cent million. With system-on-chip solutions, Infineon achieved three major design wins (Acer, Matsushita Siemens). addition, integration subsidiaries Denmark (hardware design center) Comneon Nuremberg (GSM software), Infineon able conclude agreements system supplies baseband chip sets cellular telephones.
With availability 66-Plus family safety controllers, Infineon confirmed technological leadership product segment chip card controllers high-security applications. 66-Plus controllers offer largest EEPROM memory capacity mobile communications applications. products have been launched, with major orders from U.S., China Brazil. Moreover, together with Microsoft, Infineon announced development open software platform running "Windows Smart Cards"-based operating system. This intended help chip card applications penetrate markets, example fields e-commerce access networks.
Expansion Production Capacity
response favorable market trends business divisions, Infineon took steps further expand manufacturing capacity. this context, company plans make significantly higher investments expanding modernizing existing manufacturing facilities years 2000 2001. following detailed measures have been launched planning stage:
Automotive Industrial Electronics
Since October 1999, Infineon's Automotive Industrial Electronics business group series major orders from leading automotive suppliers manufacturers. closed first months 2000 with cent increase sales milliion. half-year EBIT rose cent same period, climbing from million last year million March 2000.
Communication Peripherals
Capitalizing steep rise global data exchange Internet, Communications Peripherals group expanded quarterly sales cent million comparison last year. This primarily achieved with system-on-chip solutions microcontrollers. this case, semiannual EBIT million 2000, comparison negative EBIT million same period last year. growth market equipping Internet infrastructure (routers switches), Infineon able increase sales Cisco Systems. addition, succeeded achieving design with Microsystems. Infineon offers high-performance transceiver second-largest fiber optics growth market.
Construction started first manufacturing module Dresden. Infineon's decisive head start technology exploited rapid implementation technology complete production line. Higher chip yields silicium wafer: Infineon will quickly switch production processes even smaller chip structures. logic products, structural widths will 0.18 microns copper technology 0.17 microns memory products.
Infineon achieved major design with customer Italian market. Furthermore, industrial electronics segment, company secured from Osram long-term, high-volume order CoolMOS power switch. Restructuring highcapacity semiconductor division Eupec subsidiary proceeding according plan.
Security/Chip Card Other Products
uninterrupted high level demand GSM/SIM cards used cellular phones, well Infineon's supply about cent chips Eurocheque money card Germany, cent rise sales made Security Chip Card business group. These sales came million. same period, semi-annual EBIT rose cent, from million million.
COMPARISON FIRST MONTHS 2000 1999 FINANCIAL YEARS
Further Information
Subscription Rights
accordance with stock option plan described prospectus dated March 2000, company able issue million option rights special tranche when listed. These included 957,000 option rights accruing members Management Board, 740,000 option rights management subsidiaries, approximately million option rights other employees qualified participate, especially research development. such option rights, price exercise this option equivalent cent purchase price shares. options taken within five years expiry two-year embargo period (calculated from date issue), only share price Xetra trading comparable successor system achieved exercise price least trading period before option expires. Subsequent price fluctuations affect right exercise this option. Moreover, option rights exercised during specific periods before after disclosure quarterly results results previous business year. From present-day vantage point (April 2000), Infineon expects that current positive trend earnings will continue, assuming that semiconductor market conditions remain favorable. strong technological leading cost positions, furthermore assume that will able derive above-average benefits from excellent conditions semiconductor market. flexibility publicly-traded company provides with additional entrepreneurial options enhance success, with this done through acquisitions cooperation agreements.
Memory Products
Sales Memory Products group rose unexpectedly strong level first half year, increasing cent 1.160 billion. semi-annual EBIT reached million, compared EBIT minus million same period last year. main causes this rise sales earnings were strong Christmas season, well ongoing high demand Megabit DRAMS second quarter 2000. Additional factors include favorable forex effects weakness Euro, improved cost structures, successful conversion 0.19 micron production technology extremely positive results obtained from ProMOS Technologies Inc. joint venture. Infineon successfully launched high-volume production generation Megabit memory chips ("super chips") first quarter 2000. result, Infineon been able achieve leading market position from very beginning. second quarter 2000, Infineon consolidated position world market leader Megabit memory chips with design wins. also became supplier Compaq, Dell, Intel. addition, first months, produced world's first functioning Megabit DRAMS wafers, underlining pioneering status developing wafer generation.
Risk Management
Since February 2000, Infineon been process setting full-time risk management department that carries risk analyses monthly basis, assessing both opportunities risks arising from commercial operations.
Perspectives
According estimates made March World Semiconductor Trade Statistics (WSTS, International Semiconductor Statistics), global semiconductor market expected expand cent year 2000. basis expanded production capacity, Infineon expects experience above-market growth rates 2000, previous years.
COMPARISON FIRST MONTHS 2000 1999 FINANCIAL YEARS
"This interim report contains future-oriented statements forecasts based assumptions estimates made Infineon management. While assume that expectations these future-oriented statements realistic, cannot guarantee that expectations will prove correct. assumptions conceal risks uncertainties yielding actual results significantly divergent from those made projective forecasts. factors that cause such divergence include: changes economic business environment, forex interest rate fluctuations, launch competing products, insufficient acceptance products services changes corporate strategy. update projected forecasts Infineon planned, does Infineon assume obligation so."

Infineon continues consider DRAMs integral part business. existing tec

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