Infineon spends extra €5bn on Malaysia plant in bet on electric vehicles

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Infineon has announced it will invest a further €5bn investment in additional production capacity in Malaysia, as the German chipmaker makes a larger bet on the car industry’s switch to electric vehicles.

The Munich-based company said on Thursday that its previous announcement of a €2bn investment into its silicon carbon chip fabrication plant in Kulim, Malaysia would rise to €7bn. This is largely thanks to purchase commitments and prepayments from clients in the region, including Chinese carmakers SAIC and Chery.

Infineon makes roughly half its revenues from serving automotive companies and is seeking to gain from the transition to EVs, which require more chips than those run by combustion engines.

However, pressure on its existing automotive business led margins in the division to contract to 27 per cent in the three months to June 30 compared with 31 per cent in the previous quarter. Infineon warned that margins across all of its four segments — including connected systems, green technology and sensor systems — next quarter would land at 25 per cent, slightly below analyst expectations.

The company’s share price, which is up 28 per cent in the past year, tumbled more than 10 per cent on Thursday morning before recovering slightly.

“Semiconductor market trends continue to present a mixed picture with both light and shade,” said Infineon’s chief executive Jochen Hanebeck. Demand remained high in the automotive and renewable energy industries, he said, while pointing to a continued slowdown in home electronics such as smartphones and laptops.

Hanebeck added that “structural growth drivers” were behind its additional investment in Malaysia. Infineon is among other big German companies such as Volkswagen and BASF that have faced pressure from Berlin to reduce their reliance on China, where the company last year made 29 per cent of revenues and has a strong manufacturing base.

Mounting geopolitical tensions have led nations to seek to secure access to crucial components. Berlin recently promised €10bn in subsidies to Intel, after the US chipmaker threatened to halt plans to build two new fabs in eastern Germany because of rising costs.

Infineon on Thursday confirmed its full-year sales guidance of €16.2bn and said it had made €3bn in profit before tax in the nine months ending in June.

Infineon’s share slide put pressure on other European semiconductor groups. Stock in chip toolmaker ASML dropped more than 3 per cent on Thursday morning, while shares in STMicroelectronics were down nearly 2 per cent.

However, Jürgen Wagner, an analyst at broker Stifel, was positive on prepayments from customers in Asia that prompted the additional investments in Malaysia, and which Infineon said would contribute to its cash flow in coming years and were expected to be fully repaid through sales by 2030.

Infineon is expanding its semiconductor fab in Dresden, having announced a €5bn investment on the site late last year. In 2021, it also opened a new fab in Villach in Austria.

The company said it expected the investments to help it capture roughly a third of global market share for silicone carbide chips by the end of the decade.