Infineon Technologies AG (IFNNY) reported that net income from continuing operations increased almost 5 times compared to the last quarter’s levels to €66 million ($97.5 million) or €0.067 per share (10 cents per share). Revenues for the first quarter came in at €941 million, a significant increase of 10% compared to the prior quarter, and of 27% year-over-year. Excluding acquisitions and divestitures, revenues at constant currencies increased 12% on a quarter-over-quarter and 34% year-over-year.

Segment Information

This sequential increase reflects growth in Automotive, Industrial & Multimarket, and Wireless Solutions segments. Results were mostly driven by the economic recovery and improved demand in the supply chain, as well as at its end-customers. All four operating segments contributed positive results. Combined segment margin improved to 9.4% compared to the 6.1% in the fourth quarter of the 2009 fiscal. In addition to the higher sales levels, the increase in factory loading contributed positively towards the increase in combined segment results. At the end of the first quarter, production in the front end and the assembly were running nearly at full capacity, with utilization rates generally ranging between 90% and 100%.

In the Automotive segment, revenues were €279 million, up 17% from €238 million in the previous quarter. The significant increase in revenues was driven by increased car production worldwide, which according to the estimates of the market research institute, CSM, should rise from 14.9 million units in the fourth fiscal quarter to 15.8 million units in the first fiscal quarter. The OEMs in the United States increased orders again to meet a steady increase in the end customer demand. In Europe, the remainder of the car scrap programs was still driving good orders for the volume car segment, the demand for premium cars began to increase in line with the economic recovery.

In the Industrial & Multimarket segment, first-quarter revenues increased 6% compared to the prior quarter. Segment results improved significantly compared to the previous quarter, driven by higher sales, improved factory loading, and an improvement also in the segment’s product mix. In addition, first-quarter revenues and segment results benefited from the settlement of patent infringement litigation with Fairchild relating to the super-junction power transistors.

In the Wireless Segment, the company is witnessing continued good orders for its ultra-low cost single-chip and the entry phone solutions, as well as for HSDPA platform and the radio-frequency transceivers. In the ULC arena, it is at some of its key customers in the transition phase from the 130 nm platform, X-GOLD101, to the 65 nm platform now, X-GOLD110, which is being received very well.

During the quarter, Infineon saw a continued recovery from the economic downturn. Book-to-bill ratio was far above one, indicating strong momentum for the second quarter as well.

Balance Sheet and Cash Flow

Infineon deconsolidated ALTIS in December 2009 after its option to acquire further shares in ALTIS from IBM was waived in the same month. In connection with the deconsolidation, it recorded a non-recurring operating charge of €81 million. On the other hand, it closed the sale of its wireline communication business and received the first installment of the purchase price amounting to €223 million. It recorded an after-tax gain of €106 million in income from discontinued operations in the first quarter.

Free cash flow from continuing operations before recording any one-off items would have been €102 million. However, with the deconsolidation of the ALTIS joint venture, the gross cash of €88 million on the ALTIS balance sheet, which was fully consolidated within the company’s gross cash position, was deconsolidated as well. First quarter free cash flow from continuing operations of €40 million contains this accounting effect. At the end of the first quarter Infineon’s gross cash position was €1,678 million compared to €1,507 million at the end of the prior quarter.

Guidance

For the second quarter, Infineon expects group revenues to show almost no seasonality and to be approximately on the same level or down only slightly compared to the first quarter. This should result in another quarter with a combined segment result margin of a high single-digit percentage. It anticipates revenues in Automotive, Industrial & Multimarket and Chip Card & Security to grow.

We currently have a Neutral recommendation on IFNNY.

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