Q3 2026 Infineon Technologies AG Earnings Call

August 5, 2026

Speaker #1: Good morning, everyone. Welcome to the conference call for analysts and investors on Infineon's 2026 financial Q3 results. Today's call will be hosted by Alexander Foltin, Executive Vice President of Finance, Treasury, and Investor Relations at Infineon Technologies.

Operator: Good morning, everyone. Welcome to the conference call for the analyst and investor of Infineon's 2026 financial Q3 results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury, and Investor Relations at Infineon Technologies AG. As a reminder, this call is being recorded. This conference call contains forward-looking statements or assessment about the business, financial condition, performance, and strategy of Infineon Group. These statements or assessments are based on assumption and management expectation reflecting upon currently available information and present estimates.

Speaker #1: As a reminder, this call is being recorded. This conference call contains forward-looking statements or assessments about the business, financial condition, performance, and strategy of Infineon Group.

Speaker #1: These statements or assessments are based on assumptions and management expectations, restricted up to currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are particularly or entirely beyond Infineon's control.

Operator: They are subject to a multiple and uncertainties of risk, many of which are particularly or entirely beyond Infineon's control. Infineon actual business development, financial condition, performance, and strategy may therefore differ materially from what it's discussed in the conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statement. At this time, I would like to turn the conference call over to Infineon. Please go ahead.

Speaker #1: Infineon's actual business development, financial condition, performance, and strategy may therefore differ materially from what is discussed in the conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements.

Speaker #1: At this time, I would like to turn the conference call over to Infineon. Please go ahead.

Speaker #2: Many thanks, operator, and good morning, ladies and gentlemen. Thank you for joining our mid-summer earnings call, covering our fiscal Q3 2026. On air today, you have our CEO, Jochen Hanebeck; our CFO, Sven Schneider; and our CMO, Andreas Urschitz.

Alexander Foltin: Many thanks, operator, and good morning, ladies and gentlemen. Thank you for joining our midsummerly earnings call covering our fiscal Q3 2026. On air today, you have our CEO, Jochen Hanebeck, our CFO, Sven Schneider, and our CMO, Andreas Urschitz. Following our well-established procedure, Jochen and Sven will provide an overview on the market situation and divisional performance, key financials, and our outlook. After that, we will start our Q&A session. The accompanying slideshow for the call is available at infineon.com/slides, and we will provide a PDF with Jochen's and Sven's introductory remarks in the course of the call on our website, namely infineon.com/investor. This is also your go-to spot for a recording of this conference call, including the aforementioned slides, a copy of our earnings press release, as well as our investor presentation. Now, Jochen, over to you.

Speaker #2: Following our well-established procedure, Jochen and Sven will provide an overview of the market situation and divisional performance, key financials, and our outlook. After that, we will start our Q&A session.

Speaker #2: The accompanying slideshow for the call is available at infineon.com/slides, and we will provide a PDF with Jochen's and Sven's introductory remarks during the call on our website, namely infineon.com/investor.

Speaker #2: This is also your go-to spot for a recording of this conference call, including the aforementioned slides, a copy of our earnings press release, as well as our investor presentation.

Speaker #2: And now, Jochen, over to you.

Speaker #3: Thank you, Alexander, and good morning, everyone. At present, positive cyclical momentum and structural growth are converging into a bright picture, and Infineon is generating value from it.

Jochen Hanebeck: Thank you, Alexander, and good morning, everyone. At present, positive cyclical momentum and structural growth are converging into a bright picture, Infineon is generating value from it. The recovery continues to gain traction. The upcycle is fully on track. What initially started in selected segments is now becoming broad, supported by improving demand patterns, normalized inventory levels, and increasing order activity across many end markets. The strongest dynamic continues to come from AI-related infrastructure. Investments in data centers continue to go up. Energy-efficient power delivery solutions are required to support ever-growing processing capabilities. Use cases for agentic and physical AI are emerging at a fast clip. Industrial markets are also showing improving dynamics, in particular related to power infrastructure. In automotive, we are seeing a clear pickup of customer order momentum.

Speaker #3: The recovery continues to gain traction. The upcycle is fully on track. What initially started in selected segments is now becoming broad, supported by improving demand patterns, normalized inventory levels, and increasing order activity across many end markets.

Speaker #3: The strongest dynamic continues to come from AI-related infrastructure. Investments in data centers continue to go up. Energy-efficient power delivery solutions are required to support ever-growing processing capabilities.

Speaker #3: Use cases for agentic and physical AI are emerging at a fast clip. Industrial markets are also showing improving dynamics, in particular related to power infrastructure.

Speaker #3: In automotive, we are seeing a clear pickup in customer order momentum. In this environment, we are combining a strong operational focus on the current upcycle with targeted investments in our broad set of future growth opportunities.

Jochen Hanebeck: In this environment, we are combining a strong operational focus on the current upcycle with targeted investments in our broad set of future growth opportunities. The prime example for the latter is the recent opening of our new smart power fab in Dresden. The clean room space available there enables us to ramp the world's largest fab for cutting-edge power semiconductors and analog mixed-signal technologies at just the right point in time. Furthermore, we closed the acquisition of the sensor portfolio from ams-OSRAM as planned within a very short timeframe. Let us now turn to our Q3 performance. The Q3 of our 2026 fiscal year was the first one with over EUR 4 billion of revenue for two and a half years.

Speaker #3: The prime example for the latter is the recent opening of our new smart power fab in Dresden. The cleanroom space available there enables us to ramp the world's largest fab for cutting-edge power semiconductors and analog/mixed-signal technologies.

Speaker #3: At just the right point in time. Furthermore, we closed the acquisition of the sensor portfolio from AMS OSRAM as planned, within a very short timeframe.

Speaker #3: Let us now turn to our third quarter performance. The third quarter of our 2026 fiscal year was the first one with over $4 billion of revenue in two and a half years.

Speaker #3: With €4.172 billion, we achieved an all-time high in quarterly revenues and came in a bit ahead of expectations, even considering a minor positive currency effect.

Jochen Hanebeck: With EUR 4,172,000,000, we achieved an all-time high in quarterly revenues and came in a bit ahead of expectations, even considering a minor positive currency effect. All our divisions contributed to 9.4% sequential growth on group level. Compared to the same quarter one year earlier, our reported revenue grew by close to 13%. The segment result for the June quarter amounted to EUR 797 million, corresponding to a segment margin of 19.1%, 200 basis points up from the quarter before, mainly driven by volume fall-through and positive mix effects, and clearly in the upper part of the predicted high teens range. To our divisional review, beginning with automotive.

Speaker #3: All our divisions contributed to 9.4% sequential growth at the group level. Compared to the same quarter one year earlier, our reported revenue grew by close to 13%.

Speaker #3: The second result for the June quarter amounted to €797 million, corresponding to a segment margin of 19.1%, 200 basis points up from the quarter before, mainly driven by volume fall-through and positive mix effects, and clearly in the upper part of the predicted high-teens range.

Speaker #3: Our order backlog witnessed another material increase and stood close to €30 billion at the end of June, a clear indication of recovery momentum getting even stronger.

Speaker #3: Now to our divisional review, beginning with Automotive. The third quarter of our 2026 fiscal year revenues increased by 6% quarter over quarter to €1,932 million.

Jochen Hanebeck: The Q3 of our 2026 fiscal year revenues increased by 6% quarter-over-quarter to EUR 1,932,000,000. Growth was driven mainly by microcontrollers and smart power components, as well as our Ethernet products. All these are core building blocks of software-defined vehicles. The segment result increased by 8% sequentially to EUR 356 million, corresponding to a segment result margin of 18.4%. As a reminder, the refocusing of our business with high voltage components for electric powertrains that we explained in our last earnings call is expected to burden segment result margin of ATV in this fiscal year by a low to mid-single digit percentage reflected in our guidance. We continue to see strong order intake in automotive against the backdrop of a muted car market.

Speaker #3: Growth was driven mainly by microcontrollers and smart power components, as well as our Ethernet products. All of these are core building blocks of software-defined vehicles.

Speaker #3: The segment result increased by 8% sequentially to €356 million, corresponding to a segment result margin of 18.4%. As a reminder, the refocusing of our business with high-voltage components for electric powertrains, which we explained in our last earnings call, is expected to burden the segment result margin of ATV in this fiscal year by a low- to mid-single-digit percentage, as reflected in our guidance.

Speaker #3: We continue to see strong order intake in automotive, against the backdrop of a muted car market. In its latest update, Market Resurgence, Mobility Global, carved out from S&P Global, is forecasting around 91 million for 2026.

Jochen Hanebeck: In its latest update, market researcher Mobility Global, carved out from S&P Global, is forecasting around 91 million light vehicles to be produced in 2026. This is slightly above its previous estimate and broadly in line with the approximately 2% year-over-year decline we had assumed since the beginning of our fiscal year. The long-term trends driving automotive semiconductors demand remain firmly intact and continue to support content growth. The shift towards software-defined vehicles continues to accelerate globally. Alongside these structural growth drivers, supply constraints in the Chinese automotive-grade semiconductor market create opportunities for us. Ongoing inventory replenishment is contributing to near-term demand recovery. We have secured a major design win for zone controller architecture with a software company of a leading global car manufacturer.

Speaker #3: This is slightly above its previous estimate and broadly in line with the approximately 2% year-over-year decline we had assumed since the beginning of our fiscal year.

Speaker #3: The long-term trends driving automotive semiconductor demand remain firmly intact and continue to support content growth. Rising fuel costs are beginning to support XEV adoption in Europe, India, and Southeast Asia.

Speaker #3: While the shift towards software-defined vehicles continues to accelerate globally, alongside these structural growth drivers, supply constraints in the Chinese automotive-grade semiconductor market create opportunities for us.

Speaker #3: Furthermore, ongoing inventory replenishment is contributing to near-term demand recovery. We have secured a major design win for zone controller architecture with the software company of a leading global car manufacturer.

Speaker #3: The solution combines latest-generation AURIX microcontrollers, power management ICs, and PROFET smart power switches. This demonstrates again the breadth of our system offering across compute, connectivity, and smart power management.

Jochen Hanebeck: The solution combines latest generation AURIX microcontrollers, power management ICs, and CoolFET smart power switches. This demonstrates again the breadth of our system offering across compute, connectivity, and smart power management. We are also seeing further design win momentum in China. For Xiaomi, we will support a cockpit and ADAS fusion unit incorporating three different microcontroller families. In another win with a leading Chinese car manufacturer, our silicon carbide bare dies will be used in the traction inverter. Finally, we further simplify the evaluation of our automotive microcontrollers for our customers. Together with Amazon Web Services, we have launched a cloud-based platform for virtual MCU evaluation. By removing the dependency on physical hardware, the platform can shorten evaluation cycles from several weeks to minutes, lower evaluation costs significantly, and support hundreds of concurrent users globally.

Speaker #3: We are also seeing further design win momentum in China for Xiaomi. We will support a cockpit and ADAS fusion unit incorporating three different microcontroller families.

Speaker #3: In another win with a leading Chinese car manufacturer, our silicon carbide products will be used in the traction inverter. Finally, we further simplify the evaluation of our automotive microcontrollers for our customers.

Speaker #3: Together with Amazon Web Services, we have launched a cloud-based platform for virtual MCU evaluation. By removing the dependency on physical hardware, the platform can shorten evaluation cycles from several weeks to minutes, lower evaluation costs significantly, and support hundreds of concurrent users globally.

Speaker #3: The platform already includes our next-generation RISC-V architecture, enabling customers to gain hands-on experience with new microcontrollers much earlier than their development cycle, and further accelerates innovation for software-defined vehicles.

Jochen Hanebeck: The platform already includes our next generation RISC-V architecture, enabling customers to gain hands-on experience with new microcontrollers much earlier than their development cycle, and further accelerates innovation for software-defined vehicles. Let's now take a look at Green Industrial Power. GIP's revenues grew by 11% quarter over quarter to EUR 447 million, making the Q2 the second one in a row with double-digit growth. Reflecting the recovery on industrial markets, all application areas developed positively, in particular power infrastructure and HVAC. The higher revenue notwithstanding the segment result of GIP contracted slightly to EUR 44 million, equivalent to a segment result margin of 9.8% after 11.7% in the quarter before. The decline was due to temporary operational and inventory-related effects, hence not indicative of underlying profitability, as will be evidenced by the positive margin evolution in the running quarter. Power infrastructure is seeing strong structural momentum.

Speaker #3: Let's now take a look at Green Industrial Power. GIP's revenues grew by 11% quarter over quarter to €447 million, making the June quarter the second one in a row with double-digit growth.

Speaker #3: Reflecting the recovery in industrial markets, all application areas developed positively, in particular power infrastructure and HVAC. Despite higher revenue, the segment result of GIP contracted slightly to €44 million, equivalent to a segment result margin of 9.8%, after 11.7% in the previous quarter.

Jochen Hanebeck: The higher revenue notwithstanding the segment result of GIP contracted slightly to EUR 44 million, equivalent to a segment result margin of 9.8% after 11.7% in the quarter before. The decline was due to temporary operational and inventory-related effects, hence not indicative of underlying profitability, as will be evidenced by the positive margin evolution in the running quarter. Power infrastructure is seeing strong structural momentum.

Speaker #3: The decline was due to temporary operational and inventory-related effects and is therefore not indicative of underlying profitability, as will be evidenced by the positive margin evolution in the current quarter.

Speaker #3: Power infrastructure is seeing strong structural momentum. Investments in grid expansion and modernization continue to grow, driving demand for energy storage systems, transmission and distribution gear, and high-voltage solid-state devices.

Jochen Hanebeck: Investments in grid expansion modernization continue to grow, driving demand for energy storage systems, transmission and distribution gear, and high voltage solid state devices. AI data centers growth is fueling demand for uninterruptible power systems, general power supply, as well as cooling. Semiconductors are poised to replace electromechanical parts in various use cases. For example, a semiconductor-based solid-state circuit breaker can protect electrical circuits from damage caused by short circuits or overloads by up to 1,000 times faster than conventional systems. This capability is essential for direct current grids and offers a significant increase in system availability in industrial manufacturing and AI data centers. As part of our partnership with Siemens, we will supply 1.2 kW silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density, and reliability of Siemens' protection solution. Now to Power and Sensor Systems.

Speaker #3: AI data center growth is fueling demand for uninterruptible power systems, general power supply, as well as cooling. Semiconductors are poised to replace electromechanical parts in various use cases.

Speaker #3: For example, a semiconductor-based solid-state circuit breaker can protect electrical circuits from damage caused by short circuits or overloads up to 1,000 times faster than conventional systems.

Jochen Hanebeck: For example, a semiconductor-based solid-state circuit breaker can protect electrical circuits from damage caused by short circuits or overloads by up to 1,000 times faster than conventional systems. This capability is essential for direct current grids and offers a significant increase in system availability in industrial manufacturing and AI data centers. As part of our partnership with Siemens, we will supply 1.2 kW silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density, and reliability of Siemens' protection solution. Now to Power and Sensor Systems.

Speaker #3: This capability is essential for direct current grids and offers a significant increase in system availability in industrial manufacturing and AI data centers. As part of our partnership with Siemens, we will supply 1.2-kilovolt silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density, and reliability of Siemens' protection solution.

Speaker #3: Now to Power and Sensor Systems. On the back of unabated AI power strength, PSS recorded revenues of €1,442 million in the June quarter.

Jochen Hanebeck: On the back of unabated AI power strength, PSS recorded revenues of EUR 1,442 million in the Q2, 14% up sequentially and a staggering 34% more compared to the same quarter one year ago. The margin evolution of PSS shows a bright picture as well. The segment result increased to EUR 359 million, corresponding to a segment result margin of 24.9%. The further increase of 4.5 percentage points compared to the previous quarter is evidence of profitable growth and value creation, strongly driven by our leadership position in AI power solutions. This leadership position is being recognized by industry researchers. In a recent report covering AI data center power semiconductors, Gartner identified Infineon as the company to beat. Portfolio breadth and system-level expertise in conjunction with manufacturing capacity are the defining capabilities for data center operators seeking to scale AI.

Speaker #3: Up sequentially by 14%, and a staggering 34% more compared to the same quarter one year ago. The margin evolution of PSS shows a bright picture as well.

Speaker #3: The segment result increased to €359 million, corresponding to a segment result margin of 24.9%. The further increase of 4.5 percentage points compared to the previous quarter is evidence of profitable growth and value creation, strongly driven by our leadership position in AI power solutions.

Speaker #3: This leadership position is being recognized by industry researchers. In a recent report covering AI data center power semiconductors, Gartner identified Infineon as the company to beat.

Jochen Hanebeck: This leadership position is being recognized by industry researchers. In a recent report covering AI data center power semiconductors, Gartner identified Infineon as the company to beat. Portfolio breadth and system-level expertise in conjunction with manufacturing capacity are the defining capabilities for data center operators seeking to scale AI.

Speaker #3: Portfolio breadth and system-level expertise, in conjunction with manufacturing capacity, are the defining capabilities for data center operators seeking to scale AI. Infineon offers a unique portfolio spanning the entire power delivery chain and manufactures relevant technologies in-house.

Jochen Hanebeck: Infineon offers a unique portfolio spanning the entire power delivery chain and manufactures relevant technologies in-house. By seamlessly integrating wide bandgap materials, specifically silicon carbide for high efficiency, high voltage grid-to-rack conversions, and gallium nitride for ultra-dense, high frequency intermediate power stages alongside silicon at the processor level, energy losses are minimized at every single conversion step. Demand for our AI power solution continues to outstrip available supply. We are in allocation. Successful execution of capacity ramps and conversions from other areas will help us to achieve more than EUR 1.6 billion of dedicated AI power revenues in the current fiscal year, ahead of the so far planned EUR 1.5 billion. In addition, our business with non-AI data center power solutions is amounting to around EUR 500 million annually, making Infineon clearly the leading force in the overall space. We are represented in almost all platforms across all relevant players in the industry.

Speaker #3: By seamlessly integrating wide band gap materials, specifically silicon carbide, for high efficiency, high voltage grid-to-rack conversions and gallium nitride for ultra-dense high-frequency intermediate power stages, alongside silicon at the processor level, energy losses are minimized at every single conversion step.

Speaker #3: Demand for our AI power solution continues to outstrip available supply. We are in a location. Successful execution of capacity ramps and conversions from other areas will help us to achieve more than €1.6 billion of dedicated AI power revenues in the current fiscal year.

Jochen Hanebeck: We are in allocation. Successful execution of capacity ramps and conversions from other areas will help us to achieve more than EUR 1.6 billion of dedicated AI power revenues in the current fiscal year, ahead of the so far planned EUR 1.5 billion. In addition, our business with non-AI data center power solutions is amounting to around EUR 500 million annually, making Infineon clearly the leading force in the overall space. We are represented in almost all platforms across all relevant players in the industry.

Speaker #3: Ahead of the so far planned €1.5 billion. In addition, our business with non-AI data center power solutions is amounting to around €500 million annually, making Infineon clearly the leading force in the overall space.

Speaker #3: We are represented on almost all platforms across all relevant players in the industry. Enabling further steep growth in the coming years will be a function of ramping up and deploying additional manufacturing capacities.

Jochen Hanebeck: Enabling further steep growth in the coming years will be a function of ramping and deploying additional manufacturing capacities. Our new smart power fab in Dresden, together with available clean room space at our other large front-end sites in Austria and Malaysia, puts us in a unique position. To strategically secure access to critical power delivery solutions, several leading customers across the AI data center ecosystems have signed or are in negotiation on multi-year capacity reservation agreements with us. These agreements encompasses a total cumulative sales volume of a high single-digit billion EUR amount over multiple years. These agreements also feature certain prepayments, thus further strengthening our customer relationships and sharing investment risk. We will revise our projection of EUR 2.5 billion-plus AI data center revenues for our 2027 fiscal year upwards as part of the annual guidance to be given in our November earnings call.

Speaker #3: Our new smart power fab in Dresden, together with available cleanroom space at our other large frontend sites in Austria and Malaysia, puts us in a unique position.

Speaker #3: To strategically secure access to critical power delivery solutions, several leading customers across the AI data center ecosystems have signed, or are in negotiation on, multi-year capacity reservation agreements with us.

Speaker #3: These agreements encompass a total cumulative sales volume of a high single-digit billion-euro amount over multiple years. These agreements also feature certain prepayments, thus further strengthening our customer relationships and sharing investment risk.

Jochen Hanebeck: These agreements encompasses a total cumulative sales volume of a high single-digit billion EUR amount over multiple years. These agreements also feature certain prepayments, thus further strengthening our customer relationships and sharing investment risk. We will revise our projection of EUR 2.5 billion-plus AI data center revenues for our 2027 fiscal year upwards as part of the annual guidance to be given in our November earnings call.

Speaker #3: We will revise our projection of €2.5 billion, plus AI data center revenues, for our 2027 fiscal year upwards as part of the annual guidance to be provided in our November earnings call.

Speaker #3: We expect such an update to be material. The next wave of AI growth is already taking shape, with higher-density power architectures for running the last frontier models, as well as the emergence of agentic and physical AI.

Jochen Hanebeck: We expect such update to be material. The next waves of AI growth are already taking shape. Higher density power architectures for running the last frontier models as well as the emergence of agentic and physical AI. The growing inference and task coordination requirements of agentic AI provide a massive tailwind for us. Our undisputed leadership in power solutions for CPUs, combined with a highly differentiated best fit product portfolio, will represent another significant growth driver as early as next fiscal year. Accordingly, the aforementioned update of our revenue projection for 2027 will also include our power solutions for all different forms of data center configurations. Beyond the data center, our solutions bring physical AI to life, enabling humanoid robots, collaborative machines, and autonomous systems to perceive, think, and act safely and securely.

Speaker #3: The growing inference and task coordination requirements of agentic AI provide a massive tailwind for us. Our undisputed leadership in power solutions for CPUs, combined with a highly differentiated, best-fit product portfolio, will represent another significant growth driver as early as next fiscal year.

Speaker #3: Accordingly, the aforementioned update of our revenue projection for 2027 will also include our power solutions for all different forms of data center configurations. Beyond the data center, our solutions bring physical AI to life.

Speaker #3: Enabling humanoid robots, collaborative machines, and autonomous systems to perceive, think, and act safely and securely. With expertise from all our divisions spanning microcontroller power systems, sensing, connectivity, functional safety, and security, Infineon is the trusted partner across the full spectrum of physical AI platforms.

Jochen Hanebeck: With expertise from all our divisions spanning microcontrollers, power systems, sensing, connectivity, functional safety, and security, Infineon is the trusted partner across the full spectrum of physical AI platforms. This provides a good transition to complete the divisional review with Connected Secure Systems. CSS recorded revenues of EUR 350 million in our fiscal third quarter, a sequential growth of 10%. All product areas contributed to this positive development, in particular authentication and identification solutions. The segment result of CSS increased to EUR 34 million, corresponding to a segment result margin of 9.7%. We are continuously seeing a broader adoption of AI at the Edge for industrial as well as consumer applications. To optimally address the expanding opportunity set, we are establishing the Edge Systems, or ES division, as part of the new organizational setup presented in our last earnings call.

Speaker #3: This provides a good transition to complete the divisional review with Connected Secure Systems. CSS recorded revenues of €350 million in our fiscal third quarter.

Speaker #3: A sequential growth of 10%. All product areas contributed to this positive development, in particular authentication and identification solutions. The segment result of CSS increased to €34 million, corresponding to a segment result margin of 9.7%.

Jochen Hanebeck: All product areas contributed to this positive development, in particular authentication and identification solutions. The segment result of CSS increased to EUR 34 million, corresponding to a segment result margin of 9.7%. We are continuously seeing a broader adoption of AI at the Edge for industrial as well as consumer applications. To optimally address the expanding opportunity set, we are establishing the Edge Systems, or ES division, as part of the new organizational setup presented in our last earnings call.

Speaker #3: We are continuously seeing a broader adoption of AI at the edge for industrial as well as consumer applications. To optimally address this expanding opportunity set, we are establishing the Edge Systems, or EDS, division as part of the new organizational setup presented in our last earnings call.

Speaker #3: The ES segment is formed from today's CSS, and the sensor and RF as well as the USB connectivity portfolio from PSS. The focus of ES will be on the interplay of sensors, microcontrollers—including software—connectivity, and security to enable integrated system-level solutions at the edge.

Jochen Hanebeck: The ES segment is formed from today's CSS and the sensor and RF, as well as the USB connectivity portfolio from PSS. The focus of ES will be on the interplay of sensors, microcontrollers, including software, connectivity, and security, to enable integrated system-level solutions at the Edge. In this context, I am happy to report that we have closed the acquisition of the non-optical analog mixed signal sensor portfolio from ams-OSRAM at the beginning of July, just about 5 months after announcing it. The transaction is strengthening our position as a leader in sensors for automotive and industrial markets through a complementary portfolio and extending our product range in medical applications. The acquired business has a current annual revenue run rate of around EUR 230 million and will support Infineon's profitable growth.

Speaker #3: In this context, I'm happy to report that we have closed the acquisition of the non-optical analog mixed-signal sensor portfolio from AMS OSRAM at the beginning of July, just about five months after announcing it.

Speaker #3: The transaction is strengthening our position as a leader in sensors for automotive and industrial markets through a complementary portfolio and extending our product range in medical applications.

Speaker #3: The acquired business has a current annual revenue run rate of around €230 million and will support Infineon's profitable growth. The transaction is accretive to adjusted earnings per share right upon closing, with future synergies enabling substantial additional value creation.

Jochen Hanebeck: The transaction is accretive to adjusted earnings per share right upon closing, with future synergies enabling substantial additional value creation. The acquired portfolio is a strong strategic fit to our ES division. Now to Sven for our key financial figures.

Speaker #3: The acquired portfolio is a strong strategic fit for our ES division. And now, to Sven for our key financial figures.

Speaker #1: Thank you, Johann, and good morning, everyone. In line with the revenue increase, our June quarter saw a corresponding margin expansion. The reported gross margin went up by 210 basis points, from 38.7% to 40.8%.

Sven Schneider: Thank you, Jochen, and good morning, everyone. In line with the revenue increase, our Q3 saw a corresponding margin expansion. The reported gross margin went up by 210 basis points from 38.7% to 40.8%. The adjusted gross margin stepped up from 41% to 42.8%, mainly driven by higher volumes and positive mix effects. Also, pricing measures put in place from April onwards had a first positive effect. Annual merit increases kicking in from the beginning of April, as well as rising input costs for precious metals and logistics, were dampening margin progression to some extent. Idle costs were roughly on the same level as 1 quarter before. Likewise, similar to the previous quarter, refocusing our high voltage automotive drivetrain business had a negative impact of about 1 percentage point on group level. Research and development expenses increased quarter-over-quarter from EUR 612 to EUR 674 million.

Speaker #1: The adjusted gross margin increased from 41% to 42.8%, mainly driven by higher volumes and positive mix effects. Also, pricing measures put in place from April onwards had a first positive effect.

Speaker #1: Annual merit increases kicking in from the beginning of April, as well as rising input costs for precious metals and logistics, were dampening margin progression to some extent.

Sven Schneider: Annual merit increases kicking in from the beginning of April, as well as rising input costs for precious metals and logistics, were dampening margin progression to some extent. Idle costs were roughly on the same level as 1 quarter before. Likewise, similar to the previous quarter, refocusing our high voltage automotive drivetrain business had a negative impact of about 1 percentage point on group level. Research and development expenses increased quarter-over-quarter from EUR 612 to EUR 674 million.

Speaker #1: Idle costs were roughly at the same level as one quarter before. Likewise, similar to the previous quarter, refocusing our high-voltage automotive drivetrain business had a negative impact of about 1 percentage point at the group level.

Speaker #1: Research and development expenses increased quarter over quarter from €612 million to €674 million. Selling, general, and administrative expenses went from €379 million to €433 million.

Sven Schneider: Selling, general, and administrative expenses went from EUR 379 to EUR 433 million. Non-segment result charges for fiscal Q3 amounted to EUR 203 million after EUR 195 million before. The financial result amounted to EUR -63 million after EUR -68 million in the prior quarter. Income tax expense for the Q3 was EUR 112 million, equivalent to an effective tax rate of 21%. Cash taxes amounted to EUR 220 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 19%. Our investments in property, plant, and equipment, other intangible assets, and capitalized development costs amounted to EUR 514 million in the quarter under report after EUR 541 million in the quarter before. Depreciation and amortization expenses, including acquisition-related non-segment result effects, amounted to EUR 466 million.

Speaker #1: Non-segment result charges for the fiscal third quarter amounted to €203 million, compared to €195 million previously. The financial result was minus €63 million, after minus €68 million in the prior quarter.

Speaker #1: Income tax expense for the June quarter was €112 million, equivalent to an effective tax rate of 21%. Cash taxes amounted to €220 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 19%.

Speaker #1: Our investments in property, plant, and equipment, other intangible assets, and capitalized development costs amounted to €514 million in the quarter on the report, after €541 million in the quarter before.

Speaker #1: Depreciation and amortization expenses, including acquisition-related non-segment result effects, amounted to €466 million. Free cash flow in the third quarter of our 2026 fiscal year improved significantly from minus €63 million to plus €599 million, to a large extent driven by the higher operating result.

Sven Schneider: Free cash flow in Q3 of our 2026 fiscal year improved significantly from EUR -63 million to EUR +599 million, to a large extent driven by the higher operating results. On the working capital side, inventory reach went down by 10 days from 175 to 165 days quarter-over-quarter, bringing us closer to our target for the end of the fiscal year of around 150 days. As stated before, slightly elevated inventory levels are helping us capture growth in the current upcycle and being prepared in case of geopolitically induced turmoil. To our liquidity and leverage situation. During Q2, we made two scheduled debt repayments, redeeming a EUR 700 million Eurobond and a $350 million US private placement at maturity. The related cash outs were partially offset by the positive free cash flow. As a result, our gross cash position stood at around EUR 1.7 billion.

Speaker #1: On the working capital side, inventory reach went down by 10 days from 175 to 165 days quarter over quarter, bringing us closer to our target for the end of the fiscal year of around 150 days.

Speaker #1: As stated before, slightly elevated inventory levels are helping us capture growth in the current upcycle and ensure we are prepared in case of geopolitically induced turmoil.

Speaker #1: Now to our liquidity and leverage situation. During the June quarter, we made two scheduled debt repayments, redeeming a $700 million Eurobond and a $350 million U.S. private placement at maturity.

Sven Schneider: To our liquidity and leverage situation. During Q2, we made two scheduled debt repayments, redeeming a EUR 700 million Eurobond and a $350 million US private placement at maturity. The related cash outs were partially offset by the positive free cash flow. As a result, our gross cash position stood at around EUR 1.7 billion.

Speaker #1: The related cash outs were partially offset by the positive free cash flow. As a result, our gross cash position stood at around €1.7 billion, and gross debt amounted to around €6.8 billion as of June 30th.

Sven Schneider: Gross debt amounted to around EUR 6.8 billion as of 30 June. Our gross leverage of 1.8x is already back below our maximum target level of 2x. The acquisition of the sensor portfolio from ams-OSRAM AG, which closed on 1 July, has no impact on this figure as it had already been pre-funded. The net debt position of around EUR 5.2 billion at the end of June corresponded to a net leverage of 1.4x. Our after-tax reported return on capital employed was trending up to 7.9% for Q3 of our 2026 fiscal year. Before handing back to Jochen, a brief comment. As you know, we are operating in a new three divisional organizational structure with Automotive, Power Systems, and Edge Systems from 1 July onwards.

Speaker #1: With that, our gross leverage of 1.8 times is already back below our maximum target level of 2 times. The acquisition of the sensor portfolio from AMS OSRAM, which closed on July 1st, has no impact on this figure, as it had already been pre-funded.

Speaker #1: The net debt position of around €5.2 billion at the end of June corresponded to a net leverage of 1.4 times. Our after-tax reported return on capital employed was trending up to 7.9% for the third quarter of our 2026 fiscal year.

Speaker #1: Before handing back to Johann, a brief comment. As you know, we are operating under a new, three-divisional organizational structure—with Automotive, Power Systems, and Edge Systems—from July 1st onwards.

Speaker #1: That said, we will provide you with key financials for the known four-division setup, also for the September quarter, allowing you to model the full 2026 fiscal year in a consistent way.

Sven Schneider: That said, we will provide you with key financials for the known four-division setup also for Q3, allowing you to model the full 2026 fiscal year in a consistent way. In our November earnings call, we will give our outlook for 2027 in the new setup and at the same time provide adjusted historical data to you to enable relevant comparisons. Back to Jochen, who will elaborate on our outlook.

Speaker #1: In our November earnings call, we will give our outlook for 2027 in the new setup and, at the same time, provide adjusted historical data to you to enable relevant comparisons.

Speaker #1: Now, back to Johann, who will elaborate on our outlook.

Speaker #2: Thank you, Sven. The market environment for our outlook is turning increasingly favorable. The upcycle is gaining momentum, and the recovery is broadening. Inventories are largely destocked across markets, and the market is becoming a relevant factor for growth.

Jochen Hanebeck: Thank you, Sven. The market environment for our outlook is turning increasingly favorable. The up cycle is gaining momentum. The recovery is broadening. Inventories are largely de-stocked across markets, market is becoming a relevant factor for growth. Stronger customer bookings are leading to a further growing backlog and improving visibility. Business indicators like cancellation rates, escalation calls, or the preparedness to accept surcharges for expedite deliveries are speaking to underlying demand strength. Lead times are rising, and according to third-party surveys, customers expect them to rise further over the next months, a typical early up cycle pattern as supply starts to tighten. Needless to say, the dynamic differs across applications. At this point, AI, power, and industrial infrastructure are appearing the strongest, followed by automotive, whereas consumer is lagging. Generally speaking, though, our outlook is framed by high confidence, bearing further escalation of geopolitical conflicts.

Speaker #2: Stronger customer bookings are leading to a further growing backlog and improving visibility. Business indicators like cancellation rates, escalation calls, or the preparedness to accept surcharges for expedited deliveries are speaking to underlying demand strength.

Speaker #2: Lead times are rising, and according to third-party surveys, customers expect them to rise further over the next months—a typical early upcycle pattern as supply starts to tighten.

Speaker #2: Needless to say, the dynamic differs across applications. At this point, AI, power, and industrial infrastructure are appearing the strongest, followed by automotive, whereas consumer is lagging.

Jochen Hanebeck: At this point, AI, power, and industrial infrastructure are appearing the strongest, followed by automotive, whereas consumer is lagging. Generally speaking, though, our outlook is framed by high confidence, bearing further escalation of geopolitical conflicts.

Speaker #2: Generally speaking, though, our outlook is framed by high confidence, barring further escalation of geopolitical conflicts. For the currently running September quarter, the last of our 2026 fiscal year, we are in line with recent currency developments, adjusting the US dollar-euro exchange rate back to 1.15.

Jochen Hanebeck: For the currently running September quarter, last of our 2026 fiscal year, we are in line with recent currency developments, adjusting the US dollar/euro exchange rate back to 1.15. We expect revenues of around EUR 4.7 billion, corresponding to well above seasonal growth of almost 13% quarter-over-quarter and 19% year-over-year. By segment, for ATV, a moderate revenue growth is predicted, whereas for each of GIP, PSS, and CSS, revenue should grow significantly. Sensor business acquired from ams-OSRAM AG should contribute a mid-double digit million euro figure in revenue in this quarter. We expect the final fiscal quarter segment result margin to come in around 23%, four percentage points up quarter-over-quarter.

Speaker #2: We expect revenues of around €4.7 billion, corresponding to well above seasonal growth of almost 13% quarter over quarter, and 19% year over year.

Speaker #2: By segment, for ATV, a moderate revenue growth is predicted, whereas for each of GIP, PSS, and CSS, revenue should grow significantly. The sensor business acquired from AMS OSRAM should contribute a mid-double-digit million euro figure in revenue in this quarter.

Speaker #2: We expect the final fiscal quarter segment result margin to come in around 23%, four percentage points up quarter-over-quarter. Besides the fall-through from higher volumes, we expect the positive evolution of prices in certain areas.

Jochen Hanebeck: Besides the fall through from higher volumes, we expect the positive evolution of prices in certain areas, notably AI and related product categories to have a positive impact, offset partly by further rising input costs, which we will address in customer negotiations. For the full 2026 fiscal year, we now expect revenues to come in at around EUR 16.3 billion, equivalent to an annual growth of around 11%. From a segment perspective, PSS is poised to grow materially faster than this group average, driven by buoyant demand for AI power solutions. As the outlook for some industrial markets linked to AI continue to improve, GIP is now expected to grow just below group average. ATV should see slight revenue growth driven by its broad product portfolio and the broader adoption of software-defined vehicles, despite material headwinds from the high voltage drivetrain business.

Speaker #2: Notably, AI and related product categories are having a positive impact, offset partly by further rising input costs, which we will address in customer negotiations.

Speaker #2: For the full 2026 fiscal year, we now expect revenues to come in at around €16.3 billion, equivalent to annual growth of around 11%.

Speaker #2: From a segment perspective, PSS is poised to grow materially faster than the group average, driven by booming demand for AI power solutions. As the outlook for some industrial markets linked to AI continues to improve, GIP is now expected to grow just below the group average.

Jochen Hanebeck: As the outlook for some industrial markets linked to AI continue to improve, GIP is now expected to grow just below group average. ATV should see slight revenue growth driven by its broad product portfolio and the broader adoption of software-defined vehicles, despite material headwinds from the high voltage drivetrain business.

Speaker #2: ATV should see slight revenue growth, driven by its broad product portfolio and the broader adoption of software-defined vehicles, despite material headwinds from the high-voltage drivetrain business.

Speaker #2: Lastly, for CSS, we expect revenues to remain stable year over year. Regarding profitability, we confirm our expectation for the full-year adjusted gross margin to reach a low to mid-40s level, and for the segment result margin to land at a level around 20%.

Jochen Hanebeck: Lastly, for CSS, we expect revenues to remain stable year-over-year. Regarding profitability, we confirm our expectation for the full-year adjusted gross margin to reach a low to mid-40s level, and for the second result margin to land at a level around 20%. Therein, idle costs are projected to amount to an annual level of around EUR 650 million. In our forecast, we have not included potential indirect effects from further escalating Middle East conflict or any other lingering geopolitical tension. Our investments in the fiscal year continue to be expected to come to around EUR 2.7 billion. For depreciation and amortization, we anticipate an unchanged level of EUR 2 billion, including amortization of around EUR 400 million resulting from purchase price allocations, which will be recognized in our non-segment results. Based on our favorable business outlook, we are upgrading our projection for the adjusted free cash flow.

Speaker #2: Therein, idle costs are projected to amount to an annual level of around €650 million. Now, our forecast does not include potential indirect effects from further escalating Middle East conflict or any other lingering geopolitical tension.

Speaker #2: Our investments in the fiscal year continue to be expected to come to around €2.7 billion, and for depreciation and amortization, we anticipate an unchanged level of €2 billion.

Jochen Hanebeck: Our investments in the fiscal year continue to be expected to come to around EUR 2.7 billion. For depreciation and amortization, we anticipate an unchanged level of EUR 2 billion, including amortization of around EUR 400 million resulting from purchase price allocations, which will be recognized in our non-segment results. Based on our favorable business outlook, we are upgrading our projection for the adjusted free cash flow.

Speaker #2: Including amortization of around €400 million resulting from purchase price allocations, which will be recognized in our non-segment result. Based on our favorable business outlook, we are upgrading our projection for the adjusted free cash flow.

Speaker #2: The figure, which is net of investments into major front-end buildings and M&A transactions, is now expected to come in at around €1.85 billion, after €1.65 billion before, corresponding to around 11% of group revenues.

Jochen Hanebeck: The figure, which net of investments into major front-end buildings and M&A transaction, is now expected to come in at around EUR 1.85 billion after EUR 1.65 billion before, corresponding to around 11% of group revenues. For the reported free cash flow, we are changing our guidance now from around EUR 1.25 billion to around EUR 900 million. This is an implicit upgrade as well, given we are now for the first time considering the purchase price for the sensor portfolio acquired from ams-OSRAM AG of about EUR 570 million. The impact of which is partly offset by the improved underlying cash flow. Ladies and gentlemen, before going into Q&A, let me summarize. The up cycle is clearly gathering steam and end market strength is broadening. Structural growth drivers are proving to be very strong. AI momentum is unabated and Infineon is at the forefront of powering AI from grid to core.

Speaker #2: For the reported free cash flow, we are changing our guidance now from around €1.25 billion to around €900 million. This is an implicit upgrade as well, given we are now for the first time considering the purchase price for the sensor portfolio acquired from AMS OSRAM of about €570 million.

Speaker #2: The impact of which is partly offset by the improved underlying cash flow. Ladies and gentlemen, before going into Q&A, let me summarize: the upcycle is clearly gathering steam, and end-market strength is broadening.

Jochen Hanebeck: Ladies and gentlemen, before going into Q&A, let me summarize. The up cycle is clearly gathering steam and end market strength is broadening. Structural growth drivers are proving to be very strong. AI momentum is unabated and Infineon is at the forefront of powering AI from grid to core.

Speaker #2: Structural growth drivers are proving to be very strong. AI momentum is unabated, and Infineon is at the forefront of powering AI from grid to core.

Speaker #2: Our AI-related revenue will more than double this fiscal year and exceed €1.6 billion, in addition to the $500 million of classic data center power.

Jochen Hanebeck: Our AI-related revenue will more than double this fiscal year and exceed €1.6 billion, in addition to the EUR 500 million of classic data center power. Our unrivaled portfolio, coupled with significant additional clean room space, will propel growth. Expect a material upgrade of our prediction for 2027 in our November call. A significant portion of our future data center revenue is going to be covered by customers signing CRAs with us. Automotive is further improving, driven by structural content growth, share gains, and inventory replenishment. Our Q3 came in fully in line with our guidance. Based on a bright business outlook, we expect a much better than seasonal Q4, 13% sequential growth to €4.7 billion, the segment result margin expanding 400 basis points quarter over quarter, a strong finish of our 2026 fiscal year, and a good point of departure for 2027.

Speaker #2: Our unrivaled portfolio, coupled with significant additional clean room space, will propel growth. Expect a material upgrade of our prediction for 2027 in our November call.

Speaker #2: A significant portion of our future data center revenue is going to be covered by customers signing CRAs with us. Automotive is further improving, driven by structural content growth, share gains, and inventory replenishment.

Jochen Hanebeck: Automotive is further improving, driven by structural content growth, share gains, and inventory replenishment. Our Q3 came in fully in line with our guidance. Based on a bright business outlook, we expect a much better than seasonal Q4, 13% sequential growth to €4.7 billion, the segment result margin expanding 400 basis points quarter over quarter, a strong finish of our 2026 fiscal year, and a good point of departure for 2027.

Speaker #2: Our third fiscal quarter came in fully in line with our guidance. Based on a bright business outlook, we expect a much better than seasonal Q4: 13% sequential growth to €4.7 billion, the segment result margin expanding 400 basis points quarter over quarter, a strong finish to our 2026 fiscal year, and a good point of departure for 2027.

Speaker #2: The opening of Dresden 4 and the closing of the acquisition of the AMS OSRAM sensor portfolio are proof points of how we are actively positioning Infineon to capture profitable growth and create value.

Jochen Hanebeck: The opening of Dresden 4 and the closing of the acquisition of ams-OSRAM AG sensor portfolio are proof points of how we are actively positioning Infineon to capture profitable growth and create value. Operator, please start the Q&A session.

Speaker #2: Operator, please start the Q&A session.

Speaker #1: Thank you, sir. Our question-and-answer session will be conducted electronically. If you would like to ask a question, simply press the star key, followed by one, on your telephone.

Operator: Thank you, sir. Our question and answer session will be conducted electronically. If you would like to ask a question, simply press the star key followed by one on your telephone. If you are joining us today using a speakerphone, please ensure that your mute function is turned off. Now we will take our first question coming from Sandeep Deshpande from J.P. Morgan. Please go ahead.

Speaker #1: If you are joining us today using a speakerphone, please ensure that your mute function is turned off. And now, we will take our first question.

Speaker #1: Coming from Sandeep Deshpande from JP Morgan. Please go ahead.

Speaker #3: Yeah, hi. Thanks for letting me on. I have two questions, if I may. Firstly, regarding your guidance on the margin in the fourth quarter—I mean, when you had guided in the prior quarter, the implicit margin was already guided for the fourth quarter.

Sandeep Deshpande: Yeah. Hi. Thanks for letting me on. I have two questions, if I may. Firstly, regarding your guidance on the margin in the Q4. When you had guided in the prior quarter, the implicit margin was guided already for the Q4. Has something changed from when you guided in the Q3 in terms of your cost structure or any other costs? Secondly, can you quantify how the price increases are playing through on the margin into the Q4? I have a quick follow-up on the AI-related LTAs that you have signed. In terms of the AI-related LTAs, is there a particular target that the company has in terms of how much of the capacity that you are going to outlay over the next three years that you've talked about in the past will be signed up in terms of these LTAs? Thank you.

Speaker #3: Has something changed from when you guided in the third quarter in terms of your cost structure or any other costs? And then secondly, can you quantify how this is playing through—how the price increases are playing through on the margin into the fourth quarter?

Sandeep Deshpande: Secondly, can you quantify how the price increases are playing through on the margin into the Q4? I have a quick follow-up on the AI-related LTAs that you have signed. In terms of the AI-related LTAs, is there a particular target that the company has in terms of how much of the capacity that you are going to outlay over the next three years that you've talked about in the past will be signed up in terms of these LTAs? Thank you.

Speaker #3: And I have a quick follow-up on the AI-related LTAs that you have signed. In terms of the AI-related LTAs, is there a particular target that the company has in terms of how much of the capacity that you are going to outlay over the next three years—that you've talked about in the past—will be signed up in terms of these LTAs?

Speaker #3: Thank you.

Speaker #4: Yeah, good morning, Sandeep. Thank you for your question. I’ll take the first one, and then I’ll hand it over to Jochen for AI. So, on your question regarding the margin in Q4, implicit guidance, any change from Q3—the answer, very simply, is no.

Sven Schneider: Yeah. Good morning, Sandeep. Thank you for your question. I take the first one, then I give it to Jochen on AI. On your question regarding the margin in Q4 implicit guidance, any change from Q3? The answer very easily is no. There is no material change. We had baked in a couple of positive effects from the price increases, but they are mainly contributing to next year. We have also baked into our forecast already the cost increases, which we are seeing with regard to the geopolitical situation around the Middle East. No major change on that end.

Speaker #4: There is no material change. We had baked in a couple of positive effects from the price increases, but they are mainly contributing to next year.

Speaker #4: And we have also baked into our forecast already the cost increases, which we are seeing with regard to the geopolitical situation around the Middle East.

Speaker #4: So, no major change on that end.

Speaker #3: Thank you.

Sandeep Deshpande: Thank you.

Speaker #1: The next question comes from Johannes Schaller from Deutsche Bank.

Operator: The next question comes from Johannes Schaller from Deutsche Bank.

Jochen Hanebeck: Sorry. I haven't answered the second part of Sandeep's question. My microphone was muted. Coming to your question, Sandeep, we would feel comfortable to target a high number. We evaluate the discussions ongoing with the customers. From our point of view, this is a win-win situation for us. It's de-risking on the one hand, for the customer it's security of supply. Very important, the prices under the CRA are not fixed. It's a volume commitment, but not a price commitment. Prices will develop along market price.

Speaker #2: Sorry, sorry. I haven't answered the second part of Sandeep's question. My phone was my microphone was muted. So coming to your question, Sandeep, we would target we would feel comfortable to target a high number, but we evaluate the discussions ongoing with the customers and but from our point of view, this is a win-win situation for us.

Speaker #2: It's a de-risking, on the one hand, for the customer. It's security of supply, and—very importantly—the prices under the CRA are not fixed.

Speaker #2: It's a volume commitment, but not a price commitment. So, prices will develop along with the market price.

Speaker #3: Thank you.

Sandeep Deshpande: Thank you.

Speaker #1: We now take the question from Johannes Schaller from Deutsche Bank. Please go ahead.

Operator: We take now the question from Johannes Schaller from Deutsche Bank. Please go ahead.

Speaker #3: Yeah, good morning. Thanks for taking my question. Just on the situation now with these CRAs, and also specifically on AI, could you comment a little bit on what you see in Stage 2 with your processor customers?

Johannes Schaller: Yeah. Good morning. Thanks for taking my question. Just on the situation now with these CRAs and also specifically on AI, could you comment a little bit on what you see in stage 2 with your processor customers? There is a bit of a concern in the market that new players are coming in here. The space will become a bit more competitive. Maybe help us understand how confident you are on your market share outlook with the processor players and the revenue opportunity in euros also. Does new competition even matter given that the industry is so capacity constrained? As a second question, Jochen, you mentioned some supply constraints in the China auto semi space that could create some opportunities for you.

Speaker #3: I mean, there is a bit of a concern in the market that new players are coming in here; the space will become a bit more competitive.

Speaker #3: Maybe help us understand how confident you are in your market share outlook with the processor players and the revenue opportunity in euros as well. And does new competition even matter, given that the industry is so capacity-constrained?

Speaker #3: And then, as a second question, Jochen, you mentioned some supply constraints in the China auto semi space that could create some opportunities for you.

Johannes Schaller: I think that's quite different to, let's say, the market view out there, which is more that this space is extremely competitive and there's a lot of supply. Maybe help us zoom in a little bit on that and give us some more color here. Thank you.

Speaker #3: I think that's quite different from, let's say, the market view out there, which is more that this space is extremely competitive and there's a lot of supply.

Speaker #3: So maybe help us zoom in a little bit on that and give us some more color here. Thank you.

Speaker #2: Yeah, thank you, Johannes. If I may, I would like to ask: which new processor companies do you have in mind? Are you talking about the ASICs ones, or which ones are you referring to?

Jochen Hanebeck: Yeah. Thank you, Johannes. If I may, I would like to ask which new processor companies do you have in mind? Do you talk about-

Johannes Schaller: No

Jochen Hanebeck: the ASIC ones, or which ones are you talking about?

Speaker #3: No, sorry, new entrants on stage two power supply—so, competition.

Johannes Schaller: No, sorry. New entrants on Stage 2 power supply, competition-

Jochen Hanebeck: From a competition point of view.

Speaker #2: From a competition point, competitors of ours.

Johannes Schaller: Not new.

Jochen Hanebeck: Competitors of ours.

Speaker #3: Yeah, yes, exactly.

Johannes Schaller: Yes. Exactly.

Jochen Hanebeck: Got it. Yeah. Competitor of ours. Obviously, many companies are seeing this big opportunity and are trying to enter, but the hurdles are very high, right? It's about a proven track record in terms of power stages. It's having the combination always with a power controller. Right now, again, they are trying, but as we speak, we clearly see the typical incumbents in that market. In the power Stage 2, not really new competitors gaining significant business. On the China auto side, yeah, I agree. It sounds at first counterintuitive, but what we do see right now, particularly in MOSFETs and analog parts, is that Chinese competitors cannot deliver because they are, to a good extent, linked up to foundries, and these foundries in China are shifting their supply also partially to AI. There are also, again and again, quality missteps.

Speaker #2: Got it. Yeah, competitor for ours. I mean, obviously many companies are seeing this big opportunity and are trying to enter, but the hurdles are very high, right?

Speaker #2: It's about a proven track record in terms of power stages. It's having the combination always with a power controller, and right now, again, they are trying, but as we speak, we clearly see the typical incumbents in that market.

Speaker #2: So in the power stage two, not really new competitors gaining significant business. On the China outer side, yeah, I agree. It sounds at first counterintuitive, but what we do see right now, particularly in MOSFETs and analog parts, is that Chinese competitors cannot deliver because they are, to a good extent, linked up to foundries, and these foundries in China are shifting their supply also partially to AI.

Jochen Hanebeck: On the China auto side, yeah, I agree. It sounds at first counterintuitive, but what we do see right now, particularly in MOSFETs and analog parts, is that Chinese competitors cannot deliver because they are, to a good extent, linked up to foundries, and these foundries in China are shifting their supply also partially to AI. There are also, again and again, quality missteps.

Speaker #2: And there are also, again and again, quality missteps. So here, we are seeing a good opportunity to pick up more business. And, of course, we will not do it only for a short run, but we want to have a mid-term commitment from customers.

Jochen Hanebeck: Here we are seeing a good opportunity to pick up more business, and of course, we will not do it only for a short run, but we want to have then a midterm commitment from customers.

Speaker #3: So, in terms of products, this is, you know, maybe—let's call it also including some legacy applications, if you want to call it that.

Johannes Schaller: In terms of products, this is, maybe let's call it also including some legacy applications, if you want to call it that.

Jochen Hanebeck: Well, it's MOSFET, so not the IGBT side. The IGBT side is still difficult, as I explained last time. It's MOSFET and analog parts, and these analog power parts, they go also into power distribution for software-defined vehicle. I wouldn't call it legacy. I would call it broad-based or products that find multiple applications in the car. New ones and established applications. Very broad.

Speaker #2: Well, it's MOSFETs, so not the IGBT side. The IGBT side is still difficult, as I explained last time. It's MOSFET and analog parts. And these analog power parts, they also go into power distribution for software-defined vehicles.

Speaker #2: I wouldn't call it a legacy. I would call it broad-based, or products that find multiple applications in the car—both new ones and established applications.

Speaker #2: Very broad.

Speaker #3: That's very clear. Thank you, Jochen. Very helpful.

Johannes Schaller: That's very clear. Thank you, Jochen. Very helpful.

Speaker #1: The next question comes from Lee Simpson from Morgan Stanley. Please go ahead.

Operator: The next question comes from Lee Simpson from Morgan Stanley. Please go ahead.

Speaker #3: Great. Thanks for fitting me in, and well done on the sales guide. Maybe if I could just go back to the question on margins.

Lee Simpson: Great. Thanks for fitting me in. Well done on the sales guide. Maybe if I just go back to question on margins, if I could. I'm just trying to understand, the 23% guide that you've given us for Q3, where the moving parts are here, because we do have a sense that there's some Dresden startup costs to be absorbed. There's probably underutilization. Really, I guess we're trying to work out what the utilization rates could be. How does this affect the run rates for that margin structure? Really importantly, as we go into next year as well. Maybe my follow-up, if I could, just want to understand the nature of the follow-on discussions around your LTAs. The new customers beyond those who have committed, maybe the size and scale there. Equally, the size of prepayments that you're getting.

Speaker #3: I'm just trying to understand, you know, the 23% guide that you've given us for Q3—where the moving parts are here—because, you know, we do have a sense that there's some drag in startup costs to be absorbed.

Speaker #3: There's probably underutilization, and really, I guess we're trying to work out what the utilization rates could be. And how does this affect the run rates for that margin structure?

Speaker #3: Really importantly, as we go into next year as well. And maybe my follow-up, if I could—just trying to understand the nature of the follow-on discussions around your LTAs, you know, the new customers beyond those who have committed, and maybe the size and scale there.

Speaker #3: And equally, the size of prepayments that you're getting— is this one or two billion, or is this a bigger number for the prepayments? Thanks.

Lee Simpson: Is this one or two billion, or is this a bigger number for the prepayments? Thanks.

Speaker #2: Okay, hi Lee. I’ll take your question. It’s not totally surprising. You asked the question about the margin in Q4, so let me help you here a bit.

Jochen Hanebeck: Okay. Hi, Lee. I take your question. It's not totally surprising you ask the question about the margin in Q4. Let me help you here a bit. First of all, one thing you mentioned, Dresden module four ramp-up cost, no material inclusion in this year. That's next year. The situation is as follows. If you look at the last quarters, it's a very dynamic growth environment we are in. 4.2 now going to 4.7. You also see it on the margin. We were in the high teens territory. Now we go to the mid-20s territory. Of course, in such a dynamic situation, you need to work with a set of assumptions. On the assumptions, I think you all know us pretty well. We tend to be a bit more on the conservative side of things in order not to underdeliver. There are assumptions on growth.

Sven Schneider: Okay. Hi, Lee. I take your question. It's not totally surprising you ask the question about the margin in Q4. Let me help you here a bit. First of all, one thing you mentioned, Dresden module four ramp-up cost, no material inclusion in this year. That's next year.

Speaker #2: First of all, one thing you mentioned dragged in module four, ramp-up costs no material inclusion in this year. That's next year. So the situation is as follows.

Sven Schneider: The situation is as follows. If you look at the last quarters, it's a very dynamic growth environment we are in. 4.2 now going to 4.7. You also see it on the margin. We were in the high teens territory. Now we go to the mid-20s territory. Of course, in such a dynamic situation, you need to work with a set of assumptions. On the assumptions, I think you all know us pretty well. We tend to be a bit more on the conservative side of things in order not to underdeliver. There are assumptions on growth.

Speaker #2: If you look at the last quarters, it's a very dynamic growth environment we are in—$4.2 billion now going to $4.7 billion. You also see it on the margin.

Speaker #2: We were in the high-teens territory. Now we go to the mid-20s territory. So, of course, in such a dynamic situation, you need to work with a set of assumptions.

Speaker #2: And on the assumptions, I think you all know us pretty well. We tend to be a bit more on the conservative side of things.

Speaker #2: In order not to underdeliver. So, there are assumptions on growth. There are assumptions on cost and price, as I just mentioned. There are, of course, assumptions on the balance. We have talked about it in the last calls.

Jochen Hanebeck: There are assumptions on the cost and price, as I just mentioned. There are, of course, assumptions on the balance. We have talked about it in the last calls, about managing the inventories and loading the fabs in the best possible way in a situation where more and more products are going into allocation. All that is included. If you ask me, why is it only 2023? I would probably say the 2023 are a tad conservative, and it could be 2023 plus. Let's look at the quarter. How is it really coming in? There is a better fall through than 50% included in Q4, let's see how much we will then really ship at the end of the quarter, also revenue-wise, and take it from there. One last sentence. You are asking the question not because you are so interested about Q4.

Sven Schneider: There are assumptions on the cost and price, as I just mentioned. There are, of course, assumptions on the balance. We have talked about it in the last calls, about managing the inventories and loading the fabs in the best possible way in a situation where more and more products are going into allocation. All that is included. If you ask me, why is it only 2023? I would probably say the 2023 are a tad conservative, and it could be 2023 plus.

Speaker #2: We're focused on managing inventories and loading the fabs in the best possible way, especially in a situation where more and more products are going into allocation.

Speaker #2: So all that is included, and I mean, if you ask me why it is only 23, I would probably say the 23 are a tad conservative.

Speaker #2: And it could be 23-plus, but let's look at the quarter—how is it really coming in? There is a better fall-through than 50% included in Q4.

Sven Schneider: Let's look at the quarter. How is it really coming in? There is a better fall through than 50% included in Q4, let's see how much we will then really ship at the end of the quarter, also revenue-wise, and take it from there. One last sentence. You are asking the question not because you are so interested about Q4. You are asking the question, as you said, because you are very interested in hearing the first news on 2027, maybe this is also part why we guide as we guide.

Speaker #2: So let's see how much we will then really ship at the end of the quarter, also revenue-wise, and take it from there. And one last sentence: you are asking the question not because you are so interested about Q4.

Speaker #2: You are asking the question, as you said, because you are very interested in hearing the first news on the 27th, and maybe this is also partly why we guide as we guide.

Jochen Hanebeck: You are asking the question, as you said, because you are very interested in hearing the first news on 2027, maybe this is also part why we guide as we guide. Good. I will take the opportunity on the CRA to make some broader statements, because I guess others also have questions on that one. First of all, for the CRAs, the target customers are hyperscalers, AI processor makers, as well as hardware providers for data centers, covering therefore stage 1 and stage 2 products. We are currently in discussion or have finalized agreements with more than 10 customers. The essence of these agreements is that customer commits to off-taking certain volumes over a period of several years. Penalty clauses ensure that customers have skin in the game. Key benefits for Infineon, obviously, customer commitments underpin and de-risk of AI capacities.

Speaker #3: Good. And then I will take the opportunity, on the CRA, to make some broader statements, because I guess others also have questions on that one.

Jochen Hanebeck: Good. I will take the opportunity on the CRA to make some broader statements, because I guess others also have questions on that one. First of all, for the CRAs, the target customers are hyperscalers, AI processor makers, as well as hardware providers for data centers, covering therefore stage 1 and stage 2 products.

Speaker #3: So first of all, for the CRAs, the target customers are hyperscalers, AI processor makers, as well as hardware providers for data centers, covering therefore stage one and stage two products.

Speaker #3: We are currently in discussion, or have finalized agreements, with more than 10 customers. The essence of these agreements is that customers commit to taking certain volumes over a period of several years.

Jochen Hanebeck: We are currently in discussion or have finalized agreements with more than 10 customers. The essence of these agreements is that customer commits to off-taking certain volumes over a period of several years. Penalty clauses ensure that customers have skin in the game. Key benefits for Infineon, obviously, customer commitments underpin and de-risk of AI capacities.

Speaker #3: Penalty clauses ensure that customers have skin in the game. Key benefits for Infineon, obviously, are that customer commitments underpin and de-risk our AI capacities. The agreements are based on existing and already planned capacities.

Jochen Hanebeck: The agreements are based on existing and already planned capacities. As such, they are firming up Infineon's projection of AI power growth. The CRAs are obviously not in the backlog. Again, prices are not fixed. On the prepayments, I cannot comment at this moment in time, as we are still in negotiations with our customers. Hope that clarifies a couple of questions around the CRAs.

Speaker #3: As such, they are firming up Infineon's projection of AI power growth. The CRAs are obviously not in the backlog. And again, prices are not fixed on the prepayments.

Speaker #3: I cannot commit comment on at this moment in time as we are still in negotiations with our customers. Hope that clarifies a couple of questions around the series.

Speaker #1: That's very clear.

Lee Simpson: That's very clear. Thank you very much.

Speaker #3: Thank you very much.

Speaker #1: The next question comes from Didier Shemama from Bank of America. Please go ahead.

Operator: The next question comes from Didier Scemama from Bank of America. Please go ahead.

Speaker #2: Yes, thank you for taking my questions. Good morning, gentlemen. I've got an additional question, maybe on the CRAs. First of all, I think it's really interesting that these developments are taking place, a bit like we've seen in memory.

Didier Scemama: Yes, thank you for taking my questions. Good morning, gentlemen. I've got an additional question, maybe on the CRAs. First of all, I think it's really interesting that these developments are taking place a bit like we've seen in memory. I just wanted to understand a couple of things from you, Jochen, if possible. What's the embedded assumption on pricing? I know that the pricing is sort of determined by the supply and demand in the future, but obviously in your EUR high single-digit billion, you've got an assumption on pricing. Should we assume flattish from here or down or up? That would be an interesting one for us to understand. Then related to that, do you expect that EUR high single-digit billion number to be revised higher in the coming quarters as you finalize your negotiation with other customers? Thank you.

Speaker #2: So I just wanted to understand a couple of things from you, Jochen, if possible. What's the embedded assumption on pricing? I know that the pricing is sort of determined by supply and demand in the future, but obviously in your high single-digit billion, you've got an assumption of pricing.

Didier Scemama: What's the embedded assumption on pricing? I know that the pricing is sort of determined by the supply and demand in the future, but obviously in your EUR high single-digit billion, you've got an assumption on pricing. Should we assume flattish from here or down or up? That would be an interesting one for us to understand. Then related to that, do you expect that EUR high single-digit billion number to be revised higher in the coming quarters as you finalize your negotiation with other customers? Thank you.

Speaker #2: Should we assume flattish from here or down or up? I mean, that would be an interesting one for us to understand. And then related to that, do you expect that high single-digit billion number to be revised higher in the coming quarters as you finalize your negotiation with other customers?

Speaker #2: Thank you.

Speaker #3: Okay, so the first part, Andreas will take and then I will answer the second.

Jochen Hanebeck: Okay, the first part Andreas will take, and then I will answer the second.

Speaker #2: Yeah, first and foremost, related to pricing and Infineon pricing overall. Already in our last earnings call, I talked about supply constraints, in particular in our AI power business.

Andreas Urschitz: Yeah. First and foremost, related to pricing and Infineon pricing overall. Already in our last earnings call, I talked about supply constraints, in particular in our AI power business, and visible impacts on adjacent areas leading to more favorable pricing environment. I then also said we will adjust pricing to reflect market realities. Meanwhile, demand was outstripping and still continues to outstrip supply in several areas, no longer related to the entire AI power delivery chain only. Thus, and walking the talk, we have informed our customers in these areas about price increases two times, and the last time happened in July. We're seeing good traction for these measures overall as customers value delivery capabilities in today's situation, and the value we create with our product in the marketplace, a very decisive role.

Speaker #2: And visible impacts on adjacent areas, leading to a more favorable pricing environment. I then also said we will adjust pricing to reflect market realities. Meanwhile, demand was outstripping—and still continues to outstrip—supply in several areas.

Speaker #2: No longer related to the entire AI power delivery chain only. Thus, and walking the talk, we have informed our customers in these areas about price increases two times in the last time happened in July.

Speaker #2: We're seeing good traction for these measures overall as customers value delivery capabilities in today's situation and the value we create with our product in the marketplace very, very decisive role.

Speaker #2: Full visibility of this in our P&L and in our margin, as Sven was alluding to. However, we'll be there only from Q1, next fiscal year onwards.

Andreas Urschitz: Full visibility of this in our P&L and in our margin, as Sven was alluding to, however, will be there only from Q1 next fiscal year onwards. I give it back to Jochen.

Speaker #2: And I give it back to Jochen.

Speaker #3: Yeah, thanks.

Jochen Hanebeck: Yeah. Thanks.

Andreas Urschitz: In particular on the CRA.

Speaker #2: Specifically on the series.

Speaker #3: Thanks, Andreas. Didier, on that question—let’s say the momentum is on our side with respect to your question on the high single-digit billion number. The momentum is on our side.

Jochen Hanebeck: Thanks, Andreas. Didier, on that question, let's say the momentum is on our side. With respect to your question on the high single-digit billion number, the momentum is on our side. I would not be surprised if that number is increasing. We work now with those customers that have raised their hands and are interested, then we will update you in the next quarter again.

Speaker #3: I would not be surprised if that number is increasing, but we are now working with those customers that have raised their hands and are interested.

Speaker #3: And then we will update you again in the next quarter.

Speaker #1: The next question comes from Joshua Buchalter from TD Cowan. Please go ahead.

Operator: The next question comes from Joshua Buchalter from TD Cowen. Please go ahead.

Operator: The next question comes from Joshua Burchalte from TD Cowen. Please go ahead.

Speaker #4: Hey guys, thank you for taking my question, and congrats on the results. I'll ask my questions at once. So, I guess to start, can you speak to how we should think about the linearity and, maybe, the magnitude of the Dresden capacity coming online over the next few years?

Joshua Buchalter: Hey, guys. Thank you for taking my question, congrats on the results. I'll also use German efficiency and ask two questions at once. I guess to start, can you speak to sort of how we should think about the linearity and then maybe magnitude of the Dresden capacity coming online over the next few years? Was that 50% fall-through number specifically related to Dresden, or should we think about all incremental revenue falling through at 50% moving forward? My second question, there's certainly been a lot of noise in both directions about 800-volt architectures in data center. Could you maybe speak to how either a slower or faster 800-volt adoption would change your AI content opportunities? Thank you.

Speaker #4: And was that 50% fall-through number specifically related to Dresden, or should we think about all incremental revenue falling through at 50% moving forward?

Speaker #4: And then my second question: There's certainly been a lot of noise in both directions about 800-volt architectures in data centers. Could you maybe speak to how either a slower or faster 800-volt adoption would change your AI content opportunities?

Speaker #4: Thank you.

Speaker #2: Yeah, hi Josh.

Jochen Hanebeck: Yeah. Hi, Josh. I take the first and the third, and the fall-through, I leave it to Sven. Dresden, as we said at the beginning when we embarked on that project, filling the fab would take three to seven years. We are clearly now at the lower end of that range. Likely, if the market demand is there, we can ramp at double the speed as before, and that would take us below three years to complete the build-outs with equipment. On the 800 volts, I think it's known in the industry that 800 volt DC is nothing to play around with, so there are some safety concerns. We do not see any material shift, but in case it comes, our bill of material, if I compare 800 volt DC to three-phase AC, is incremental on the 800 volt DC side, but not tremendously.

Speaker #3: I'll take the first and the third, and then I'll pass it to Sven. So, Dresden—as we said at the beginning, when we embarked on that project—filling the fab would take three to seven years.

Speaker #3: We are clearly now at the lower end of that range. So, likely, if the market demand is there, we can ramp at double the speed as before.

Speaker #3: And that would take us below three years to complete the build-out with equipment. On the 800-volt, I mean, I think it's known in the industry that 800-volt DC is nothing to play around with.

Jochen Hanebeck: On the 800 volts, I think it's known in the industry that 800 volt DC is nothing to play around with, so there are some safety concerns. We do not see any material shift, but in case it comes, our bill of material, if I compare 800 volt DC to three-phase AC, is incremental on the 800 volt DC side, but not tremendously.

Speaker #3: So, there are some safety concerns. We do not see any material shift, but in case it comes to our bill of material—if I compare 800-volt DC to three-phase AC, it is incremental on the 800-volt DC side, but not tremendously so.

Speaker #3: So for us, it's not the biggest factor in our growth trajectory, as we are very well positioned on the PSU side. I think the question was whether the fall-through only applies to the Dresden facility revenue or altogether.

Jochen Hanebeck: For us, it's not the biggest factor in our growth trajectory as we are very well positioned on the PSU side. I think the question was whether the fall-through only applies to the Dresden facility revenue or altogether, I think you always commented on overall numbers not related to individual subs.

Speaker #3: And I think you always commented on overall numbers, not related to individual fabs.

Speaker #2: Correct.

Sven Schneider: Correct.

Speaker #4: Yeah, thank you.

Joshua Buchalter: Yeah. Thank you.

Speaker #1: The next question comes from Jacob Bluestone from BNP Paribas. Please go ahead.

Operator: The next question comes from Jakob Bluestone from BNP Paribas. Please go ahead.

Speaker #4: Hi, good morning. Thanks for taking the question. I've got two questions as well. Firstly, just on the AI revenue guide, you've obviously put through a small hike for this year.

Jakob Bluestone: Hi. Good morning. Thanks for taking the question. I've got two questions as well. Firstly, just on the AI revenue guide. You've obviously put through a small hike for this year, I just want to understand, is that from the early impacts of the price hikes starting to feed through and therefore driving your guidance, or are you actually already starting to see supply coming through more quickly than expected? Then just secondly, on your order book, you offset a very strong backlog, EUR 30 billion at the end of the quarter. I think it was up EUR 5 billion Q on Q. Could you maybe just give us a little bit of color on how much of that relates to some of the inventory builds you mentioned? How much would you put more in the, I guess, more structural long-term camp? Thanks.

Speaker #4: And I just want to understand: Is that from the early impacts of the price hikes starting to feed through and therefore driving your guidance, or are you actually already starting to see supply coming through more quickly than expected?

Speaker #4: And then just, secondly, on your order book, you obviously had a very strong backlog—$30 billion at the end of the quarter. I think it was up $5 billion quarter-on-quarter.

Jakob Bluestone: Then just secondly, on your order book, you offset a very strong backlog, EUR 30 billion at the end of the quarter. I think it was up EUR 5 billion Q on Q. Could you maybe just give us a little bit of color on how much of that relates to some of the inventory builds you mentioned? How much would you put more in the, I guess, more structural long-term camp? Thanks.

Speaker #4: Could you maybe just give us a little bit of color on how much of that relates to some of the inventory builds you mentioned, and how much would you sort of put more in the, I guess, more structural long-term camp?

Speaker #4: Thanks.

Speaker #2: Yeah, the second question, I'm not quite sure whether I got it, but the first one, the 1.6—and again, we said above 1.6. So it's now an operational task to squeeze out as much as possible in the quarter to serve the demand of our customers.

Jochen Hanebeck: Yeah. The second question, I'm not quite sure whether I got it. The first one, the EUR 1.6, and again, we said above EUR 1.6, it's now an operational task to squeeze out as much as possible in the quarter to serve the demand of our customers. It's a mix of supply and pricing. I would say for this quarter, it's more on supply side. Again, let's see how the final number looks like, but we feel comfortable to overshoot or deliver more than the EUR 1.6 billion. Please always keep in mind, you need to add these EUR 500 million to it. The order backlog, I give it to Sven.

Speaker #2: So it's a mix of supply and pricing, but I would say for this quarter, it's more on the supply side. Again, let's see how the final number looks, but we feel comfortable to overshoot, or deliver more than, the €1.6 billion.

Speaker #2: And please always keep in mind, you need to add these €500 million to it. And the order backlog—I give it to Sven.

Speaker #5: Yeah, hi Jacob. As far as I understand it, your question on the order backlog is whether the increase is due to inventory build or is more structural at customers.

Sven Schneider: Yeah. Hi, Jakob. As far as I understand it, your question on the order backlog, you're asking how much of the order backlog increase is inventory build or more structural at customers. That's how I understood. Thank you for confirming. The backlog increase is driven mainly by, now again, I'm in the old divisional structure, but GIP, PSS, and automotive. If you go through these divisions, also following what Jochen has said in the intro, I think there's a really nice pickup in customer order entry on the GIP side. PSS, I don't think I need to comment. AI and most products in allocation and automotive, we said it in the intro, it's a combination of some market developments in China, some nice order momentum around the software-defined vehicles, and some order replenishment. It's a combination.

Speaker #5: That's how I understood. Thank you for confirming. So the backlog increase is driven mainly by—now, again, I'm in the old divisional structure—but GIP, PSS, and Automotive.

Speaker #5: And if you go through these divisions, also following what Johannes said in the intro, I think there is a really nice pickup in customer order entry on the GIP side.

Speaker #5: PSS, I don't think I need to comment. AI and most products in allocation. In automotive, as we said in the intro, it's a combination of some market developments in China.

Speaker #5: There is some nice order momentum around software-defined vehicles and some order replenishment. So it's a combination.

Speaker #4: Thanks there. Thank you.

Jakob Bluestone: Makes sense. Thank you.

Speaker #1: The next question comes from François Bouvigny from UBS. Please go ahead.

Operator: The next question comes from Francois Bouvignies from UBS. Please go ahead.

Speaker #3: Thank you very much. I have two quick questions. The first one is on the seasonality in fiscal Q1. I think, Sven, last quarter you said that you would expect fiscal Q1 to be less pronounced in terms of seasonality, which is minus 5% to minus 6% quarter-on-quarter, with what you said last quarter.

François Bouvignies: Thank you very much. I have two quick questions. The first one is on the seasonality in fiscal Q1. I think, Sven, last quarter you said that you would expect fiscal Q1 to be well less pronounced in terms of seasonality, which is -5% to -6% quarter-on-quarter. It's what you said last quarter. I just want to check how you feel about this comment now, and if you would think that it could even grow quarter-on-quarter for the fiscal Q1 given the current dynamic.

Speaker #3: I just wanted to check how you feel about this comment now, and if you think that it could even grow quarter-on-quarter for fiscal Q1, given the current dynamic.

Speaker #2: Yeah, maybe I'll take that question, François. We clearly see a very different seasonal pattern for Q1. Let's see how it really comes out, but let's forget about the seasonality for now.

Jochen Hanebeck: Yeah, maybe I'd take that question, Francois. We clearly see a very much different seasonal pattern for Q1. Let's see how it really comes out. Forget the seasonality we have seen in the past. Today it looks rather as a very strong H2 of the calendar year. Therefore, also please understand that our projections coming out of 2, 3 quarters around high teens now coming into different territory have, of course, also some uncertainties, which we have to make certain calls on. I think we will see over the next 2 quarters where this new level of profitability will exactly land.

Speaker #2: We have seen in the past, today it looks rather like a very strong second half of the calendar year. And therefore, also please understand that our projections coming out of two, three quarters around high teens, now coming into different territory, have of course also some uncertainties which we have to make certain calls on. And I think we will see over the next two quarters where this new level of profitability will exactly land.

Speaker #3: Makes sense, thank you. And maybe my second question is actually on microcontrollers. I mean, Infineon did a very good job in terms of market share in the last few years.

François Bouvignies: Makes sense. Thank you. Maybe my second question is on actually microcontrollers. Infineon did a very good job in terms of market share in the last 3 years. Now, if I look at the current dynamic, Renesas and NXP are growing their auto revenues by mid to high teens percentage year-on-year. That's your main competitor in microcontrollers, which seems to be higher than what you're doing right now. I was wondering in terms of microcontroller dynamic, is there any mechanism or reason maybe you would temporarily lose share because of some inventories or anything we should be aware on your market share on the microcontroller side that maybe would explain a lower growth from the automotive versus your MCU piece?

Speaker #3: Now, if I look at the current dynamic, I mean Renesas and NXP are growing their auto revenues by mid- to high-teens percentage year on year.

Speaker #3: Which, you know, that's your main competitors in microcontrollers—which seems to be, I mean, higher than what you are doing right now. So I was wondering, in terms of microcontroller dynamics, is there any mechanism or reason you might temporarily lose share because of, say, inventories, or anything we should be aware of on your market share on the microcontroller side that maybe would explain a lower growth from the automotive versus your MCU piece?

Jochen Hanebeck: Yeah. Particularly on the MCUs, I always said it now for the last 2 years, that likely for the next 2 years, there will be still market share gains. What you observe is a different effect, but I can explain it in the easiest way. If you take the automotive division and you take High Voltage out and, to be fair, also the newly acquired Ethernet business. That business without High Voltage, without Marvell, would grow at constant currency exchange rate, 10%. I think we are rock solid in our core automotive business, having additional growth momentum now with Ethernets due to software-defined vehicles. We have a construction site called High Voltage, which we are resetting, refocusing on the profitable topics on innovations, while at the same time reallocate these capacities towards powering AI.

Speaker #2: Yeah, so particularly on the MCUs, I’ve always said it now for the last two years that, likely for the next two years, there will still be market share gains.

Speaker #2: What you observe is a different effect, but I can explain it in the easiest way. If you take the Automotive division and you take High Voltage out and, to be fair, also the Ethernet—the newly acquired Ethernet business.

Speaker #2: So the business and that business without High Voltage, without Marvell, would grow at constant currency exchange rate by 10%. So, I think we're rock solid in our core automotive business, having additional growth momentum now with Ethernet due to software-defined vehicles.

Speaker #2: But we have a construction site called High Voltage, which we are resetting—refocusing on the profitable topics and innovations, while at the same time reallocating these capacities towards powering AI.

François Bouvignies: Great. Thank you for your answers.

Speaker #3: Great. Thank you for your answers.

Speaker #1: The next question comes from Stefan Uri from Odoo BHF. Please go ahead.

Operator: The next question comes from Stéphane Houri from Oddo BHF. Please go ahead.

Speaker #3: Actually, I also have two questions. The first one is about the Power AI revenue view for 2027. I think in another call you said you would be materially above the $2.5 billion.

Stéphane Houri: Actually, I have also two questions. The first one is about the PowerAI revenue view for 2027. I think in another call you said you would be materially above the EUR 2.5 billion. My question is to know why you are not upgrading it today and to know what you will know better in November than now. Is it about the real level of demand, or is it about the ability to ramp the production? I have got a follow-up. Thank you.

Speaker #3: And my question is to know why you're not upgrading it today, and to know what you will know better in November than now. Is it about the real level of demand, or is it about the ability to ramp the production? And I have a follow-up.

Speaker #3: Thank you.

Speaker #2: Yeah, thanks for the question. I know there's high interest in that number, but first of all, of course, we are closer to the market.

Jochen Hanebeck: Yeah. Thanks for the question. I know there is high interest in that number, first of all, of course, we are closer to the market. We have to give them a yearly guidance. I would not like to go into one and a half yearly guidance. We are closer to the market. We are closer to customer development. We are closer to our operational insights, how much we can really deliver. Last but not least, we would like to give you a full set of financial numbers, CapEx, cash flow, all of that. Picking out one number, even though there is high interest, we would like to refrain from.

Speaker #2: You know, we have to give them a yearly guidance, and I would not like to go into one-and-a-half-yearly guidance. We are closer to the market.

Speaker #2: We are closer to customer developments. We are closer to our operational insights—how much we can really deliver. And last but not least, we would like to give you a full set of financial numbers: capex, cash flow, all of that.

Speaker #2: So, picking out one number, even though there's high interest, we would like to refrain from.

Speaker #3: Okay, I understand. Now, back on the quarter—and the question is about the Green Industrial Power issue that you had. You said it was a temporary operational and inventory-related effect.

Stéphane Houri: Okay. Understand. Now back on the quarter, the question is about the Green Industrial Power issue that you had. You said it was a temporary operational and inventory-related effect. Are you saying that the next quarter, the margin will be back to normal already? Thank you.

Speaker #3: Are you saying that next quarter, the margin will be back to normal already? Thank you.

Speaker #2: Yeah, so Stefan, you can always say in this environment what is normal. I would say it will definitely go up materially compared to Q3.

Jochen Hanebeck: Yeah. Stéphane, you can always say in this environment what is normal. I would say it will definitely go up materially compared to Q3. It will show a very positive trend to answer your question.

Speaker #2: So, it will show a very positive trend, to answer your question.

Speaker #3: Okay, very clear. Thank you.

Stéphane Houri: Okay. Very clear. Thank you.

Speaker #2: And the opportunity for GIP, or soon part of PS, is really great. If you think about this power infrastructure, right, and it's ESS and SST and SSCB combined, it's today a market of a low to mid triple-digit million number.

Jochen Hanebeck: The opportunity for GIP or soon part of PS is really great. If you think about this power infrastructure, right? It is ESS and SST and SSCB combined. It is today a market of a low to mid triple-digit million number. We expect that market already to be beginning of the next decade, a mid-single digit billion market. A great opportunity and really falling into our hands because high reliability requirements there, playing to the strengths of Infineon. The GIP business, particularly the power infrastructure part of it, will be a strong pillar of the PS division in the future.

Speaker #2: We expect that market already to be, by the beginning of the next decade, a mid-single-digit billion market. So a great opportunity, and really falling into our hands because of the high reliability requirements there.

Speaker #2: So, playing to the strengths of Infineon, the GIP business—particularly the power infrastructure part of it—will be a strong pillar of the PS division in the future.

Speaker #3: All right.

Stéphane Houri: All right.

Speaker #1: The next question comes from Aditya Metuku from HSBC. Please go ahead.

Operator: The next question comes from Adithya Metuku from HSBC. Please go ahead.

Speaker #3: Yeah, good morning, guys. Thank you for squeezing me in. Two questions, please. Firstly, just following up on the backlog—you know, it's already at €30 billion.

Adithya Metuku: Yeah. Good morning, guys. Thank you for squeezing me in. Two questions, please. Firstly, just, Sven on the backlog. It is already at EUR 30 billion. Would it be fair to assume that roughly two-thirds of this is for delivery next year? Any color you can give around the proportion of the backlog for delivery next year? Then for Jochen, on GaN, there has been some recent talk about GaN adoption in stage 2 closer to the XPU, potentially replacing silicon quicker than what people expected maybe three or six months ago. I just wanted to hear your thoughts on what you are seeing here. Are you seeing a quicker transition to GaN than maybe six months ago? Thank you.

Speaker #3: Would it be fair to assume that roughly two-thirds of this is for delivery next year? Any color you can give around the proportion of the backlog for delivery next year?

Speaker #3: And then for Jochen, on GAN, there's been some recent talk about GAN adoption and stage closer to the XPU, you know, potentially replacing silicon quicker than what people expected, maybe three to six months ago.

Speaker #3: I just wanted to hear your thoughts on what you're seeing here. Are you seeing a quicker transition to GaN than maybe six months ago?

Speaker #3: Thank you.

Speaker #2: Yeah, thanks for the question. I'll take the second one first. So, we have seen the first emergence of GAN in PSUs, right?

Jochen Hanebeck: Yeah. Thanks for the question. I take the second one first. We have seen the first emergence of GaN in PSUs, right? We talked about that a couple of times already. It is actual, it is fact, it is everyday business. The next big opportunity is the IBC level 48 to 12, where there is a clear value proposition, and various customers are evaluating this, and we expect business to pick up in 2027. Now you are talking about the third opportunity for GaN, and that is the low voltage GaN right in the power stage. Yes, that is technically clearly our goal. The technical hurdles are also significant. We are very well prepared in the sense of manufacturing footprint for this, as it would be also part of our 300 millimeter footprint in GaN. Here probably being the only one, being able to deliver really volumes.

Speaker #2: We talked about that a couple of times already. It's actual, it's fact, it's everyday business. The next big opportunity is the IBC level 48 to 12, where there's a clear value proposition and various customers are evaluating.

Speaker #2: This and we expect business to pick up in 2027. Now you are talking about the third opportunity for GAN and that's the low voltage GAN, right, in the power stage.

Speaker #2: Yes, that's technically clearly our goal. But the technical hurdles are also significant. I mean, we are very well prepared in the sense of our manufacturing footprint for this.

Jochen Hanebeck: Yes, that is technically clearly our goal. The technical hurdles are also significant. We are very well prepared in the sense of manufacturing footprint for this, as it would be also part of our 300 millimeter footprint in GaN. Here probably being the only one, being able to deliver really volumes.

Speaker #2: As it would also be part of our 300-millimeter footprint in GaN. So here, probably being the only one, being able to deliver real volumes, but the technical hurdles to overcome in the power stage are high.

Jochen Hanebeck: The technical hurdles to overcome in the power stage are high, and I would like to bridge to an earlier question. How are newcomers doing in the stage 2? Here the same applies, that changes in the stage 2, you really need to know what you are doing, and therefore, it will take some learning cycles, probably also first starting with some low volume business in none of the main platforms. Power stages is a piece of art in terms of power electronics.

Speaker #2: And I would like to bridge to an earlier question about how newcomers are doing in stage two. And here the same applies: with changes in stage two, you really need to know what you're doing, and therefore it will take some learning cycles. Probably, you would also first start with some low-volume business, not in any of the main platforms. Power stages are a piece of art in terms of power electronics.

Speaker #3: Yeah, and Adiya, to your other question on the backlog: so the two-thirds assumption as of today seems to be reasonable to me. Got it.

Sven Schneider: Yeah. Adi, I take your other question on the backlog. The two-thirds assumption as of today seems to be reasonable to me.

Adithya Metuku: Got it. Excellent. Just quickly, Jochen, essentially, would you say that development on GaN has accelerated closer to the XPU in the last six months? There's no big change there?

Speaker #3: Excellent. And just quickly, Jochen, so essentially would you say that development on GAN has accelerated closer to the XPU in the last six months, or is there no big change there?

Speaker #2: We are definitely accelerating, but again, it will take several years before you see it in the market, given the technical challenges here.

Jochen Hanebeck: We are definitely accelerating. Again, it will take several years before you see it in the market given the technical challenges here.

Speaker #3: Got it. Thank you.

Adithya Metuku: Got it. Thank you.

Speaker #1: The next question comes from Tommy Jew from Berenberg. Please go ahead.

Operator: The next question comes from Tammy Ju from Berenberg. Please go ahead.

Speaker #4: Hi, thank you for taking my question. So, the first question is on your LTAs. Are you eventually targeting to have 100% of your AI revenue on the LTA?

Tammy Ju: Hi. Thank you for taking my question. The first question is on your LTAs. Are you eventually targeting to have 100% of your AI revenue on the LTA? Based on the terms, it wasn't that clear that if it's cancelable or uncancelable because pricing is not fixed, it's just basically about volume. Secondly, I have a question on your microcontroller position in China, where we do hear that, for example, given the pricing pressure, there has been more consideration of taking local supply. Do you see that becoming a more discussed point among your customers, or you are very confident in your market share? Thank you.

Tammy Qiu: Hi. Thank you for taking my question. The first question is on your LTAs. Are you eventually targeting to have 100% of your AI revenue on the LTA? Based on the terms, it wasn't that clear that if it's cancelable or uncancelable because pricing is not fixed, it's just basically about volume. Secondly, I have a question on your microcontroller position in China, where we do hear that, for example, given the pricing pressure, there has been more consideration of taking local supply. Do you see that becoming a more discussed point among your customers, or you are very confident in your market share? Thank you.

Speaker #4: And also, based on the terms, it wasn't that clear if it's cancellable or uncancellable, because pricing is not fixed; it's just basically about volume.

Speaker #4: And also, secondly, I have a question on your market—your microcontroller position in China. We do hear that, for example, given the pricing pressure, there has been more consideration of taking local supply.

Speaker #4: Do you see that becoming a more discussed point among your customers, or are you very confident in your market share? Thank you.

Speaker #2: Okay. Let me talk first about the CRAs again. These agreements are not rigid take-or-pay contracts, nor are they NCNR. They encompass different product groups and include some reasonable flexibilities.

Jochen Hanebeck: Okay. Let me talk about first the CRAs again. These agreements are not rigid take or pay contracts, or they are not NCNR. They encompass the different product groups and include some reasonable flexibilities. Again, future prices are not fixed in advance. We have not defined an exact target in terms of coverage of the capacity, but I would feel comfortable with a high coverage given the dynamics. Again, it's also at the advantage of the customers to get security of supply. With respect to automotive micros in China, we are still clearly the market leader. Of course, there are also local competitors very bluntly trying to copy our products. So far, not successful. Our major competitors are still the well-known global ones. We have a very strong franchise.

Speaker #2: Again, future prices are not fixed in advance. We have not defined an exact target in terms of coverage of the capacity, but I would feel comfortable with a high coverage given the dynamics. And again, it's also to the advantage of the customers to get security of supply.

Speaker #2: With respect to automotive micros in China, we are still clearly the market leader. Of course, there are also local competitors, very bluntly trying to copy our products.

Speaker #2: So far, not successful. Our major competitors are still the well-known global ones, but we have a very strong franchise. We have a very strong, high portfolio density in China, which customers value because it doesn't make much sense to offer a customer a single microcontroller—you need to show a full product family. That we have seen also in various design wins recently, where non-Chinese competitors try to offer then individual microcontrollers, but customers need a portfolio, and I think portfolio density is, besides the individual technical lead, a very strong argument in this place.

Jochen Hanebeck: We have a very strong high portfolio density in China, which customers value because it doesn't make much sense to offer a customer a single microcontroller. You need to show a full product family. That we have seen also in various design wins recently where non-Chinese competitors try to offer then individual microcontrollers. Customers need a portfolio. I think portfolio density is, besides the individual technical leads, a very strong argument in this place. Of course, we are staying paranoid, and we are very carefully evaluating what competition is coming up in China as well.

Speaker #2: But of course, we are staying paranoid, and we are very carefully evaluating what competition is coming up in China.

Speaker #3: As well as elsewhere.

Speaker #1: The next question comes from Basil Taze from Metzler. Please go ahead.

Operator: The next question comes from Basil Tasey from Metzler. Please go ahead.

Basil Tasey: Yes, good morning. Thank you for taking my question. Related to your AI power business and specifically really on the part with server level or board level opportunity. On the technology side, are you fully betting on GaN, or would you see other opportunities or other technologies as well? Related to this as well, what is the difference or your positioning regarding GPU vendors and hyperscalers internal XPU or ASIC programs? Is there a difference in your exposure to these both camps?

Veysel Taze: Yes, good morning. Thank you for taking my question. Related to your AI power business and specifically really on the part with server level or board level opportunity. On the technology side, are you fully betting on GaN, or would you see other opportunities or other technologies as well? Related to this as well, what is the difference or your positioning regarding GPU vendors and hyperscalers internal XPU or ASIC programs? Is there a difference in your exposure to these both camps?

Speaker #3: Yes, good morning. Thank you for taking my question. Related to your AI power business and specifically really on the part with server level or board level opportunity.

Speaker #3: Are you, or on the technology side, are you fully betting on GaN, or do you see other opportunities or other technologies as well? And then, related to this as well, what is the difference or your positioning regarding GPU vendors and hyperscalers' internal XPU or ASIC programs?

Speaker #3: Is there a difference in your exposure to both camps?

Speaker #2: This is Andreas. Thank you very much for the question. Regarding AI power stage one and two, are we fully betting on GAN or others?

Andreas Urschitz: This is Andreas. Thank you very much for the question regarding AI power stage 1 and 2. Are we fully betting on GaN or others? Well, as a matter of fact, over the course of the last years, we put ourselves in the position of having a very large portfolio of silicon-based solutions, silicon carbide-based, and also gallium nitride-based solutions for both the areas, power stage 1 and 2, including the PSU, which is not part of your question, but just for completion, I tell that. We see ourselves being in a unique position in terms of having an also reliability and experience for having the products robust, which our customers love a lot. Nowadays, since everything is about uptime in these server farms and AI and hyperscaler environment.

Speaker #2: Well, as a matter of fact, over the course of the last years, we put ourselves in the position of having a very large portfolio of silicon-based solutions, silicon carbide-based, and also gallium nitride-based solutions for both areas.

Speaker #2: Power stage one and two, including the PSU—which is not part of your question, but just for completion, I mention that. So we see ourselves as being in a unique position in terms of also having reliability and experience in making our products robust, which our customers really appreciate.

Speaker #2: Nowadays, since everything is about uptime in these server farms and AI and hyperscaler environments, another element for sure is also the broad variety of interconnect, so to say, technologies that allow very great combinations between controllers, drivers, and also FETs.

Andreas Urschitz: Another element for sure is then also the broad variety of interconnect, so to say, technologies that allows very great combinations in between controllers, drivers, and also FETs, be it in gallium nitride, be it in silicon carbide. The beauty of this positioning that we do have is that we let our customers choose, and this we believe very much, and that's also the feedback from the market. That, together with our unprecedented capacity, so to say, offering, which also plays a decisive role, makes customers go for Infineon as the primary choice along the entire power flow from what we call the grid, even towards the core, which is the stage 2.

Speaker #2: Be it in gallium nitride, be it in silicon carbide. So, the beauty of this positioning that we do have is that we let our customers choose.

Speaker #2: And this we believe very much, and that's also the feedback of the market, that together with our unprecedented capacity—so to say—offering, which also plays a decisive role, makes customers go for Infineon as the primary choice along the entire power flow, from what we call the grid even towards the core, which is the second stage.

Basil Tasey: Got it. The second part of the question, is there a difference in your exposure to the GPU vendors or merchant processor makers versus the hyperscalers internal programs? Is there a difference in your positioning?

Veysel Taze: Got it. The second part of the question, is there a difference in your exposure to the GPU vendors or merchant processor makers versus the hyperscalers internal programs? Is there a difference in your positioning?

Speaker #3: Got it. And then, the second part of the question: Is there a difference in your exposure to the GPU vendors or merchant processor makers versus the hyperscalers' internal programs?

Speaker #3: Is there a difference in your positioning?

Andreas Urschitz: Again, Andreas speaking. I take this question. Look, the way how this industry is working is that us as primary suppliers of any kind of semiconductor solution for grid-to-core power for powering AI data centers is pretty much based on working with all the value chain players, starting from the processor maker. These are companies that are mostly, but not only residing in the West, in the US. We are collaborating in parallel with what we call OEMs or data center operators. Those are companies that entertain large hyperscaler farms or AI machine learning data centers as such. They are pretty much decisive for overall power flow architectures.

Speaker #2: Again, so Andreas speaking, I take this question. Look, so the way how this industry is working is that us as primary suppliers of any kind of semiconductor solution for grid to core power for powering AI data centers, is pretty much based on working with all the value chain players starting from the processor maker.

Speaker #2: So these are companies that are mostly, but not only, residing in the West, in the US. We are then collaborating in parallel with what we call OEMs or data center operators. So those are companies that maintain large hyperscaler farms or AI/machine learning data centers as such.

Speaker #2: So, they are pretty much decisive for the overall power flow architectures. Thirdly, we're working together with what we call hardware makers, or ODMs, who typically reside in the East and make subcomponents such as intermediate bus converters or PSUs on behalf of the so-called OEMs or data center operators as such.

Andreas Urschitz: Thirdly, we're working together with what we call hardware makers or ODMs, who typically reside in the East and make sub-components such as intermediate bus converters or PSUs on behalf of the so-called OEMs or data center operators as such. By bringing all these elements together, talking to the processor maker, the data center operator, i.e. the architect of this environment, plus the sub-component makers, this gives us an ideal position in order to provide tailored power flow solutions. We call it power flow or from grid to core, was the word I was saying before, which is unique in terms of, so to say, at the very end, cost per, so to say, compute power, which AI and also hyperscale data center is all about.

Speaker #2: And by bringing all these elements together—so talking to the processor maker, the data center operator, i.e., the architect of this environment, plus then the subcomponent makers—this gives us an ideal position in order to provide tailored power flow solutions.

Speaker #2: So we call it power flow, or 'from grid to core' was the term I was saying before. Which is unique in terms of, so to say, the very end cost per, so to say, compute power—which AI and also hyperscale data centers are all about.

Speaker #2: So

Speaker #3: Thank you, Andreas.

Basil Tasey: Thank you, Andreas.

Veysel Taze: Thank you, Andreas.

Speaker #1: Now we finally take Didier Chemama for a round of questions. Please go ahead.

Operator: Now we finally take Didier Scemama for a rounding-off question. Please go ahead.

Speaker #3: Oh, thank you for taking my follow-up. I just had another question on the CRA, perhaps. I wanted to understand a little bit the sort of TNCs on the CRAs.

Didier Scemama: Oh, thank you for taking my follow-up. I just had another question on the CRA, perhaps. I wanted to understand a little bit the sort of T&Cs on the CRAs. First of all, is it the hyperscalers, or the system builders, or the processor, I mean, your customers that are asking to sign those CRAs, or is it you trying to enforce it? Related to that, I would assume that part of the sort of CRA commitments you're making, you've got certain capacity addition to make. Against that, are you seeing visibility through, say, I don't know, 2028 from your customers against those capacity commitments? It would be great if we could get a bit of color on this.

Speaker #3: So, first of all, is it the hyperscalers, the system builders, or the processor—I mean, your customers—that are asking to sign those CRAs? Or is it you trying to enforce it?

Speaker #3: And then, related to that, I would assume that as part of the sort of CRA commitments you're making, you've got certain capacity additions to make.

Speaker #3: So, against that, are you seeing visibility through, say, I don't know—'28 from your customers against those capacity commitments? It would be great if we could get a bit of color on this.

Speaker #2: Sure, Didier. Happy to. So honestly, customers are approaching us because they sense that there is a shortage looming, and they want to secure supply.

Andreas Urschitz: Sure, Didier. Happy to take a second round from you. Honestly, customers are approaching us because they sense that there is a shortage looming, and they want to secure supply. As I said before, target customers are hyperscalers, are AI processor makers, as well as hardware providers for data centers. The whole coverage stage 1 and stage 2. In terms of what do we offer, of course, includes our planned capacity build-out, which we alluded to you in Dresden, in the other sites, Kulim and Villach. Yes, these agreements reach out multiple years, which also covers the end of this decade, so the late 2020s.

Jochen Hanebeck: Sure, Didier. Happy to take a second round from you. Honestly, customers are approaching us because they sense that there is a shortage looming, and they want to secure supply. As I said before, target customers are hyperscalers, are AI processor makers, as well as hardware providers for data centers. The whole coverage stage 1 and stage 2. In terms of what do we offer, of course, includes our planned capacity build-out, which we alluded to you in Dresden, in the other sites, Kulim and Villach. Yes, these agreements reach out multiple years, which also covers the end of this decade, so the late 2020s.

Speaker #2: And as I said before, target customers are hyperscalers, AI processor makers, as well as hardware providers for data centers—so the whole coverage, Stage One and Stage Two.

Speaker #2: And in terms of what do we offer? Of course, it includes our planned capacity build-out, which we alluded to earlier in Dresden and the earlier sites—cooling and filler.

Speaker #2: And yes, these agreements reach out multiple years, which also covers the end of this decade—so, the late '20s.

Speaker #3: Brilliant.

Jochen Hanebeck: Brilliant. Thanks very much.

Didier Scemama: Brilliant. Thanks very much.

Speaker #2: But we have a spectrum there, right? Not all are covering that long. Some customers only want to engage in shorter agreements; others are committed until the end of the decade.

Jochen Hanebeck: We have there a spectrum, right? Not all are covering that long. Some customers only want to engage in shorter agreements. Others are till the end of the decade. A broad spectrum, and please understand that I cannot go into individual customer agreements.

Speaker #2: So, a broad spectrum, and please understand that I cannot go into individual customer agreements.

Speaker #3: No, no, of course. Actually, just had a quick follow-up, maybe on the backlog and the commentary that Andreas made earlier on the positive reaction from the client base to the price hikes you've announced in July.

Didier Scemama: No, of course. Actually, just had a quick follow-up maybe on the backlog and the commentary that Andreas made earlier on a positive reaction from the client base on the price hikes you've announced in July. How much do you think this is driving a pull-in in orders ahead of the price hike that you may put through again either in Q4 or into next year? Just wanted to understand that a bit.

Speaker #3: How much do you think this is driving sort of a pull-in in orders ahead of the price hike that you may put through again, either in Q4 or into next year?

Speaker #3: I just wanted to understand that a bit.

Jochen Hanebeck: Look, the pricing which Andreas alluded to is, of course, going into the AI direction, also with distributors. You know that a big chunk of our business is under VPA. I think we will get a lot more clarity from the price increases, how they come in exactly now negotiating with our customers over the next five, six months. The vast majority of the VPAs kick in January. That's the way I would position it, and that's why, of course, you would not expect now a pull in the backlog because the VPA negotiations just will start in early autumn.

Speaker #2: Well, look, I mean, the pricing which Andreas alluded to is, of course, going into the AI direction, also with distributors. But you know that a big majority—or, not a big majority, but a big chunk—of our business is under VPA.

Speaker #2: So I think we will get a lot more clarity from the price increases—how they come in exactly—now negotiating with our customers over the next five or six months, and the vast majority of the VPAs kick in January.

Speaker #2: So that's the way I would position it. And that's why, of course, you would not expect now a pull into the backlog, because the VPA negotiations will just start in early autumn.

Speaker #3: Okay. So to be clear, the CRAs are only with AI customers, right? But could it be that, given the looming shortages, tier ones or even some industrial customers feel the need to either secure CRAs or are effectively forced to pay up for capacity?

Didier Scemama: Okay. To be clear, the CRAs are only with AI customers, right? Could it be that given the looming shortages, tier 1s or even some industrial customers feel the need to either secure CRAs or are effectively forced to pay up for capacity?

Speaker #2: I'm not quite sure. Could you please repeat that? There was an interruption.

Jochen Hanebeck: Not quite sure. Say again, please. There was an interrupt.

Speaker #3: No, what I meant is the CRAs only with hyperscaler customers, so I guess the concern—if you’re an automotive customer or industrial customer—is that your capacity is going to go primarily towards those guys.

Didier Scemama: No, what I meant is the CRAs only with hyperscaler customers. I guess the concern if you are an automotive customer or industrial customer is that your capacity is going to go primarily towards those guys. Does that motivate your non-AI customers to sign either CRAs or to actually pay up to get capacity?

Speaker #3: So, does that motivate your non-AI customers to sign either CRAs or to actually pay up to get capacity?

Speaker #2: First of all, the CRAs are not only with hyperscalers. As I said, processor makers as well as other hardware providers are in the queue for signing CRAs.

Jochen Hanebeck: First of all, the CRAs are not only with hyperscalers. As I said, processor makers as well as other hardware providers are in the queue for signing CRAs. Of course, there is a certain recognition in the market that the power market is impacted by AI. I explained that already in the past, right? Before AI, the total MOSFET market below 100V was six billion. Now we are talking with AI, of course, about very different numbers. The order income, let's jump now to automotive, as I said, is strong in microcontrollers, which has no capacity linkage whatsoever with powering AI. Is strong in analog. I alluded to the opportunities we see in China. Then, yes, in automotive MOSFETs, you could think of such an effect, but the order entry in auto is much broader than this halo effect from powering AI.

Speaker #2: Of course, there is a certain recognition in the market that the power market is impacted by AI. I explained that already in the past, right?

Speaker #2: Before AI, the total MOSFET market below 100 volt was $6 billion. Now, we are talking, with AI of course, about very different numbers.

Speaker #2: But the order income, and let's jump now to automotive. As I said, it is strong in microcontrollers, which has no capacity linkage whatsoever with powering AI.

Jochen Hanebeck: The order income, let's jump now to automotive, as I said, is strong in microcontrollers, which has no capacity linkage whatsoever with powering AI. Is strong in analog. I alluded to the opportunities we see in China. Then, yes, in automotive MOSFETs, you could think of such an effect, but the order entry in auto is much broader than this halo effect from powering AI.

Speaker #2: Is strong in analog. I alluded to the opportunities we see in China. And then, yes, in automotive MOSFETs, you could think of such an effect, but the order entry in auto is much broader than this halo effect from powering AI.

Speaker #3: Okay, brilliant. Thank you very much.

Didier Scemama: Okay, brilliant. Thank you very much.

Speaker #1: Okay, time to wrap up. I think we've been generous with our time. Thanks for all the questions from the callers, and for the answers from our board members.

Alexander Foltin: Okay, time to wrap up. I think we've been generous with our time. Thanks for all the questions to the callers and for the answers to our board members. We are herewith concluding our fiscal Q3 conference call. For further questions, please reach out to the IR team. We wish you an enjoyable August break, of course, only after writing your reports on IFX. Take care and have a good day.

Speaker #1: We are here concluding our fiscal third quarter conference call. For further questions, please reach out to the IR team. We wish you an enjoyable August break.

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