Presentation TUM Final

Challenges of controlling
in a capital-intensive company
Visit @ Technische Universitt Mnchen
Munich, January 16th, 2013
Dominik Asam
CFO, Infineon Technologies AG
Agenda
Infineon at a glance
Key performance indicators
Managing the cycle
Wrap-up
Copyright Infineon Technologies 2012. All rights reserved. Page 2

The Company
Infineon provides semiconductor and system solutions,

focusing on three central needs of our modern society:
Energy efficiency, mobility and security
Revenue in fiscal year 2012: 3.904 billion
Headquartered in Neubiberg (Munich), global footprint
26,658 employees (as of September 2012)
Vertically integrated value creation comprising:
21 R&D locations
12 production sites
34 sales offices

Infineon holds top positions in
all targeted semiconductor markets
Automotive Power Chip Card
#2 #1 #1
Renesas 14% Infineon 12% Infineon 25%
Infineon 10% Mitsubishi 8% NXP 24%
STMicro 9% Toshiba 7% Samsung 21%
Freescale 8% STMicro 6% STMicro 18%
NXP 6% Int. Rectifier 5% SHHIC 10%
Calendar year 2011 Calendar year 2011 Calendar year 2011

Source: Strategy Analytics, April 2012. Source: IMS Research (an IHS company), Source: IMS Research (an IHS company),
July 2012. August 2012.

The ToMM market grows much faster than
global GDP, but it is also more cyclical
Growth rates year-over-year (Q1 1997 Q4e 2013)

CAGR GDP: 3.7% CAGR ToMM: 5.6%
(19972013e) (19972013e,WSTS)
Forecast
5% 70%
Real GDP
World economy, real GDP growth [y/y%]
World semi [ToMM] market growth [y/y%]

4%
50%
3%
2% 30%
1%
10%
0%
1997 98 99 00 01 02 03 04 05 06 07 08 09 10 11 `12 2013e
-10%
-1% ToMM
-2% -30%
-3%
-50%
-4%
Red line: WSTS
-5% Orange line: IHS iSuppli -70%
ToMM: Total semiconductor market revenue (US-Dollar based) without Memory & Microprocessor.
Real GDP: Inflation adjusted (real) Gross Domestic Product of all countries of the world; total of local values converted with in each case current
US-$ exchange rates. World real GDP is from chain-weighted index. Year-over-year growth rates.
Source: IHS Global Insight (15 November 2012); WSTS (16 November 2012); IHS iSuppli, Interim Q4 2012 AMFT Update (7 November 2012).
We address the market with our
four business divisions
FY 2012 revenue: 3,904m
Industrial Power
Automotive
Control
ATV IPC
1,660m 728m
CCS PMM
457m 929m
Chip Card Power Management
& Security OOS+ & Multimarket
C&E*
130m
* Other Operating Segments;

Corporate & Eliminations.
Infineon is the DAX30 company with
the highest revenue share in Asia
Revenue split by region
48% 44%
36% 38%
11% 12%
5% 6%
therein: 27% 23% therein: 17% 17%
Americas Germany China
Japan
Asia / Pacific
Europe, Middle East,
Africa (EMEA)
FY 2011 FY 2012
More than half our global staff are based in
Asia/Pacific
Employees by country
USA
491 employees
181 East Coast
310 West Coast
Europe Asia/Pacific
12,427 employees 13,740 employees
73 Great Britain 1871 Singapore
2988 Austria 2297 Indonesia
8408 Germany 209 India
79 Portugal 7600 Malaysia
34 France 1423 China
94 Italy 20 Hongkong
179 Romania 116 Japan
24 Sweden 87 Korea
541 Hungary 108 Taiwan
As of FY 2012 7 Other Europe 9 Australia
Finance employees support
our operations worldwide
Countries with employees working in finance functions

1 Germany
Munich
Regensburg
Belecke
Dresden
Ditzingen
8 9
2 Austria
7
3 Hungary 1
3
4 Italy 6
2
5 Portugal 10 20
5
6 France 4 14
7 Great Britain 17
16
8 Netherlands
15 18
9 Sweden
10 USA
11 Singapore 12
13
12 Malaysia
13 Indonesia 11
14 China1)
19
15 Hong Kong
16 India
17 South Korea
18 Taiwan
19 Australia
20 Japan
As of FY 2012
1) China without Hong Kong
Own production capacities are key
to our differentiation strategy
Worldwide production sites
Morgan Hill Dresden Kulim Beijing Wuxi
Warstein Singapore
Regensburg Villach Cegld Malacca Batam
Frontend (wafer processing in clean room) Backend (assembly, packaging and testing of individual chips)
Infineon's challenges are reflected
in recent years' figures
m EUR FY 2010 FY 2011 FY 2012 Revenue highly fluctuating due to

Revenue 3.295 3.997 3.904 cyclical market
YoY growth in % 51% 21% -2%
High fixed costs due to capital
Cost of goods sold -2.041 -2.332 -2.460
intensive business model
Gross profit 1.254 1.665 1.443
Gross Margin 38% 42% 37% Gross margin strongly affected by
R&D expenses -399 -439 -454 idle capacity cost (fixed costs!)
In % of revenue -12% -11% -12%
High and steady R&D spending
SG&A expenses -385 -449 -473
for innovative, competitive
In % of revenue -12% -11% -12%
products in the mid to long term
Other oper. inc./exp. 4 8 11
Segment result 475 786 527 Operating profitability strongly
In % of revenue 14% 20% 13% dependent on revenue growth
Sustainable profitability is challenging goal in the fast moving semiconductor

industry
Good planning of revenue and corresponding manufacturing capacities is very
important, but likewise very difficult due to market cyclicality
Tight controlling is key in order to react fast when economy and markets turn

Agenda
Managing the cycle
Wrap-up

Healthy financials as consequence of
a sound business model
High Performance Company Monitor
Financials
Financials
Ensure Sustainable
Profitable Growth
Customers
Customer value
Drive Innovation Become Preferred

Differentiate as
for Customer Partner in Regional
Quality Leader
Success Growth Markets
Processes
Constantly Become
Leaner and Faster
Enablers
People
Foster Leadership Excellence
Have the Right
and Build a Strong
Competencies in Place
High Performance Culture

Summary value driver tree
for profitable growth
Objectives Goal
Ensure Sustainable Profitable Growth
15% Segment Result Margin through the cycle

10% revenue growth p.a. through the cycle
Revenue growth with less incremental capital employed
Drivers
Sustainable Profitability Capital Employed Turnover Revenue Growth
COGS Capital Employed

R&D, SG&A
(Gross Margin)
Fixed Assets Working Capital
Sales / R&D Yield FE/BE fabs & Payment Design wins

productivity Flow Factor equipment terms Pricing
Project NPV Capacity (outsourcing) Inventory Capacity in line
Travel & utilization Licenses policy with demand
Entertain- COGS Software Outsourcing Outsourcing
ment productivity Goodwill IP license income

Our bonus system aims at linking interests of
employees to key performance indicators
KPI Relevance for Infineon
Shows the linkage between profitability and capital

Return On resources required to run the business
Capital Employed Measures how efficiently Infineon is using its capital resources
(ROCE) ROCE is a very common financial measure in capital markets
and is disclosed by Infineon in the annual report
Measures Infineons ability to generate sufficient cash flows

from its operations to finance the daily business and to
Free Cash Flow fund the required growth investments
(FCF) Shows Infineons capability to cover its cash demand without
external sources of financing (like bank loans)
Infineon reports FCF externally on a quarterly basis
Measures the profitability of a business from regular

operations excluding special effects (internal figure for
Segment Result operating profit without special effects)
Margin Shows the percentage of revenue which converts into profit
before interest, tax and special effects
Key financial measure reported by Infineon on a quarterly basis
Definition:
Return On Capital Employed (ROCE)
Calculation scheme Explanations
ROCE combines the income of a

Net Operating Profit After Tax specific period and the capital used
ROCE1) =
Capital employed
to generate this income. It measures
how efficiently a company manages
Earnings before interest and taxes (EBIT) its resources.
-/+ Non-Segment profit/loss
ROCE is measured as a percentage.
-/+ Other income/expenses
-/+ Tax expense/benefits ROCE from continuing operations (as
= Net Operating Profit After Tax (NOPAT) opposed to discontinued operations)
forms the base for the incentive
calculation and bonus payouts.
Total assets
cash & cash equivalents
financial investments
assets held-for-sale
current liabilities
+ short-term debt
+ liabilities held-for-sale
= Capital employed
1) From continuing operations
Definition:
Free Cash Flow (FCF)
Net income1) Free Cash Flow (FCF) is defined as

+ Depreciation & amortization net cash from operating and
+/- Change in working capital investing activities excluding
purchases or sales of financial
+/- Other non-cash charges
investments.
= Cash from operating activities1)
Free Cash Flow is measured in
+/- Change in property, plant & equipment
Euros.
+/- Change in intangible assets
Again, continuing operations only
+/- Other investing activities
(as opposed to discontinued
+/- Change in financial investments operations) are taken into account
= Cash from investing activities1) for the incentive calculation and
-/+ Change in financial investments bonus payouts.
= Free Cash Flow1)
1) From continuing operations

Definition:
Segment Result margin
Segment Result margin measures

Segment Result the operating performance of a
Segment Result margin =
Revenue
specific business excluding special
effects.
Revenue Segment Result is the operating
- Cost of goods sold income (loss) excluding asset
- R&D expenses impairments (net), restructuring
- Sales & marketing expenses charges and other related closure
- General & administration expenses costs (net), share-based
+ Other operating income
compensation expense, acquisition-
related amortization and gains
- Other operating expense
(losses), gains (losses) on sales of
= Segment Result
assets, businesses, or interests in
subsidiaries, and other income
(expense), including litigation
settlement costs.
Segment Result margin is measured
in percentage.

The bonus KPIs are interlinked and connected
to current financial performance
Interaction of performance and bonus KPIs
FCF ROCE
Investing Operating Capital

NOPAT
Cash Flow Cash Flow Employed
Segment
Result
ROCE = Return On Capital Employed Positive for bonus KPI

FCF = Free Cash Flow
NOPAT = Net Operating Profit After Tax Gross xx Part of bonus system
Investing Cash Flow = divestments or low Margin
investments affect FCF positively

Deriving target margin from conservative cost of capital
estimate to ensure value creation
Weighted Average Cost of Capital (WACC) = Cost of equity1) = 10-12%

Value creation (EVA > 0) requires: ROCE > WACC
Current revenue
Capital expenditure = Depreciation
base
Future revenue Rule of thumb:

growth EUR 1 additional required EUR 1 additional
capital employed for revenue
Segment Result
ROCE before tax = margin
= SR margin x
ROCE
(1 15% tax)
If Segment Result margin > 15% then EVA2) > 0

1) Cost of debt negligible due to low debt level 2) Economic Value Added
Agenda
Managing the cycle
Wrap-up

Margin targets in four typical semiconductor
market phases
Goal: 15% Segment Results margin over the cycle
Boom Stable/slightly growing
Margin: around 20% Margin: around 15%

ToMM growth: ToMM growth:
above 6% 3 to 6%
Utilization: Utilization:
over 95% 85 to 95%
Downturn Recession
Margin: around 10% Margin: around 0%

ToMM growth: -3 to +3% ToMM growth: significantly
Utilization: 75 to 85% below 0%
Utilization: less than 75%
We made high investments in production
capacity during upswing
Investments* Depreciation & Amortization
887 890
453 ~ 470
~400 428
336 364
325
115
FY FY FY FY FY FY FY FY FY FY
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Guidance Guidance
* Investments in property, plant and equipment and in intangible assets; all figures in million
Investment decisions difficult due to long lead
times before start of production
12m 0 14 m 12m 36m

Equipment
specification Equipment lead time Installation & Production
& negotiation Qualification cycle time
Investment decision
Equipment 1
Equipment 2 16%
Equipment 3
Equipment 4
> 12 m
Equipment 5
Equipment 6
Equipment 7
Equipment
Equipment
8
9
32%
Equipment 10 >7m
Equipment 11
Equipment 12
Equipment 13
Equipment 14
Equipment 15
Equipment 16
Equipment 17
Equipment
Equipment
18
19 52%
Equipment 20 <7m
Equipment 21
Equipment 22 Preparation Period (Hook-up Ready for production)
Equipment 23 Lead Time + Preparation Time (Weeks)
Equipment 24
Equipment 25
Weeks
Time from decision making to sales approx. 18-24 months

and due to uncertainty regarding market
and revenue (demand) development
Frequency LOW HIGH
20 Five-year demand forecast consists of
18 too opti- too pes- 3 demand scenarios: LOW, MID & HIGH
mistic simisitic
(Year 1 Year 2)
16
Past quarterly forecasts (FCs) were
14 Yr1 26%
Mid-term
12 Yr2
normalized (LOW: -1; HIGH: +1) and
10 compared with actual figures
8
6
Accuracy of mid-term FCs (Year 1 2):
4
2 Unreliable with extreme deviations
0
Only 26% of actuals were within the fore-
-1.5-1
-1-0.5
-1.5-2
<-6
-5..-6
-4..-5
-3..-4
-2-3
5..6
00.5
0.51
11.5
1.52
2..3
3..4
4..5
-0.50
casted LOW-HIGH range, no-bell shaped

distribution
Frequency LOW HIGH
20 Accuracy of long-term FCs (Year 3 5):
18 too opti- too pes-
mistic simisitic With 35% within LOW-HIGH range and a
(Year 3 Year 5)
16
bell shaped distribution more accurate
35%
Long-term
14 Yr3
12 Yr4 than mid-term FCs
10 Yr5
8 Explanation: long-term FCs converge with
6
62% 3% long-term trends, less event-driven
4
2 BUT: Too optimistic since 62% of all
0 actuals were below LOW-value, typical
spreads are 2x higher than LOW and
<-6
-5..-6
-4..-5
-3..-4
-2-3
2..3
3..4
4..5
5..6
-0.50
-1.5-2
-1.5-1
-1-0.5
00.5
0.51
11.5
1.52
HIGH estimates (s=21%)

A positive revenue scenario can support an
investment decision
Scenario 1: Fast market (revenue Q3 FY12) Assumptions:

Prospect of extra
m
revenue from Q3 FY12
800 650
onwards
600
400 Needed capacity
investments: 430m
200
0
-200 Scenario outcome:
-400 Net present value
-600 (i=12%): 650m
FY12
FY12
FY12
FY13
FY13
FY13
FY14
FY14
FY14
FY15
FY15
FY15
FY16
FY16
FY16
FY16
FY12
FY13
FY14
FY15 Cash back within:

10 quarters
Q1
Q2
Q3
Q4
Q2
Q3
Q4
Q1
Q3
Q4
Q1
Q2
Q4
Q1
Q2
Q3
Q1
Q2
Q3
Q4
Internal rate of return:
75%
Cash-out for investments (discounted)
Cash-in from expected extra revenue (discounted) Investment in capacity
Cumulated net cash flow (discounted) attractive

and a more pessimistic revenue scenario
can oppose an investment decision
Scenario 2: Slow market (revenue Q1 FY14) Assumptions:

Prospect of extra
m
revenue from Q1 FY14
800
onwards
600
400 Needed capacity
158 investments: 430m
200
0
Scenario outcome:
-200
-400
Net present value
(i=12%): 158m
-600
Cash back within:
FY12
FY12
FY12
FY13
FY13
FY14
FY14
FY14
FY15
FY15
FY15
FY16
FY16
FY16
FY12
FY13
FY13
FY14
FY15
FY16
18 quarters
Q2
Q1
Q4
Q3
Q2
Q1
Q1
Q3
Q4
Q2
Q3
Q1
Q2
Q4
Q1
Q3
Q4
Q2
Q3
Q4
Internal rate of return:
25%
Cash-out for investments (discounted)
Investment in capacity
Cash-in from expected extra revenue (discounted)
less attractive, idle
Cumulated net cash flow (discounted) capital employed!
Which is the "right" scenario?

Using statistical methods improves
decision making
Monte Carlo Simulation
Is a numerical simulation to estimate

distributions of uncertain outcomes
(such as net present values of
investment decisions)
by running repeated calculations
using probability distributions of
uncertain inputs (such as demand
scenarios, cost assumptions and
operational parameters) and their
correlations
It can also be used for option pricing
Why to use a statistical method?

Testing your gut feeling in a simple example
Isn't the judgment of an experienced manager just as good as a

simulation?
Well, here is a test:

Imagine the revenue of your business consists of two unrelated
product groups A and B. Each of these contribute approximately 10.
However, any revenue between 5 and 15 is equally likely.
What will your total revenue probability look like?
Probability
A B
5 15 5 15
?
10 30
Revenue
How well do you think you can judge more complex dependencies?
Applying Monte Carlo simulation to an
investment decision
Example: When is additional capacity needed?
Comparing current capacity with the most probable MID demand forecast from
the static three scenario planning (LOW-MID-HIGH), new capacity is needed not
before FY18
But: Is the MID scenario actually to happen? Historical indications:
Long-term MID demand FC on average 10% higher than actual demand,
fluctuating with a standard deviation of 21% due to market volatility
Unknown current market cycle phase poses additional uncertainty
Market cycle phases Actual demand vs. long-term MID FC
MID level
100%
? 90%
Av. actual demand

Volatility 10% below MID
s ~21%
1 example of 10,000 runs
Peak Bottom

Monte Carlo simulation creates a more
differentiated picture about capacity needs
Results of Monte Carlo simulation

10,000 runs with
Example of 1 run Result of 10,000 runs
randomly drawn
10% 85% input variables
LSPW starts per week)
Total demand
Probability
Residual 8"
(long-term market trend) NEW AREA
needed demand and cycle
1,600
1600000
capacity buffer development
Total demand FY14
(w/o noise) Like MID scenario,
Total demand MCS suggests with
1,100
1100000
(w/ noise)
30% 69% 50% probability
layer
additional capacity
Probability
Total demand NEW AREA
(short-term fluct.)
needed
need in FY18
8" equiv.
Demand (in thousand
600
600000 trigger point for
Capacity buffer FY16
investment FY16
BUT: with 30%
100
100000
0 50% 50% probability additional
Q1 Q3 Q5 Q7 Q9 Q11Q13Q15Q17Q19Q21Q23Q25Q27Q29Q31Q33Q35Q37Q39
capacity needed
Probability
FY12 FY14 FY16 FY18 FY20 NEW AREA

needed
already in FY16
-400
-400000
trigger point FY14
New capacity area need FY18
Monitor
development!
Agenda
Managing the cycle
Wrap-up

Infineon aims at a symbiosis of
economy and ecology
IFX is a key enabler of sustainable society

Environmental benefits Environmental burden
CO2 savings enabled CO2 burden of our total
through our products (1) operations (2) equivalent to
4,700,000 tons CO2 1,100,000 tons CO2
IFX enables a net ecological benefit of
3.6 million tons of CO2 emission reduction per year!
Infineon received the EN ISO 14001 and

OHSAS 18001 multi-site certification.
As one of the first semiconductor
Infineon is currently Europes companies worldwide, Infineon joined the
only semiconductor company Global Compact Initiative of the
member in the Dow Jones United Nations in 2004.
Sustainability Indexes.
1) Considering only automotive products, ballast control, PC power supply, controllers; real figure is higher.
2) Including manufacturing, transport, travel, material, chemistry, emissions, water, waste water.
Values are based on internal figures as well as official data.
Wrap-up
Important aspects for a sustainable business development
Sustainable business model is a must both in terms of

economics and ecology
Identification and addressing of overall trends and needs within
business and society
Sound knowledge of fundamental growth trends underlying the
market cycle to avoid distraction by short-term market
development
Be smart about pricing flexibility, e.g. options
Aequam memento rebus in arduis servare mentem,
non secus in bonis ab insolenti temperatam laetitia,
moriture Delli (Horace)

Thank you for your attention!
Q&A

Back-up

Infineon Market-oriented business structure
Divisions Core Applications
Powertrain; Hybrid and electric cars (drive control for

Automotive electric motor, battery management, charger); Chassis
and comfort electronics; Safety.
Renewable energy generation, transmission;
Customers
Industrial uninterruptable power supplies; electric drive control for
Power Control industrial applications; industrial vehicles; traction; home
appliances.
Power supplies for computers; Power supplies for

Power consumer electronics; Mobile devices for communication
Management and navigation; Cellular phone network; Infrastructure;
& Multimarket Inverter for photovoltaic rooftop systems; Light
management incl. LED lighting.
Mobile communication; Payment systems; Near Field

Communication (NFC); Electronic passports, ID cards,
Chip Card & healthcare cards, driver licenses; Transport, ticketing,
Security access control; Trusted computing; Authentication (e.g.
for pay TV, games consoles, accessories, spare parts,
industrial controllers).

New era: driving demand for
power semiconductors
'90 '10 '10 '30 Changes
Electrification of powertrain fuels demand

for high-power semis in cars and doubles
silicon content.
Courtesy: Tesla
Shift towards renewable energies

requires orders of magnitude more high-
power semis per MW of power generated.
Higher efficiency in power conversion

lowers CO2, material and electricity costs.
Courtesy: Facebook
Stronger demand for goods containing

power semis due to faster increase in
standard of living in BRIC countries.

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Challenges of controlling

Key performance indicators

Managing the cycle

Copyright Infineon Technologies 2012. All rights reserved. Page 2

Infineon provides semiconductor and system solutions,

Copyright Infineon Technologies 2012. All rights reserved. Page 3

Automotive Power Chip Card

Infineon 10% Mitsubishi 8% NXP 24%

STMicro 9% Toshiba 7% Samsung 21%

Freescale 8% STMicro 6% STMicro 18%

NXP 6% Int. Rectifier 5% SHHIC 10%

Calendar year 2011 Calendar year 2011 Calendar year 2011

Copyright Infineon Technologies 2012. All rights reserved. Page 4

Growth rates year-over-year (Q1 1997 Q4e 2013)

World semi [ToMM] market growth [y/y%]

FY 2012 revenue: 3,904m

* Other Operating Segments;

Revenue split by region

Countries with employees working in finance functions

Worldwide production sites

Morgan Hill Dresden Kulim Beijing Wuxi

Regensburg Villach Cegld Malacca Batam

m EUR FY 2010 FY 2011 FY 2012 Revenue highly fluctuating due to

Sustainable profitability is challenging goal in the fast moving semiconductor

Copyright Infineon Technologies 2012. All rights reserved. Page 11

Key performance indicators

Managing the cycle

Copyright Infineon Technologies 2012. All rights reserved. Page 12

High Performance Company Monitor

Drive Innovation Become Preferred

Copyright Infineon Technologies 2012. All rights reserved. Page 13

Ensure Sustainable Profitable Growth

15% Segment Result Margin through the cycle

Sustainable Profitability Capital Employed Turnover Revenue Growth

COGS Capital Employed

Sales / R&D Yield FE/BE fabs & Payment Design wins

Copyright Infineon Technologies 2012. All rights reserved. Page 14

KPI Relevance for Infineon

Shows the linkage between profitability and capital

Measures Infineons ability to generate sufficient cash flows

Measures the profitability of a business from regular

Calculation scheme Explanations

ROCE combines the income of a

Calculation scheme Explanations

Net income1) Free Cash Flow (FCF) is defined as

1) From continuing operations

Calculation scheme Explanations

Segment Result margin measures

Copyright Infineon Technologies 2012. All rights reserved. Page 18

Interaction of performance and bonus KPIs

Investing Operating Capital

ROCE = Return On Capital Employed Positive for bonus KPI

Copyright Infineon Technologies 2012. All rights reserved. Page 19

Weighted Average Cost of Capital (WACC) = Cost of equity1) = 10-12%

Future revenue Rule of thumb:

If Segment Result margin > 15% then EVA2) > 0

Key performance indicators

Managing the cycle

Copyright Infineon Technologies 2012. All rights reserved. Page 21

Goal: 15% Segment Results margin over the cycle

Boom Stable/slightly growing

Margin: around 20% Margin: around 15%

Margin: around 10% Margin: around 0%

Investments* Depreciation & Amortization