Infineon Stock

Good morning, everyone. Welcome to the conference call for analysts and investors of Infineon's 2026 Financial Third Quarter Results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technology (sic) [ Infineon Technologies ].

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 assumptions and management expectations resting upon currently available information and present estimates. They are subject to a multiple and uncertainties of risks, many of which are particularly or entirely beyond Infineon's control.

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

Many thanks, operator, and good morning, ladies and gentlemen. Thank you for joining our mid-summerly earnings call covering our fiscal third quarter 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 slide show for the call is available at infineon.com/slides, and we will provide a PDF with Jochen 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. And now, Jochen, over to you.

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. The recovery continues to gain traction. The up cycle 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. In this environment, we are combining a strong operational focus on the current up cycle 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 time frame.

Let us now turn to our third quarter performance. The third quarter of our 2026 fiscal year was the first one with over EUR 4 billion of revenue for 2.5 years. With EUR 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. All our divisions contributed to 9.4% sequential growth on group level. Compared to the same quarter 1 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. Our order backlog witnessed another material increase and stood close to EUR 30 billion at the end of June, a clear indication of recovery momentum getting even stronger.

Now to our divisional review, beginning with Automotive. In the third quarter of our 2026 fiscal year, revenues increased by 6% quarter over quarter to EUR 1.932 billion. 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 power -- 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.

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 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, 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.

Furthermore, 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. 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.

We are also seeing further design win momentum in China. For Xiaomi, we will support a cockpit and ADAS fusion unit incorporating 3 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. The platform already includes our next-generation RISC-V architecture, enabling customers to gain hands-on experience with new microcontrollers much earlier in 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 June quarter 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 and 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. 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 1,000x 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 kilovolt silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density and reliability of Siemens protection solution.

Now to Power & Sensor Systems. On the back of unabated AI power strength, PSS recorded revenues of EUR 1.442 billion in the June quarter, 14% up sequentially and a staggering 34% more compared to the same quarter 1 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. 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. 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-euro 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. We expect such update to be material.

The next waves of AI growth are already taking shape. Higher density power architectures for running the large 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. 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. 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'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 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 apps.

The acquired business has a current annual revenue run rate of around EUR 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. The acquired portfolio is a strong strategic fit to our ES division. And now to Sven for our key financial figures.

Thank you, Jochen, 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%. 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 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 on group level.

Research and development expenses increased quarter-over-quarter from EUR 612 million to EUR 674 million. Selling, general and administrative expenses went from EUR 379 million to EUR 433 million. Nonsegment result charges for fiscal third quarter amounted to EUR 203 million after EUR 195 million before. The financial result amounted to minus EUR 63 million after minus EUR 68 million in the prior quarter. Income tax expense for the June quarter 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 nonsegment result effects, amounted to EUR 466 million. Free cash flow in the third quarter of our 2026 fiscal year improved significantly from minus EUR 63 million to plus EUR 599 million, to a large extent driven by the higher operating result.

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 up cycle and being prepared in case of geopolitically induced turmoil.

Now to our liquidity and leverage situation. During the June quarter, we made 2 scheduled debt repayments, redeeming a EUR 700 million Eurobond and a USD 350 million 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. Gross debt amounted to around EUR 6.8 billion as of 30th of June.

Therewith, 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, which closed on July 1, has no impact on this figure as it had already been prefunded. 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 the third quarter of our 2026 fiscal year.

Before handing back to Jochen, a brief comment. As you know, we are operating in a new 3-divisional organizational structure with Automotive, Power Systems and Edge Systems from July 1 onwards. That said, we will provide you with key financials for the known 4 division setup also for the September quarter, 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. Now back to Jochen, who will elaborate on our outlook.

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 destocked across markets, and 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 expedited 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 barring further escalation of geopolitical conflicts.

For the currently running September quarter, last of our 2026 fiscal year, we are in line with recent currency developments, adjusting the U.S. 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. The sensor business acquired from ams OSRAM 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%, 4 percentage points up quarter-over-quarter. 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.

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%. 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. And 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 nonsegment result.

Based on our favorable business outlook, we are upgrading our projection for the adjusted free cash flow. The figure, which net of investments into major front-end buildings and M&A transaction is now expected to come in around 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 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. Our AI-related revenue will more than double this fiscal year and exceed EUR 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 '27 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 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 EUR 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. The opening of Dresden 4 and the closing of the acquisition of ams OSRAM 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.

[Operator Instructions]

And now we will take our first question coming from Sandeep Deshpande from JPMorgan.

I have 2 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 guided already for the fourth quarter. 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 on -- the price increases are playing through on the margin into the fourth quarter? And I have a quick follow-up on the AI-related LTAs that you have signed. In terms of the AI-related LTAs, I mean, 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 3 years that you've talked about in the past will be signed up in terms of these LTAs?

Yes. Sandeep, thank you for your question. I take the first one, and then I give it to Jochen on AI. So 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. And we have also baked into our forecast already the costs increases which we have seen with regard to the geopolitical situation around the Middle East. So no major change on that end.

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

Sorry, sorry, I haven't answered the second part of Sandeep's question. 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, it's derisking on the one hand, for the customer, it's security of supply. And very important, the prices for -- under the CRA are not fixed. It's a volume commitment, but not a price commitment. So prices will develop along market price.

We take now the question from Johannes Schaller from Deutsche Bank.

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? 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. Maybe help us understand how confident you are on your market share outlook with the processor players and the revenue opportunity in euros also? And does new competition even matter given that the industry is so capacity constrained?

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. 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. So maybe help us zoom in a little bit on that and give us some more color here.

Yes. Thank you, Johannes. If I may, I would like to ask which new processor companies do you have in mind? Do -- you are talking about the ASIC ones? Or which ones are you talking about?

No, sorry, new entrants on Stage 2 power supply. So competition.

From a competition point of view, competitors of ours.

Yes. Yes, exactly.

Got it. Yes, competitor of ours. I mean, 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 and right, -- now again, they are trying.

But as we speak, we clearly see the typical incumbents in that market. So in the power Stage 2, not really new competitors gaining significant business. On the China auto side, yes, 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. And they're 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 then a midterm commitment from customers.

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

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 products that find multiple applications in the car, new ones and established applications. Very broad.

The next question comes from Lee Simpson from Morgan Stanley.

Great. Well done on the sales guide. Maybe if I just go back to a 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 start-up costs to be absorbed. There's probably under utilization.

And really, I guess we're trying to work out what the utilization rates could be. And how does this affect the run rate for that margin structure 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, the new customers beyond those who have committed, maybe the size and scale there. And equally, the size of prepayments that you're getting, is this EUR 1 billion or EUR 2 billion? Or is this a bigger number for the prepayments?

Okay. Lee, I take your question. It's not totally surprising to ask the question about the margin in Q4. So let me help you here a bit. First of all, one thing you mentioned Dresden Module 4 ramp-up cost, no material inclusion in this year, that's next year. So 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. So of course, in such a dynamic situation, you need to work with a set of assumptions. 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 in order not to under-deliver. So there are assumptions on growth. 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. So all that is included.

And I mean, if you ask me, why is it only 23%, I would probably say that the 23% are a tad conservative. 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 the Q4. 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. You are asking the question, as you said, because you are very interested in hearing the first news on '27. And maybe this is also part why we guide as we guide.

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. 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 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 customers commit to offtaking 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 derisk of AI capacities. 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. And again, prices are not fixed. On the prepayments, I cannot comment on at this moment in time as we are still in negotiations with our customers. I hope that clarifies a couple of questions around the CRAs.

The next question comes from Didier Scemama from Bank of America.

I've got an additional question maybe on the CRA. First of all, I think it's really interesting that these developments are taking place a bit like we've seen in memory. 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 the supply and demand in the future. But obviously, in your high single-digit billion, you've got an assumption on pricing.

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?

Okay. So the first part, Andreas will take, and then I will answer the second.

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 2x and the last time happened in July. We are seeing good traction for these measures overall as customers' value delivery capabilities in today's situation and the value we create with our products in the marketplace, a very, very decisive role. Full visibility of this in our P&L and in our margin, as Sven was alluding to, however, will be there only from Q1 -- quarter 1 next fiscal year onwards. And I give it back to Jochen [indiscernible] on the CRA.

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, but we work now on -- with those customers that have raised their hands and are interested -- and then we will update you in the next quarter again.

The next question comes from Joshua Buchalter from TD Cowen.

Congrats on the results. And I'll also use German efficiency and ask 2 questions at once. So I guess to start, can you speak to sort of how we should think about the linearity and maybe magnitude of the Dresden capacity coming online over the next few years? 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?

And then 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?

Yes. Josh, I take the first and the third and fall through, I'll leave it to Sven. So Dresden, as we said at the beginning, when we embarked on that project, filling the fab would take 3 to 7 years. 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, and that would take us below 3 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. 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 3-phase AC is incremental on the 800-volt DC side, but not tremendously. 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. And I think you always commented on overall numbers not related to individual fabs.

Correct.

The next question comes from Jakob Bluestone from BNP Paribas.

I've got 2 questions as well. Firstly, just on the AI revenue guide, you've obviously put through a small hike for this year. 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?

And then just secondly, on your order book, you obviously had 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? And how much would you sort of put more in the, I guess, more structural long-term camp?

Yes. Second question, I'm not quite sure whether I got it. But the first one, the EUR 1.6 billion, and again, we said above EUR 1.6 billion. So it's now an operational task to squeeze out as much as possible in the quarter to serve the demand of our customers.

So it's a mix of supply and pricing. But I would say for this quarter, it's more on supply side. And 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. And please always keep in mind, you need to add this EUR 500 million to it. And the order backlog, I give it to Sven.

Yes. 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. So the backlog increase is driven mainly by -- now again, I mean, the old divisional structure, GIP, PSS and Automotive.

And if you go through these divisions, also following what Jochen has said in the intro, I think there is 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. So it's a combination.

The next question comes from Francois Bouvignies from UBS.

2 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 minus 5% to minus 6% quarter-on-quarter with what you said last quarter. I just wanted 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?

Yes. Maybe I'll take that question, Francois. So we clearly see a very much different seasonal pattern for Q1. Let's see how it really comes out but forget the seasonality we have seen in the past. Today, it looks rather as a very strong second half of the calendar year.

And 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. And I think we will see over the next 2 quarters where this new level of profitability will exactly land.

Makes sense. And maybe my second question is on actually microcontrollers. I mean Infineon did a very good job in terms of market share in the last few years. 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, which that's your main competitor in microcontrollers, which seems to be, I mean, higher than what you are doing right now.

So 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 peers?

Yes. So particularly on the MCUs, I always said it now for the last 2 years that for -- 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 Ethernet, the newly acquired Ethernet business.

So the business -- and that business without high voltage, without Marvell would grow at constant currency exchange rate, 10%. So I think we are rock solid in our core Automotive business, having additional growth momentum now with Ethernet due to software-defined vehicles. But 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.

The next question comes from Stephane Houri from ODDO BHF.

Actually, I have also 2 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 EUR 2.5 billion. 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 got a follow-up.

Yes. 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. We have to give them a yearly guidance, and I would not like to go into 1.5 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.

And last but not least, we would like to give you a full set of financial numbers, CapEx, cash flow, all of that. So picking out one number as -- even though there is high interest, we would like to refrain from.

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. Are you saying that the next quarter, the margin will be back to normal already?

Yes. So Stephane, you can always say in this environment what is normal. I would say it will definitely go up materially compared to Q3. So it will show a very positive trend to answer your question.

And the opportunity for GIP or soon part of PSS 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. We expect that market already to be beginning of the next decade, a mid-single-digit billion market.

So a great opportunity and really falling into our hands because high reliability requirements there, so playing to the strength of Infineon. So the GIP business, particularly the power infrastructure part of it will be a strong pillar of the PSS division in the future.

The next question comes from Adithya Metuku from HSBC.

Two questions, please. Firstly, just Sven, on the backlog, it's already at EUR 30 billion. Would it be fair to assume that roughly 2/3 of this is for delivery next year? Any color you can give around the proportion of the backlog for delivery next year?

And then for Jochen, on GaN, there's been some recent talk about GaN adoption in Stage 2 closer to the XPU, potentially replacing silicon quicker than what people expected maybe 3, 6 months ago. I just wanted to hear your thoughts on what you're seeing here. Are you seeing a quicker transition to GaN than maybe 6 months ago?

Yes. Thanks for the question. I'll take the second one first. So the first -- we have seen the first emergence of GaN in PSUs, right? 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 is a clear value proposition and various customers are evaluating this, and we expect business to pick up in '27.

Now you are talking about the third opportunity for GaN, and that's the low-voltage GaN, right, in the power stage. 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 manufacturing footprint for this as it would be also part of our 300-millimeter footprint in GaN. So here probably being the only one being able to deliver really volumes, but 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. And here, the same applies that changes in the Stage 2, you really need to know what you're 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.

Yes. And Ad, I'll take your other question on the backlog. So the 2/3 assumption as of today seems to be reasonable to me.

Got it. Excellent. And just quickly, Jochen, on the -- so essentially, would you say that development on GaN has accelerated closer to the XPU in the last 6 months? Or there's no big change there?

We are definitely accelerating. But again, it will take several years before you see it in the market given the technical challenges here.

The next question comes from Tammy Qiu from Berenberg.

So the first question is on your LTAs. Are you eventually targeting to have 100% of your AI revenue under LTA? And also 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.

And also secondly, I have a question on your market -- 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?

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.

And 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, 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 and that we have seen also in various design wins recently where non-Chinese competitors try to offer them 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. But of course, we are staying paranoid, and we are very carefully evaluating what competition is coming up in China as well as elsewhere.

The next question comes from Veysel Taze from Metzler.

Related to your AI power business and specifically really on the part with server level or what level opportunity. Are you -- or on the technology side, are you fully betting on GaN? Or would 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? Is there a difference in your exposure to both camps?

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.

So we see ourselves being in a unique position in terms of having then also reliability and the 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. 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.

So 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 of the market that, 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.

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? Is there a difference in your positioning?

Again, Andreas speaking, I'll 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. So these companies that are mostly but not only residing in the West in the U.S. We are then collaborating in parallel with what we call OEMs or data center operators. So those are companies that entertain large hyperscaler farms or AI machine learning data centers as such. 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. 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. So 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, then at the very end, cost per, so to say, compute power, which AI and also hyperscale data center is all about. So...

Now we finally take Didier Scemama for a rounding off question.

I just had another question on the CRA perhaps. I wanted to understand a little bit the sort of T&Cs on the CRAs. So 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?

And then 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. 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.

Sure, Didier. Happy to take a second round from you. So honestly, customers are approaching us because they sense that there is a shortage looming and they want to secure supply. And as I said before, target customers are hyperscalers, are AI processor makers as well as hardware providers for data centers.

So the whole coverage Stage 1 and Stage 2. And 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. And yes, these agreements reach out multiple years, which also covers the end of this decade, so the late 20s.

But we have there a spectrum, right? Not all are covering that long. Some customers only want to engage in shorter agreements. Others are until the end of the decade. So a broad spectrum, and please understand that I cannot go into individual customer agreements.

No, no, of course. Actually, I 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 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? Just wanted to understand that a bit.

Look, the -- 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. 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 5, 6 months.

And the vast majority of the VPAs kick in, in January. So 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.

Okay. But to be clear, the CRAs are only with AI customers, right? But 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?

Not quite. Say again, please, I was interrupt.

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

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? The before AI, the total MOSFET market below 100 volt was EUR 6 billion.

Now we are talking with AI, of course, about very different numbers. But 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. 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.

Okay. Time to wrap up. I think we've been generous with our time. Thanks for all the questions to the callers and to -- for the answers to our Board members. We are here with concluding our fiscal third quarter 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.

Good morning and welcome to the conference call on the results of the third quarter of 2026 of Infineon Technologies. I am Sandra, and I will moderate the session.

[Operator Instructions]

The conference call will be recorded. You may not record this conference call for personal reasons. I would now like to hand the floor to Mr. Martens.

Thank you very much, and good morning, dear colleagues. Welcome to our conference call regarding the results for the third quarter of fiscal 2026. Representing Infineon's Management Board at this conference are Jochen Hanebeck, Chairman of the Management Board; and Dr. Sven Schneider, Chief Financial Officer. As usual, Mr. Hanebeck will first provide an overview of our business performance and the outlook. Afterwards, both members of the Management Board will be available to answer your questions. Our conference call will end promptly at 8:45 a.m. Of course, our press team led by Andre Tauber and I will be happy to remain available to you afterwards. And with that, I'll turn the floor over to Jochen Hanebeck.

Thank you very much, Florian. Hello, and a warm welcome from my side as well. Ladies and gentlemen, the market environment continues to brighten. For Infineon, 2 favorable trends are currently converging, a positive cyclical momentum as well as structural growth. The recovery is gaining momentum and the upswing is in full swing. What began initially in individual application areas is now gaining broader traction. We continue to see the strongest momentum in infrastructure related to artificial intelligence. Investment in data centers continue to rise. To make ever-increasing computing power possible in the first place, energy-efficient power supply solutions are needed. Applications for agent-based and physical AI are developing rapidly. Development is also accelerating in industrial applications, particularly in the energy infrastructure sector.

In the automotive sector as well, we are seeing an increase in customer orders. In this environment, our operational focus is on capitalizing the current upswing. At the same time, we are making targeted investments in future growth opportunities. A good example for this is our smart power fab in Dresden, which opened in early July. The clean room space they are -- available there enables us to ramp up the world's largest factory for state-of-the-art power semiconductors and analog/mixed-signal technologies and at exactly the right time. In addition, we completed the acquisition of ams OSRAM's sensor portfolio in a very short time as planned. More on that later.

Let's first take a look at the performance in Q3 of fiscal 2026. The third quarter was the first in 2.5 years to generate a revenue of over EUR 4 billion. At EUR 4.172 billion, we slightly exceeded expectations even when taking into account a minor positive currency effect. For Infineon, this is the highest quarterly revenue ever achieved so far. Compared to the previous quarter, revenue rose by 9%. And compared to the same quarter last year, this represents an increase of nearly 13%. Segment earnings reached EUR 797 million. This corresponds to a segment earnings margin of 19.1%, well within the upper range of the forecast, up from 17.1% in the previous quarter.

This development is primarily attributable to a positive volume effect and positive product mix effects. Our order backlog rose noticeably quarter-over-quarter and stood at nearly EUR 30 billion as of the end of June. This is a clear sign that the momentum of the recovery is strengthening. Free cash flow as well is improving significantly in Q3 to EUR 599 million compared to a negative EUR 63 million in the previous quarter, driven primarily by the higher operating profit. Now let's turn to the results of our business units. As announced in our last quarterly conference call, we have been operating under a new 3-part organizational structure comprising the Automotive, Power Systems and Edge Systems business units since July 1. However, for the quarter that ended in June, we are once again reporting results today based on the previous 4 divisions. First, Automotive. The business unit increased revenue by 6% in Q3 to EUR 1.932 billion. Microcontrollers and smart power components were key growth drivers as were our Ethernet products.

All of these are central building blocks of software-defined vehicles. Segment earnings rose to EUR 356 million. The segment earnings margin stood at 18.4%, up from 18.1% in the previous quarter. As a reminder, the realignment of our businesses with high-voltage power semiconductors for the electric powertrain, which we explained in our last quarterly conference call, is expected to have a negative impact on ATV's segment profit margin in the low to mid-single-digit percentage range this fiscal year. We are already factoring this into our forecast. We continue to see strong order intake in the automotive sector despite an overall subdued automotive market. In the latest forecast for 2026, the market research firm Mobility Global, a spin-off from S&P Global expects approximately 91 million new vehicles to be produced.

This figure is now largely in line with our own forecast at the beginning of the fiscal year. Long-term structural trends in the automotive sector remain intact and continue to drive semiconductor growth per vehicle. Rising gas prices are beginning to boost demand for electric vehicles in Europe, India and Southeast Asia. At the same time, the adoption of software-defined vehicles continues to gain momentum worldwide. Now in addition to these structural growth drivers, supply shortages of automotive qualified semiconductors in the Chinese market are creating additional opportunities for us. Furthermore, the ongoing restocking of inventories is contributing to a short-term recovery in demand. In the past quarter, we secured a significant design win for a zone controller architecture with a software company affiliated with a leading global automaker.

The solution combines our latest generation AURIX microcontrollers and our semiconductors for intelligent power system management. This demonstrates the breadth of our system portfolio, which encompasses computing, connectivity and intelligent power management. We are also seeing positive momentum in design wins in China. Xiaomi is going to use our semiconductors in a cockpit and a driver assistance platform. This platform integrates 3 different microcontroller families from Infineon. Additionally, another leading Chinese automaker will use our silicon carbide chips in the inverters of its vehicles. Finally, we're making it much easier for our customers to evaluate our automotive microcontrollers. Together with Amazon Web Services, we've launched a cloud-based virtual platform for this purpose. This platform enables hardware-independent evaluation, reduces evaluation cycles from several weeks to mere minutes and significantly lowers evaluation costs per user.

That's because it supports hundreds of users worldwide simultaneously. In addition, the platform already incorporates Infineon's future RISC-V-based architecture. The new platform is an excellent example of how we are further accelerating innovation for software-defined vehicles. Now let's turn to Green Industrial Power. Quarter-over-quarter, revenue rose by 11% to EUR 447 million. This made the June quarter the second in a row to post a double-digit growth rate. All application areas performed well, particularly energy infrastructure and climate control systems, of course. Now despite the higher revenue, GIP's segment earnings declined slightly to EUR 44 million. This corresponds to a segment earnings margin of 9.8%, down from 11.7% in the previous quarter. Temporary operational and inventory-related effects were the reasons for the decline. Therefore, one cannot draw conclusions about the underlying profitability of the business from this. The positive development of the margin in the current quarter will also demonstrate this.

In the energy infrastructure sector, we are seeing strong structural momentum. Investments in the expansion and modernization of power grids continue to pick up, driving demand for energy storage systems, power transmission and distribution as well as semiconductor components for high-voltage applications. Now the massive construction of AI data centers is driving demand for semiconductors used in their uninterruptible power supplies and cooling systems. Semiconductors are increasingly well suited to replace electromechanical components.

Semiconductor circuit breakers, also known as solid-state circuit breakers, protect electrical circuits from damage caused by excessive current flow, such as that resulting from short circuits or overloads. They enable ultrafast tripping in the microsecond range up to 1,000x faster than conventional systems. Now this capability is indispensable for direct current grid and leads to significantly improved system availability in AI data centers or industrial power production facilities. As part of our collaboration with Siemens, we supply silicon carbide power modules for the use of the company's semiconductor circuit breakers. This enables us to increase the efficiency, power density and reliability of the protection solutions.

Let's now turn to the Power & Sensor Systems segment. Driven by continued strong demand for our power supply solutions for AI data centers, PSS reported revenue of EUR 1.442 billion in Q3. This represents a significant increase of 14% compared to the previous quarter. Compared to the same quarter last year, revenue rose by as much as 34%. PSS' profitability trend also paints a positive picture. Segment earnings rose to EUR 359 million. The segment earnings margin reached 24.9%, up from 20.4% in the previous quarter. The strong performance is driven by our leading position in power supply solutions for AI data centers.

This leadership is also recognized by independent market researchers. In a recent report on power semiconductors for AI data centers, Gartner identifies Infineon as "the company to beat". For AI data center operators looking to scale AI, our comprehensive product portfolio, system expertise and manufacturing capabilities are crucial. Infineon covers the entire power supply chain from the power grid to the AI processor. We integrate all key semiconductor materials, silicon, silicon carbide and gallium nitride, and we manufacture all relevant technologies in-house at highly competitive prices. Demand for our AI power supply solutions continues to exceed available supply. This part of our business is currently operating on a first-come, first-served basis. A ramp-up of manufacturing operations, along with the reallocation of capacity from other areas gives us the opportunity to generate more than EUR 1.6 billion in revenue in this segment during the current fiscal year.

This exceeds our previous forecast of EUR 1.5 billion. Added to this is our business with power supply solutions for traditional data centers, that is those not geared toward training and developing AI, which amounts to approximately EUR 500 million annually. Infineon is, therefore, clearly the market leader in this particular area.

We are represented on nearly all platforms across all relevant industry players. The pace of further growth in the coming years, of course, will depend on how quickly we can ramp up and bring additional manufacturing capacity online. Our new smart power fab in Dresden as well as additional available clean room capacity at our other major front-end sites in Austria and Malaysia put us in a unique position. To strategically secure access to power supply solutions, several leading customers in the AI data centers have entered into multiyear capacity reservation agreements with us or are currently in negotiations to do so. These agreements represent a cumulative revenue volume in the high single-digit billion euro range and also include certain advance payments. We are thus further strengthening our customer relationships and are sharing investment risks. We will revise upward our revenue forecast of more than EUR 2.5 billion from the power supply solutions for data centers for fiscal year 2027 as part of our quarterly earnings announcement in November.

We expect this revision to be significant. And we're already seeing the next waves of AI growth in addition to even more powerful supply architectures for using the latest AI models, which includes, in particular, the development of agent-based and physical AI.

The growing demands for inference and task coordination in agent-based AI are providing us with tremendous momentum. Our undisputed leadership in power solutions for CPUs, combined with a highly differentiated and optimally tailored product portfolio will enable us to achieve further significant growth as early as the coming fiscal year. Accordingly, the aforementioned adjustment to our revenue forecast for 2027 encompasses our power supply solutions for all types of data centers. Now beyond data centers, our solutions bring physical AI to life. They enable humanoid robots and autonomous servers to perceive their environment, think and act independently, all while remaining safe and secure. As robots and autonomous systems increasingly move beyond controlled industrial environments to operate in factories, logistics centers and public spaces, safety and security are becoming ever increasingly important.

Infineon is integrating its OPTIGA TPM hardware security module into NVIDIA's Jetson Thor computing platforms for robotics and autonomous systems. The module secures cryptographic keys directly at the chip level, thereby protecting the system integrity against tampering and unauthorized access. Infineon possesses expertise in microcontrollers, power supply solutions, sensor technology, connectivity, functional safety and security across its 3 divisions. This makes us a strong partner in the field of physical AI across the entire spectrum of platforms. Now this brings me to the Connected Secure Systems business unit. With revenue of EUR 350 million, third quarter revenue was approximately 10% higher than in the previous quarter. All application areas contributed to this positive development, particularly authentication and identification solutions.

Segment earnings rose to EUR 34 million. The segment earnings margin stood at 9.7%, up from 5.6% in the previous quarter. We're seeing steadily increasing adoption of Edge AI solutions, both for industrial and consumer applications. With the new Edge Systems business unit comprising of the former CSS, the sensor and RF portfolio and the USB connectivity portfolio from PSS, we can now take full advantage of the growing opportunities in this particular area. Edge Systems focuses on the interaction of sensors, microcontrollers, software connectivity and security in order to enable integrated edge systems solutions. The acquisition of ams OSRAM's non-optical analog mixed signal sensor portfolio also contributed significantly to this particular upswing.

I am pleased to report that we successfully completed this acquisition in early July, just about 5 months after the announcement was made. With this transaction, we are strengthening our leading position in the field of sensors for industrial and automotive applications through a complementary portfolio. And we are expanding our product range of sensors for medical applications. The acquired business currently generates annualized revenue of approximately EUR 230 million. The transaction will boost adjusted earnings per share immediately upon closing. And future synergies will enable us to generate significant additional value. The acquired portfolio is a strategically excellent fit for our new Edge Systems division. Ladies and gentlemen, I would now like to turn to the outlook. The market environment is becoming increasingly favorable for Infineon.

The upswing is accelerating and the recovery is gaining momentum. Market inventories have been reduced and end customer demand is emerging as a significant growth driver. Higher orders from our customers are leading to a growing order backlog and improving our outlook for the future. Business indicators such as cancellation rates or customers' willingness to pay surcharges for expedited deliveries reflect the strength of demand.

Delivery times are increasing and independent surveys suggest that customers expect them to lengthen further in the coming months. This is a typical pattern in the early phase of the semiconductor cycle when supply becomes tighter. Now of course, the dynamics vary by application area. Demand is currently strongest in AI power supplies and energy infrastructure, followed by the automotive sector, while demand for consumer applications remains weaker. Overall, however, our outlook is characterized by a high degree of confidence, provided that the geopolitical environment does not deteriorate further. For the fourth quarter of 2026 fiscal year, we are adjusting our assumed USD to euro exchange rate to EUR 1.15, down from EUR 1.17. We expected revenue of approximately EUR 4.7 billion on a quarter-over-quarter basis. This represents a growth of nearly 13%, significantly higher than the typical seasonal growth rate for the fourth quarter. The sensor business acquired from ams OSRAM is expected to contribute a mid-double-digit million euro amount to the revenue.

We expect the segment profit margin to be at around 23%, up from just over 19% previously. In addition to a positive volume effect, we expect rising prices in certain areas, particularly in AI and related applications to further support our profitability. This effect is offset by further increases in manufacturing costs. Now for fiscal 2026, we are now expecting revenue of approximately EUR 16.3 billion. This represents year-on-year growth of about 11%. In 2025, Infineon generated revenue of approximately EUR 14.7 billion. We confirm our expectations for the segment operating margin. We continue to anticipate a figure of around 20%. This figure takes into account idle capacity cost of approximately EUR 650 million. Our forecast does not account for potential indirect macroeconomic effects resulting from a further escalation of the Middle East conflict or other ongoing geopolitical tensions. Now regarding our investments.

In the current fiscal year, we continue to plan investments totaling approximately EUR 2.7 billion. The focus here is on the completion and production preparation of our Smart Power Fab in Dresden as well as further manufacturing investments geared toward the rapidly growing customer demand for our power supply units for AI data centers. Based on our favorable business outlook, we are raising our forecast for adjusted free cash flow. We now expect it to be approximately EUR 1.85 billion, up from the previous forecast of EUR 1.65 billion. This corresponds to about 11% of the consolidated group revenue.

We are revising our forecast for reported free cash flow from approximately EUR 1.25 billion to approximately EUR 900 million. This is also representing an implied improvement as we're now factoring in for the very first time, the purchase price of approximately EUR 570 million for the acquisition of the sensor portfolio from ams OSRAM. The impact of this is partially offset by improved underlying cash flow. Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I am happy to answer the questions.

[Operator Instructions]

The first question comes from Joachim Hofer from Handelsblatt.

I have a knock-on question with respect to the customer agreements that you have reached. Could you explain to me once again why from your point of view, the customers are doing this? What their benefits are for your buyers and customers? What are the advantages for you? How reliable are such agreements? And wherein lies the risk of such arrangements?

Good morning, Mr. Hofer. Thank you very much for your questions. In the final analysis, what motivates the customers? Well, customers throughout the entire chain have great commitments in building capacities for data centers, and therefore, they have to hedge their bets to make sure that all of the pieces fit together.

And here, in the Power Up segment, it is becoming apparent that there is not enough supply or won't be enough supply. So we have a keen interest expressed from a number of customers in entering into multiyear supply agreements with us. These supply agreements, first and foremost, revolve around volumes, and they also include certain clauses enabling the customer to actually uphold the agreement. Prices are independent of this, however. This means that they are regularly reviewed and redetermined. The customers who are interested in these types of arrangements are customers all along the value-added chain around processors, but also around power supply solutions from the grid through to the processor.

So we're talking here about a global issue. We have customers from Asia, but also from the United States who are highly interested in these types of agreements.

Is there any disadvantage to this for Infineon, Mr. Hanebeck -- or do you have to make some concessions?

No. We don't have to make concessions. This is a supply limitation. This means that for us, this is only advantageous because it enables us to plan better and our customers are more tightly bound to Infineon. Visibility increases as well. We receive advance payments to a certain degree. And therefore, from where we stand, it's a win-win situation. And we mustn't forget that this system isn't very rigid. It's not a noncancelable, nonrefundable order situation. It is rather a regime that has a certain degree of flexibility. And of course, there are also penalties if the customers do not adhere to the purchase obligations.

The next question comes from Hakan Ersen from Thomson Reuters.

I have 2 questions. In your forecast, for power semiconductors for AI data centers, we have a slightly elevated figure with respect to the following year, what do you expect there? My second question is, you have exceeded market expectations with respect to the segment result. However, you slightly underperformed. What is the reason for this?

Yes, Mr. Hanebeck here. I'll take the first question. Mr. Schneider will take the second one. Well, we guided the market for this year to the tune of EUR 1.5 billion only for AI data centers. And we've said that the EUR 500 million for the classical data centers can be added on top of that. But let's stick with the AI data centers for now. The EUR 1.5 billion can probably be increased to more than EUR 1.6 billion, and this is because our operations have done a good job and have overperformed a little bit. We're in the allocation, as we said before. We have more customer demand than we can actually meet with supply. For the coming year, we have said that this comparable figure of 1.5 [ EUR 1.5 billion ] will be raised to 2.5 [ EUR 2.5 billion ]. This figure will be increased substantially, therefore, but it won't be increased until November. The new figure, however, will also include the EUR 500 million in growth for the classical data centers.

And this is because due to the agent-based AI, you cannot really separate the one from the other anymore. So the figure may be larger than 2.5, but we will give you the definitive figures and facts for our entire financial planning in November. And I would like to hand over to Sven Schneider for the second question.

Good morning, Mr. Hakan. First of all, I would like to put everything into perspective. We have an increase from 19 to 23, so 400 basis points from one quarter to the next. That's quite good. Now you were asking perhaps why this hasn't been a bigger increase. Well, first of all, when we plan, we take a classical Infineon approach. We never want to overpromise. Whatever we announced to you in terms of forecasts, we intend to uphold. That's the first point. Second point, there are a number of different issues that play a role. At the PS Power & Systems side, you can see quite wonderfully how strongly the growing AI business is doing quarter-over-quarter, we are talking about 500 basis points in increase.

In automotive, it's similar. We have a positive trend in this area, but you may remember that we have a special issue here, the high-voltage business for inverters, which are silicon-based. We have a margin headwind here of about 100 basis points, which will come to bear in this quarter as well. And of course, there was a second smaller round of price increases, which only has a partial effect, however, but we see higher cost increases, freight costs, logistics costs, precious metals, energy, foundry prices, all of this has to be factored in. And we also have to consider that this year, stockpiles should be reduced a little bit so that the factories are not loaded as much as we may have done before. So all of this is being factored in, and therefore, we can give you some confidence that we are faring very well.

The next question comes from Joachim Herr from Börsen-Zeitung.

Mr. Hanebeck, I have another knock-on question. Expected revenue for the AI data centers, if you include the classical ones, this year, you reached EUR 2.1 billion. Next year, EUR 2.5 billion, which you will be increasing substantially. So that's a comparable figure, EUR 2.1 billion to EUR 2.5 billion. And Mr. Schneider, 6 weeks ago, the share price was below EUR 80. You said that it is now reasonable also looking at the growth prospects. Now the share price has decreased substantially. It's about 30% lower. The first question I have is whether it is no longer appropriate from your point of view. Second question I have for you is that, well, there was some uncertainty on the market as to whether AI investments will actually be worthwhile.

Do you see this feedback from your investors as well? And the third question is, what do you tell your investors? How do you try to calm the situation?

Mr. Herr, this is Mr. Hanebeck here.

I will answer your first question. Your math is right, 1.6 plus 0.5 equals 2.1. This includes all data centers, be they AI data centers or classical data centers that are also used for Agentic AI. So this effect of 2.5 would be turned into a 3. The actual figure will be communicated to you in November, however.

Mr. Herr, good morning. This is Mr. Schneider. I will answer your questions regarding the share price. First of all, it may be helpful to look in your rearview mirror. Infineon looks back on a long period where the share price moved between EUR 30 and EUR 45 roughly. You're right, we were very happy to see that it reached a peak at the end of the past quarter of over EUR 80. However, I believe that a share price of EUR 60 to EUR 65, which we have right now in view of the overall geopolitical situation and also considering sectoral developments is not a bad share price at all. With respect to AI investments, I believe Mr. Hanebeck already presented this to you quite wonderfully with the capacity agreements, we are in a growth trend. We're not talking about short-lived quarterly topics.

We believe that this will be a very positive long-term effect from grid to core over the entire chain. We are set up in a diversified manner with a number of different customers. We don't depend on any single customer. A number of the customers are in the process of reserving substantial capacity with us for the years ahead. So all of this together clearly confirms our share price and our trajectory. And our share price, therefore, is not a short-term issue. We're looking at the entire chain very closely. We look at customers and how our profitability and their profitability develops, but this will not deter us from believing in the biggest growth driver of our corporate history.

The next question comes from Christina Kyriasoglou of Bloomberg.

This is Christina Kyriasoglou from Bloomberg. I would like to ask you if you could tell me something about the developments that you're observing on the Chinese market and the extent to which demand is affected at Infineon.

May I ask you whether you're referring to the automotive market or another market?

Well, there have been reports on potential improvements of your own chip manufacturing capacities.

Okay. So you're talking across the board, not just about auto.

Yes, that's correct.

Well, this is Mr. Hanebeck. We have repeatedly reported that we have been witnessing increasing competition on the Chinese market. China has made substantial investments in technologies and capacities in our field of business amongst other areas. As before, we received the feedback in the power segment, for instance, that our newest technologies have an edge. Specifically, as I mentioned earlier on, in the automotive market with automotive qualified products in certain areas, MOSFETs and analog products, we see higher demand because various Chinese suppliers, which are based on a foundry model, in other words, don't have their own factories are unable to supply.

Our microcontrollers for automotive applications are highly sought after within the portfolio, but we remain paranoid. China has caught up quite a lot in this area. And we see some segments, as I mentioned last time around in the high voltage area in the car applications, prices due to Chinese competition, especially in the IGBT area, have declined to such an extent that this has ceased to be interesting to us. We are reallocating these capacities, however, to AI. So the situation is very dynamic, and this motivates us to be more agile and to bring innovations to market faster than before.

[Operator Instructions]

Ladies and gentlemen, in conclusion, I'd like to summarize, the upswing is clearly gaining momentum and breadth across multiple end markets.

The structural growth drivers are proving to be very strong. The momentum in AI remains unbroken. We will more than double our revenue from power supply solutions for AI data centers this fiscal year to over EUR 1.6 billion. In addition, we are generating EUR 500 million in revenue from power supplies for traditional data centers. We will drive growth in this area and expect to significantly raise our revenue forecast for fiscal 2027 in our quarterly update in November.

A substantial portion of our future revenue will be covered by customer agreements for capacity reservations. The situation in the automotive sector is also continuing to improve, driven by structural growth, market share gains and inventory restocking. Against this backdrop, Infineon closed the third quarter of the fiscal year fully in line with its forecast. Based on a positive business outlook, we expect a fourth quarter that outperforms seasonal norms, resulting in a strong finish to our fiscal 2026 and in consequence, a solid starting point for 2027.

Thank you very much for your interest, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2026 Fiscal Second Quarter Results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technologies. As a reminder, this call is being recorded.

This conference call contains forward-looking statements and/or assessments about the business, financial condition, performance and strategy of the Infineon Group. These statements and/or assessments are based on assumptions and management's expectations resting upon currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance and strategy may, therefore, differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements.

At this time, I'd like to turn the call over to Infineon. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen. Thanks for joining our springtime earnings call on which you have, as usual, our CEO, Jochen Hanebeck; our CFO, Sven Schneider; and our CMO, Andreas Urschitz.

Following our proven pattern, Jochen and Sven will provide an overview on the market situation and divisional performance, key financials and, of course, our outlook with spotlights on automotive and on our AI business. After that, we will start our Q&A session.

The accompanying slide show for the call is available at infineon.com/slides, and we will provide a PDF with Jochen and Sven's introductory remarks in the course of the call on our website, namely infineon.com/investor. This is also your go-to place for a recording of this conference call, including the slides, a copy of our earnings press release as well as our investor presentation. At this point in time, Jochen, over to you.

Thank you, Alexander, and good morning, everyone. About three weeks ago, the Artemis II mission successfully returned to Earth after 10 days in space. Radiation-hardened semiconductor solutions from Infineon supported the electronic backbone at the heart of the Orion capsule, an anecdotal proof of the breadth and performance of our offering.

Back here on our planet, the market recovery is clearly gathering strength. We are seeing rising demand across several key verticals. At the same time, our planet is burdened by multiple geopolitical conflicts, affecting our markets in various ways. These impacts, notwithstanding near-term business indicators like order intake, lead times, cancellation rates and stock levels are showing a clearly improving picture. Such picture differs by application. AI momentum is further strengthening with positive spillover effects in adjacent areas. Industrial markets are supported by rising power infrastructure-related demand. In automotive, low customer inventories are triggering the start of a broader replenishment, leading to a rising order intake. E-mobility is still in difficult territory, whereas software-defined vehicles are seeing a globally positive development. All in all, our end markets are clearly improving.

Preparing for a broad upcycle in an agile way and simultaneously setting the right strategic course remains paramount. For successfully implementing our strategy, the best-fit organizational setup is key. Going forward, we will streamline our organization, going from 4 to 3 divisions, to accelerate innovation-to-customer value further. More on this at the end of our divisional review, but let’s now look at group performance in our Q2.

Group performance in Q2. The second quarter of our fiscal year 2026 was fully in line with guided numbers. Revenues amounted to EUR 3.812 billion, 4% up from the previous quarter. Compared to the same quarter one year earlier, reported revenue grew by 6%. On a currency adjusted basis, the annual growth rate would have been above 14%, given that the U.S. dollar was considerably stronger 12 months ago.

The segment result for the March quarter came in at EUR 653 million, corresponding to a segment result margin of 17.1%, compared to 17.9% in the quarter before. This development reflects the positive volume fall-through as well as usual kicking-in of price adjustments at the beginning of a calendar year. In addition, the decreasing automotive high-voltage business and related cost for its refocusing led to a significant profitability headwind. More on this in the automotive and later in the financial section.

As a clear indication of the recovery momentum, our order backlog increased materially quarter-over-quarter by EUR 4 billion, to around EUR 25 billion at the end of March. Currency effects had only a minor impact here. Compared to end of March last year, our backlog is now around 25% higher, and it has kept growing in the currently running quarter. Where capacity allows, we are confirming customer orders now well into the next fiscal year.

Now to our divisional review, starting with Automotive. Before looking at the March quarter, we proudly note Infineon's pole position among automotive semiconductor providers for the sixth consecutive year based on data from TechInsights for 2025. With top 1 and top 2 positions in all major regions, our standing as the preferred partner of the automotive industry is reconfirmed. We managed to further extend our lead over key competitors, notably in the crucial category of microcontrollers, where we expanded our market share year-over-year from 32% to 36%.

Now to the March quarter. Automotive revenues ticked up to EUR 1.830 billion. Low single-digit price declines were offset by volume increases. The segment result of ATV came in at EUR 331 million with a segment result margin of 18.1%. The sequential decline of 400 basis points was due to two main factors, impacts from our business with high-voltage components for electric powertrains as well as the mentioned price adjustments. Generally speaking, the near-term outlook for the automotive market remains relatively muted. In its April update, market researcher, S&P Global, revised down its light vehicle production numbers for 2026. They are now more or less in line with our view.

As you know, what matters more than car units is structural content growth. Here we see the adoption of software-defined vehicles accelerating. Also, the trend towards E-mobility is intact; however, xEV penetration is progressing more slowly than predicted. In high-voltage power parts for electric drivetrains, market pressures are particularly acute. High competitive intensity and capacity buildouts have caused prices to erode quicker than expected. The volume development and the pricing lead to unacceptable profitability in our automotive high-voltage drivetrain business. Against this backdrop, we are resetting the business.

In addition to the restructuring of our frame-based module back-end operations in Warstein, Germany, announced last November, we are putting in dedicated measures to lower our operational cost base, and we are streamlining our portfolio. We use the opportunity to redeploy front-end manufacturing capacities towards our rapidly growing AI data center business, where demand continues to strongly exceed supply. In revenue terms, the affected high-voltage drivetrain business will decrease by a low-to-mid-triple-digit million euro figure this fiscal year, already considered in our full-year revenue guidance for ATV. Overall, the business corresponds now to around 7% of ATV.

Regarding profitability, we expect the segment result margin of ATV in this fiscal year to be burdened by a low-to-mid-single-digit percentage reflected in our guidance, driven by the combined effect of substantially reduced volumes and costs related to refocusing the high-voltage business. Let me be very clear, Infineon remains fully committed to driving electromobility further; however, we will not be chasing market shares, but instead our focus remains on profitable growth. This situation is isolated to high-voltage power components for E-mobility. It is not at all affecting product categories like microcontrollers, analog parts, not even MOSFETs or sensors. Leveraging our unrivaled technology and manufacturing base for power as well as system understanding will enable us to reposition our high-voltage E-mobility business for future success.

In the meantime, Infineon keeps shaping the proliferation of software-defined vehicles. The foundation of such cars is the combination of powerful and dependable computing, high-speed secure data connectivity, and smart and efficient power management. Infineon is at the forefront in all these disciplines, as for example evidenced by the iX3, the first of BMW's Neue Klasse generation. It features AURIX and TRAVEO microcontrollers, BRIGHTLANE Ethernet connectivity solutions, as well as power management ICs, smart power switches and eFuses from us. And, of course, it has an electric drivetrain demonstrating how the structural automotive trends are interlinked.

We are also very proud to report additional design wins with the leading Chinese OEM, Geely, covering a high number of microcontrollers and analog products, including PMICs and PROFETs. These solutions will be deployed across several applications ranging from battery management systems to zonal control units in various vehicle models across the range of the Geely brands. This further underlines the strong value proposition Infineon delivers to its Chinese customers.

Now to Green Industrial Power. Revenues of EUR 403 million in the March quarter correspond to a significant sequential increase of 15% following a seasonally very weak first fiscal quarter. Growth came mainly from power infrastructure, HVAC and home appliances. The segment result of GIP improved to EUR 47 million, equivalent to a segment result margin of 11.7% after 8.9% in the previous quarter. Fall-through from higher revenues and lower idle costs more than compensated for negative price effects.

With manufacturing PMIs in major world regions north of 50 and inventories now normalized, the sentiment in industrial markets is improving. A broader cyclical recovery is in sight. For instance, customer order entry is picking up strongly, while channel stocks approach low levels. In addition, certain areas provide structural growth opportunities. Grid modernization requirements drive investments in related infrastructure and support growth in energy storage systems, and transmission & distribution equipment.

Continuously rising AI data center buildouts fuel demand for uninterruptible power systems, general power supply as well as commercial HVAC for cooling. In some cases, semiconductors are poised to replace electromechanical parts, a trend for which Infineon is ideally positioned. For example, we are gaining strong traction in our business for solid-state transformers. We are generating first revenues in the running fiscal year and have built a robust design-in opportunity funnel. The same applies to our solid-state circuit breaker business, which is developing well and provides a solid foundation for future growth.

Let's now move to Power & Sensor Systems. In the second quarter of our 2026 fiscal year, PSS recorded revenues of EUR 1.260 billion, representing 8% sequential growth. This was mainly driven by our AI power as well as the radar sensor business. The segment result increased to EUR 257 million, driven mainly by higher volumes, corresponding to a segment result margin of 20.4%. The increase of again 300 basis points compared to the prior quarter is a further step on the profitable growth path of PSS, strongly driven by our leadership position in AI power solutions.

Demand on the back of ongoing significant investments in data centers and related infrastructure continues to be very strong. Currently, our AI business is on allocation, and we are converting capacities from other areas as well as ramping new ones as quickly as possible. Given the unabated momentum, we are reconfirming our guidance of dedicated AI power revenues of EUR 1.5 billion for '26, as well as our indication of EUR 2.5 billion for '27, irrespective of a weaker U.S. dollar.

The right to win in this market comes from the ability to optimize the entire power flow from grid to core. Infineon's unmatched portfolio breadth, combined with deep system understanding, quality and delivery capabilities help customers scale AI clusters and deploy increasingly sophisticated power architectures. A very important milestone in this context is the ramp of gallium nitride for AI data centers. Already today, we are shipping more and more into selected power supply sockets, and we see a rapid expansion of the design-in pipeline across multiple power conversion stages, including intermediate bus converters where gallium nitride based products make a clear difference in performance.

Also for silicon carbide, the demand from AI-related applications is very strong, driving low double-digit growth for our overall silicon carbide business in this fiscal year. These developments confirm our excellent position with leading customers across the AI ecosystem, and we see our content opportunity developing favorably. Such content, meaning the dollar value of semiconductors for a given power envelope, is a function of the rack configuration, which can vary considerably.

We are represented in almost all platforms across all relevant players in the industry. For this, we see a content range of USD 100 to USD 250 per kilowatt, with today's average now increased to about USD 175. Over time, this number will see a certain efficiency effect, but on the other hand, it will be driven upwards by a higher vertical power module share and the emergence of solid-state transformers. This assessment replaces our EUR 8 billion to EUR 12 billion SAM market sizing for the end of the decade, as the gigawatt installation plans are quickly outdated and only revised upwards, resulting in a significantly higher market potential for us.

Now to Connected Secure Systems, which recorded revenues of EUR 319 million, essentially constant quarter-over-quarter. Increasing volumes of IoT-related microcontroller and connectivity products were offset by negative effects in identification solutions. The segment result of CSS decreased to EUR 18 million, corresponding to a segment result margin of 5.6%. The continued evolution from IoT into Edge AI is expanding the opportunity set across multiple end markets. In this context, we are encouraged to see design-win momentum building for our next generation of connectivity solutions as well as secure, low-power AI-enabled microcontrollers.

Recent wins span various different application fields, from servers to security cameras, from wearables to in-cabin monitoring systems. In parallel, the broader adoption of AI is supporting increasing demand for our secure element solutions to safeguard data integrity in servers.

Ladies and gentlemen, this concludes today's divisional overview, the penultimate one in the current structure. Before handing over to Sven for our financial figures, let me introduce Infineon's future organizational setup to you. Starting from 1st of July, in other words effective as of our 4th fiscal quarter, we will operate with three instead of four divisions, Automotive, Power Systems, and Edge Systems. This is the next logical step in our evolution from product thinking to deriving solutions out of our deep system understanding.

Customers are demanding innovative system-level solutions at an ever faster speed. To optimally address their needs and create more customer value, we need to reduce complexity and accelerate further. The key guiding principle for our new setup is clear application ownership. The three divisions will be fully accountable for developing value propositions for their assigned focus applications. ATV will remain responsible for the secular automotive trends of software-defined vehicles and E-mobility, as well as all other automotive applications including on-board chargers, which had previously been addressed also by other segments.

Power Systems, or PS, will be in charge of all power applications outside automotive. This includes powering AI from grid to core as well as renewable power generation and grid infrastructure, and power parts for consumer, communication, and industrial applications. In essence, PS will be the combination of today's GIP and the power part of PSS, bringing together silicon, silicon carbide, and gallium nitride development under one roof, sharing related innovation, of course, with ATV.

The focus of Edge Systems, or ES, will be on applications that are at the edge between the physical and digital world. The interplay of sensors, microcontrollers, connectivity, and security is a key area for future innovation and growth. Examples include Edge AI, robotics, medical wearables, industrial automation, and home appliances. The ES segment will be formed from today's CSS and the sensor and RF as well as the USB connectivity portfolio from PSS. After closing of the pending transaction, also the sensor portfolio from ams OSRAM will become part of ES.

The revenue split based on pro forma numbers for our 2025 fiscal year would be roughly 50% Automotive, 30% PS, and 20% ES, thus giving each division sufficient economies of scale. The new setup will reduce complexity and streamline decision-making. With three divisions and clearer ownership of our focus applications, we need fewer alignments and can better leverage our deep system understanding. This will help us create more innovative products, win more opportunities, and deliver added value to customers faster, thus better supporting profitable growth.

And now over to Sven for our key financial figures.

Thank you, Jochen, and good morning everyone. Those of you following us for a long time are aware that margins in our March quarter typically step down sequentially due to annual price adjustments becoming effective. For the quarter under report, the reported gross margin went from 39.9% to 38.7%, the adjusted gross margin decreased by 200 basis points to 41%. Therein, our high-voltage automotive drivetrain business had a negative impact of about one percentage point, combining the fall-through from lower revenues, idle cost increases as well as charges related to the refocusing of the business, explained by Jochen. From this, you can deduce that overall price declines were of a quite modest nature.

On the OpEx side, research and development expenses down-ticked quarter-over-quarter from EUR 626 million to EUR 612 million. Also, our selling, general and administrative expenses declined, they went from EUR 409 million to EUR 379 million. Non-segment result charges for the March quarter amounted to EUR 195 million after EUR 267 million before. The financial result for the second quarter of our running fiscal year amounted to minus EUR 68 million, after minus EUR 56 million in the prior quarter.

Income tax expense for the March quarter was EUR 91 million, equivalent to an effective tax rate of 23%. Cash taxes amounted to EUR 109 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 22%, right within our expected corridor of 20% to 25%. Our investments in property, plant, and equipment, other intangible assets and capitalized development costs amounted to EUR 541 million in the March quarter, after EUR 582 million in the December quarter. Depreciation and amortization expenses, including acquisition-related non-segment result effects amounted to EUR 452 million. Our free cash flow in the second quarter of our 2026 fiscal year came to minus EUR 63 million, a slight improvement from the previous quarter's minus EUR 199 million.

Looking at our inventories, their reach went slightly down, from 183 to 175 days quarter-over-quarter, including some safety stocks, inventories related to our manufacturing footprint optimization over the last years, and pre-builds. We are fully on track to meet our target for the end of the fiscal of around 150 days. The inventory reduction envisaged will have a positive impact on our free cash flow in the coming two quarters. That said, slightly elevated inventory levels are an advantage to capture growth in the coming upcycle and to be prepared in case of geopolitically induced turmoil.

Now to our liquidity and leverage situation, which is affected by various successful financing transactions in connection with our recent M&A activities. First, we tapped the Eurobond market in early February with a EUR 2 billion issuance across three tranches. On the back of our rating of BBB+ stable, confirmed by S&P Global, and in a time window prior to the outbreak of the Middle East conflict, we were able to achieve favorable conditions. EUR 1 billion of the proceeds were used to repay a part of the initial bank financing of the Marvell Ethernet acquisition. EUR 500 million are earmarked for the pending acquisition of the sensor portfolio from ams OSRAM, which we expect to close still in this quarter.

In addition, we also procured new U.S. dollar funding, namely USD 700 million of term loans from banks as well as USD 300 million from the U.S. private placement market. The total proceeds of USD 1 billion have been used to repay the other remaining part of the initial Marvell Ethernet financing. In other words, we have successfully refinanced the entire Marvell Ethernet acquisition and pre-funded the ams OSRAM transaction. Furthermore, we paid out the annual dividend of EUR 456 million and bought back shares for employee participation programs for a total of EUR 178 million in the last quarter, a busy and eventful time for our Corporate Finance team.

Taking all the financial activities mentioned and our free cash flow together, we arrived at the following cash and debt levels at the end of March. Our gross cash position stood at around EUR 2.2 billion, whereas gross debt came in at around EUR 7.9 billion. The resulting net debt amounted to around EUR 5.7 billion as of the balance sheet date. This translates into a gross leverage at the end of March of 2.2x, slightly above our target, but overstated, as we repaid an older U.S. private placement of USD 350 million at maturity at the beginning of April, so after the end of the last quarter, and will redeem a Eurobond of EUR 750 million on its due date in June. Net leverage corresponded to 1.6x. Going forward, we expect these numbers to improve based on sequentially increasing EBITDA levels and land within the leverage target range. Our after-tax reported return on capital employed came in at 6% for the second quarter of our 2026 fiscal year.

Before handing back to Jochen, a brief comment. As you have heard, we will operate and report in a new organizational structure starting from Q4 of our running fiscal year with three instead of four divisions. That said, we will provide you with key financials for the current setup also for the September quarter, allowing you to model the full 2026 fiscal year in a consistent way. At the same time, we will provide adjusted historical data for the new setup on a pro forma basis in due course to you, to enable relevant comparisons.

Now back to Jochen, who will comment on our improved outlook.

Thank you, Sven. In general terms, the upcycle is gathering intensity, breadth, and speed, as the recovery is broadening across more and more of our target markets. While geopolitical risks and macroeconomic uncertainties persist, fundamentals are improving. On the demand side, we see stronger bookings leading to a growing backlog. Visibility is getting better, even beyond our fiscal year, as customer orders are stacking up nicely for the coming quarters. Channel inventories are at the lower end of target ranges, customer inventories have largely destocked to healthier levels as well, in some cases even below that.

In automotive, we are pleased to see industry players bringing inventories back up to reasonable levels. On the supply side, more and more pockets of tightness are emerging, particularly in areas adjacent to booming AI product categories. Of course, the dynamics vary across applications, but overall, we believe a broader recovery is in sight and we are therefore raising our annual outlook, even against an unfavorable currency development .

For the currently running June quarter, as well as for the remainder of our fiscal year, we are changing the assumed USD/EUR exchange rate from formerly USD 1.15 to now USD 1.17. With this in mind, we expect revenues of around EUR 4.1 billion for our fiscal third quarter, corresponding to 8% growth quarter-over-quarter.

By segment, for ATV, a slight revenue growth is predicted, whereas for each, GIP, PSS and CSS, revenue should grow significantly. For the third fiscal quarter's segment result margin, we expect a high-teens percentage level. Besides the fall-through from higher volumes, we expect the evolution of prices in certain areas, notably AI and related product categories, to have a positive impact.

In contrast, rising costs for energy and precious metals will somewhat dampen margin expansion.

For the full 2026 fiscal year, we now expect revenues to be significantly up compared to the previous fiscal year, translating into a level of EUR 16+ billion. As mentioned, this is absorbing an unfavorable USD/EUR exchange rate assumption of USD 1.17 for the remainder of the fiscal year. From a segment perspective, PSS should grow materially faster than group average, driven by buoyant demand for AI power solutions. As the outlook for some industrial markets is also benefiting from AI, GIP is now expected to grow at a moderate pace. ATV should see slight revenue growth, driven by its broad product portfolio and the early adoption of software-defined vehicles, burdened by the decrease of the high-voltage drivetrain business.

To give you an idea of the strength of the underlying automotive business, excluding the high-voltage business as well as the Ethernet business, which is for the first time consolidated for a full year, and at constant currencies, ATV would see almost 9% annual growth this fiscal year 2026. Lastly, for CSS we expect revenues to remain stable year-over-year. Regarding profitability, the improved revenue prediction causes our expectation for the full-year adjusted gross margin to go up to a low-to-mid 40s level after having guided to a low 40s level before. Our segment result margin will correspondingly benefit and land at a level of around 20% after having guided to a high-teens margin level previously.

Positive contributors, in particular for the quarterly trajectory, will be rising volumes and better than initially assumed pricing. Idle costs are expected to go down to an annual level of around EUR 650 million, their cyclical part constituting a margin headwind of about 300 basis points. That said, we will manage idle costs and inventories in a balanced way downwards, as Sven explained. Offsetting these benefits to some extent will be an adverse currency development and rising input costs, for precious metals, energy and freight, resulting from the war in the Middle East. While we have baked in these direct impacts, our forecast does not include potential indirect effects from a protracted or escalating Middle East conflict or any other lingering geopolitical tension.

Our investments in this fiscal year are expected to come to around EUR 2.7 billion. As we mentioned in our last call, this amount contains around EUR 500 million of pulled-in investments related to powering AI to support steep revenue growth in the coming fiscal year . In this context, I am happy to announce that we will officially open our Smart Power Fab in Dresden on the 2nd of July. The 300-millimeter fab will focus on state-of-the-art analog/mixed-signal and power technologies. Its completion comes just at the right time to boost Infineon's growth opportunities in highly attractive markets like AI power, automotive and robotics.

Returning to our outlook, we continue to anticipate a value of around EUR 2 billion for our depreciation and amortization this fiscal year. This includes amortization of around EUR 400 million resulting from purchase price allocations, mainly in connection with the acquisitions of Cypress and Marvell's Ethernet business, which will be recognized in our non-segment result.

For the free cash flow we are upgrading our guidance to around EUR 1.25 billion compared to the previously estimated EUR 1 billion on the back of an improved business outlook and the planned inventory reduction. Our adjusted free cash flow, net of investments into major front-end buildings and M&A transactions, is likewise expected to come in at a higher level and amount to around EUR 1.65 billion, after EUR 1.4 billion before, corresponding to around 10% of group revenues. For the sake of completeness, our guided numbers do not include effects from the pending acquisition of the sensor portfolio from ams OSRAM, which we expect to close towards the end of this quarter.

Ladies and gentlemen, let me summarize. The second quarter of our 2026 fiscal year came in fully in line with our guidance. The recovery is gathering steam. We face an upcycle in several of our target markets. Momentum differs across applications. AI exceptionalism persists, benefiting also our industrial business. Automotive is directionally improving, driven by structural trends. The dynamic for software-defined vehicles is accelerating. The E-mobility trend is intact, yet unfolding slower than anticipated. High-voltage drivetrain parts are exposed to significant market pressures. We refocus our business focus accordingly.

Based on a brighter business outlook, we raised our guidance to significant revenue growth to EUR 16+ billion, low-to-mid 40s gross margin, a segment result margin of around 20%, and an adjusted free cash flow of around 10% of revenue. Thus, our 2026 fiscal year will see a much stronger second half, and comparing the first half of calendar year '26 to the second half, according to our current order book, the picture would be even brighter. Going forward, we will move from four to three divisions. With a streamlined setup and clearer application ownership we will deliver added value to customers faster, leading to more profitable growth.

Ladies and gentlemen, this concludes our introductory remarks, and we are now opening the call for your questions. Seeing the long queue, we kindly ask you to limit yourself to 1 question and 1 follow-up. Operator, please start the Q&A session now.

[Operator Instructions] We'll take our first question from Sandeep Deshpande from JPMorgan.

Great results today. I just have a couple of questions. So firstly, on the AI business. Jochen, you said on your prepared remarks that your content is going between USD 100 to USD 250 per kilowatt. So with this increase in your content compared to what you had previously guided the market to, why are we not seeing an increase in your AI revenue guidance for the year? Or are you still capacity limited?

And my second question is on the margin. You are guiding to this 20% margin now for the full year '26. That implies a very big step-up in your margin in the fourth quarter, maybe 25%, 26%, some kind of big step-up is going to occur. Can we understand, what are the drivers of this big step-up in the fourth quarter? Is this a function of pricing or utilization? Because you previously told us about your underutilized capacity, your idle charges. And so how does that go through in that number, as well as whether we should be forecasting this sort of margin for Infineon into the future given this big step-up?

Okay. Good morning, Sandeep, first of all. So AI, yes, you're right. So we are indicating now, instead of this EUR 8 billion to 12 billion SAM at the end of the decade, to make things also easier for you, we are giving the guidance on our content per kilowatt. And that is in the range of USD 100 to USD 250 per kilowatt, and the rest is then the assumption of the installed gigawatt. The average is USD 175. The range is created mainly by the adoption of vertical power deliveries. So solutions with vertical power deliveries, obviously, at the upper end of that range. Important also for me that you understand, this USD 175 is today's number. Over time, that number will change somewhat by efficiency, but then mainly by the adoption of more vertical power deliveries and the inclusion of the SST part. So that number includes now also SST, but as of today, that number for SST is obviously 0.

Then your question was about the EUR 1.5 billion this year. So first of all, please note that we have absorbed the FX. And this number is -- the content behind that number structurally is very dynamic, because these customers are very dynamic. Of course, there's also the pricing element in there. But I would like to see first a better or more detailed view that we can deliver supply chain-wise, as we are in allocation, this number before I think about a higher number to communicate. So it's supply chain and structure and, of course, pricing, which constitutes the dynamic behind this EUR 1.5 billion.

And now over to Sven on the 20%.

Yes. Sandeep, on the profitability, maybe I take that one, because I understand many of you have that question, and expand a bit. So if you look at the quarterly development of the revenue, we started with EUR 3.66 billion, now I'm excluding currency, it's all reported, then EUR 3.8 billion, now you see EUR 4.1 billion, which is a significant increase of 8% quarter-over-quarter. And in order to achieve our significant growth rate on the full year, which we have given you now a little bit more information on EUR 16+ billion, we indeed need another stronger Q4, which is also in line with seasonality.

But just looking at the numbers, I mean, you can easily calculate that EUR 4.5 billion, EUR 4.6 billion would be a number to come above the EUR 16 billion threshold. And this is the current view of our upcycle, which was explained. And on the back of that one, yes, indeed, the margins in Q4 would not be in the high teens range, but they would definitely be in the low- to mid-20s in order to come to the around 20% for the full fiscal year. So that's our current assumption.

Now you asked where is it coming from? I mean, first of all, there is a positive volume effect. The fall-through is clear. There is. And Jochen said it already, the dynamic development of AI. I mean, you can assume that the Q4 number on the Powering AI business is higher than the Q3, is higher than the Q2 number. So there is a profitability component. You have seen PSS developing 300 basis points quarter-over-quarter now for 2 quarters. If you just continue with that, you would be around the 25% level for PSS in Q4. And there's also some, as we said carefully in our prepared script, the longer the allocation lasts on AI and adjacent markets, the more positive dynamic for pricing could be also visible still in the remaining quarters. So I don't want to guide now for '27, but yes, our current view is we are going out of that fiscal year with a very strong Q4.

The next question comes from the line of Andrew Gardiner from Citi.

Sven, I know you just said you don't want to guide on fiscal '27. But if I come back to Jochen, your final statement in the prepared comments, you were talking about the calendar second half being having a much brighter outlook than the calendar first half. As you've just walked through some of the moving pieces into the September quarter, but also sort of leaning, therefore, into the December quarter, can we take it that the December quarter, based on the backlog today, is looking meaningfully stronger than normal seasonality? And then I've just got a follow-up on the AI comments.

Yes. Andrew, I mean, you are trying it always in a very smart way, I know, to get something out of us, which we don't want to say. But I mean, from today's perspective, looking at the order book strength, looking also at the orders going well into next fiscal year, as we have said, I would say there is a better than seasonal Q1. And from today's perspective, Q1 looks even better than the Q4, but it's very early to really give you more accurate numbers. Stay tuned for the August and the November call. But so far, as we said, more and more of the end markets are going into the upcycle, and that's not only AI.

Okay. Understood. And if I can just come back to some of the AI comments. Jochen, you were talking about the dynamic customer environment and sort of the things that they're asking for, and you talked about GaN and SiC. In listening to some of your competitors' conference calls over the last couple of weeks, it feels like some of them are having to make more specific architectural or technology choices in terms of what they're offering customers. I think a point that Infineon has long been making certainly to us in the financial markets, but obviously to the customers as well is that you've got the range of technology, SiC, GaN, silicon modules, et cetera, you can be flexible with them. Is there increasing evidence of sort of the success of your approach? And what are you hearing from customers? How do you feel like you're facing up to the competition given your breadth relative to what some of them may have?

Yes. I think it's absolutely the value proposition Infineon brings to the table, our broad technology spectrum. You hinted at silicon, silicon carbide, gallium nitride, I would add the analog parts, I would add the assembly, technologies on the module side. And further on, of course, also system understanding, which topology to use, then also the 800-volt DC versus 3-phase all the way up to SST. So I think Infineon is the one-stop shop. That doesn't mean that others will gain some business, but we feel very comfortable that this is our application, and we will be the driver in the market.

It's demanding. The customers are very demanding. Technically, it's very demanding. But we will be able also to supply in-house manufacturing Dresden module 4. Also what comes more and more that particularly U.S. customers ask for non-China, non-Taiwan supply chains, which we can offer. So plenty of aspects which speak in favor of Infineon.

We now have a question from the line of Didier Scemama from Bank of America.

My first question is on the data center business. So I think in the past, you had mentioned that you had about EUR 500 million of sort of traditional server CPU power management business. Just wondered if you could give us an update on that business. I think recently, last night, in fact, AMD doubled the server CPU TAM for 2030 from EUR 60 billion to EUR 120 billion on the back of Agentic AI accelerating pace. So I just wondered if that EUR 500 million has been upsided, and how do we think about that for '27?

Yes. Very good question. And honestly, that business is likely to go through the roof next, because indeed, CPUs, inference is obviously a slightly different segment of the market other than GPU. We are well established historically, and we hear the respective customers asking also on that end for significantly more.

Okay. And if I do the math right on your USD 175 million of content per gigawatt (sic) [ USD 175 of content per kilowatt ]. That implies in euro terms, you're shipping about 10 gigawatts of capacity this year for AI data center, and next year, if you say the same content, about 16 gigawatts of capacity. So that would give you a very high market share. Is that the way you actually think about these things? Or are you thinking about it differently?

And related to that, I appreciate the content is very difficult to nail down, because there are a lot of things, different moving parts, different architectures, different materials, et cetera, especially as we look out into the future. But even at EUR 10 billion, the midpoint of your guidance, and USD 250 million per gigawatt (sic) [ USD 250 per kilowatt ], that's 40 gigawatt capacity addition, which is, I would say, well above any consensus that is out there. So what's the implied gigawatt capacity addition you've got in your EUR 8 billion to EUR 12 billion TAM assumption?

Please, here, I really would like to be very specific. Forget the EUR 8 billion to EUR 12 billion. There are so many numbers out there in terms of gigawatts. That's why we refrain from giving now a SAM market guidance. So the number, EUR 8 billion to EUR 12 billion, is no longer valid, because there are numbers out there for the end of the decade with much higher gigawatts, and that would result in a substantially higher SAM number. But as the range is so broad, we leave it to you and give you the number on the dollar per kilowatt.

And in terms of market shares, I still think that the best guidance I can give you is that the 30% to 40%, which we have traditionally in data center, is for me the minimum. And then let's see. Again, highly dynamic environment from platform to platform. And therefore, honestly, I even feel proud that we give you the guidance for next year -- or indicative number for EUR 2.5 billion next year, very dynamic. And again, it's indicative for next year, not the maximum, but please understand that it's also for us difficult to predict that market.

No, very clear. And sorry, just I'm not quite sure -- well, I think you don't want to give the answer, but I'm going to ask again. Of the EUR 500 million for this year for server CPU power management, sort of what sort of level do you think would be right for next year? And do you think you should combine these 2 numbers to make it more comparable to what your peers are disclosing, which typically combines DC and AI revenues together?

We are right now in discussion with these customers on what they need, how much we can deliver. In addition, obviously, we are already in a tight situation on the one hand. On the other hand, the Dresden facility comes in at the perfect moment in time. So I cannot give you a new number on this EUR 500 million, but any new number will likely be higher driven by the one statement you quoted or even the Intel statement. So we are just in the process of working through that.

The next question comes from the line of Johannes Schaller from Deutsche Bank.

Jochen, you mentioned in the auto business, there is a bit of restocking dynamic building up here. Just wondering if you could share with us your anticipation kind of how long that may support the momentum in the auto business? And also, if you could zoom in a little bit on China and your assumption for the full year. I mean, you're still winning really good deals here, but then obviously, against that, the underlying market is softer. So how should we think about China auto overall for this year?

And then just a very quick clarification, because we get a lot of questions on your comment just on Q1. When you say higher than Q4, you mean potentially -- you mean in absolute revenue terms or year-on-year growth? That would be helpful.

Johannes, so on automotive, the restocking is what we see in our order book, right? It's not yet in revenue, or only the first innings are in the order book. We see the order book for automotive growing substantially, also for this year, but particularly for next year. And we see that predominantly coming from 2 regions, China and Europe. Of course, also U.S. and Japan, but the 2 biggest buckets for the order backlog growth in automotive is China and Europe. That gives me confidence that we are well positioned in China.

And again, also in China, I talked about the high-voltage business. This is certainly a challenge. But beyond the high-voltage business for inverters, whether you take MOSFETs, whether you take analog parts, whether you take microcontrollers, whether you take sensors, we are doing very well in China. And a good example of that is the Geely design-win, which I highlighted.

And the second question, I'll pass on to Sven.

Johannes, so thank you for asking the question in a more precise way. So my comment was mainly about the seasonality, as it was also asked. So the average seasonality is minus 5%, minus 6% for Q1, and we expect, from today's perspective, a much less pronounced seasonality. I'm not yet in a position to give you absolute revenue numbers for Q1. That is a bit too early.

We now have a question from the line of Lee Simpson from Morgan Stanley.

I just wanted to ask a 2-part first question really on new products. It was interesting, I thought that you opened the call, Jochen, on rad-hard products for the Artemis launch. We have heard from peers that they lean explicitly on CMOS IP and, of course, packaging technology. Just wondered what it was that you saw as competitive advantage for yourselves in those products? And maybe related to new products, you did tease us with the idea that solid-state transformers would be introduced to data centers into server racks. I was just curious as to the function of a solid-state transformer, perhaps in first stage on a server rack.

Yes. Lee, so first of all, the rad-hard business is a business that comes out of our HiRel business unit, which business we have successfully entertained for quite some time now in satellites, also somewhat in defense. You're referring to more of this LEO satellites. And to be honest, that's a business, yes, it indicates a lot of growth. I'm not so sure about the margin, to be very honest. So do not expect us now to go into that business big time, maybe the one or the other adjacent topic, but margin-wise, I'm not so sure.

On the SST side, we are fully in. We believe in this trend, our customers believe in this trend, and we are shipping initial volumes. Of course, that is also, as it's part of a power infrastructure, there is a regulatory aspect to it, which needs to be overcome or needs to be addressed. That will take some time. So I still expect the SST to take off. When exactly and where, maybe earlier even in China than in the Western world, as it is, again, a regulatory topic that needs to be addressed by the system guys. But we are ready. We have the products, and we are working on about 20 projects as we speak.

Great. That's very clear. I just wanted to maybe follow up, if I could, on the realignment of the high-voltage business for automotive. And what's really different from last quarter? Because you did explain a shift away from supplying particularly IGBTs into inverters for regions such as China and favoring that capacity for the data center. So has this been an acceleration of that shift? And maybe could you maybe just again outline some of the details, particularly as impact on margin for the next couple of quarters?

Yes. The trend is visible already for several quarters, and that's why we took already action with the restructuring of the Warstein operations and so on and so forth. What we wanted to achieve with this guidance is to give you a clearer picture of the scope. So first of all, it's not all power components, not at all. The MOSFET business in automotive is running very good margins. It's really the high-voltage part for inverters. The IGBTs are by now available in China, no surprise, because we also shifted our R&D years ago already to silicon carbide. And so it's really more the combination of lower-than-expected volumes or decreasing volumes like in the U.S., stagnation somewhat within China, price pressure because people are, or market participants are partially very aggressive picking up any sort of business.

By the way, on silicon carbide, this is an effect not from Chinese competition, but from non-Chinese competition. So for us, this is an area which we really need to reset, but we wanted to give you a precise scope, meaning it came down from above 10% of automotive now to 7% of automotive, and it constitutes a drag on ATV margin between low to mid-single digit. I think we will need -- likely, the biggest step will happen this year, but also next year, we will have an impact on automotive. But we wanted to give you also the background so you can model it. And it's not at all a weakness of the automotive business in general and also not in China.

And then maybe, Lee, Sven here, on the margin, to be even more precise. So we said that there is a 200 basis point quarter-over-quarter margin headwind from the high-voltage business on automotive. So if you take the EUR 1.8 billion, 2%, you are at close to EUR 40 million. This is exactly what we have included on the segment result side. This is the fall-through from lower revenues. This is a change in inventory reserves, and we have also put some money into the nonsegment result for restructuring.

We now have a question from the line of Janardan Menon from Jefferies.

I just want to follow up on the AI power side, especially from a capacity point of view. Given that, as you were answering to Didier's question, that demand is increasing quite sharply on the CPU general server side. And also, you're saying that the number you're looking at potentially for 2030 is well above the EUR 8 billion to EUR 12 billion that you had previously indicated. How are you thinking about your capacity planning beyond FY '26?

You had pulled in EUR 500 million for this year. I mean, obviously, you're not guiding for CapEx, but I'm just saying, are you accelerating the ramp of your Dresden Fab further into '27, '28 to address this? Are you already taking those measures, even though you're not telling us that? And do I understand from your comments that the EUR 2.5 billion is not the max, that there is a headway for you to exceed that number when you come to next year?

So the second question, it's clearly a yes. It's an indicative number, the EUR 2.5 billion. Again, structure matters a lot, pricing matters a lot. So it's not the max number, but I will not give a max number out at this moment in time.

In terms of capacity, you are right. I mean, Dresden comes in at the perfect moment in time. The cash is spent on the building and infrastructure this year. And then we scale it with the equipment, and we get here, book the slots for next year in order to increase revenue capabilities further on.

Beyond that one, in Villach, we have still the possibility to convert existing clean room from 6-inch and 8-inch to 300-millimeter by moving 8-inch to Kulim. So that is an option. And of course, we also -- if it comes to silicon carbide, which is partially driven by AI, I think another growth driver is going to be the resurgence of renewables in light of energy resilient supply. So if that comes together, we could finish our Kulim 3.2 plant. Remember, the base plate is done, and that would be also in a capital-efficient manner, ways to expand rather quickly our front-end capacities and the back-end capacities then accordingly, where we are, to a good extent, outsourced in terms of AI.

Okay. And just a quick follow-up on pricing. You sort of alluded that if this kind of allocation continues, then the industry becomes tighter and pricing could move up further. You and pretty much all your peers put in a round of price increases in April from what we can understand from what has been generally reported. Are you suggesting that you could be seeing yourself increase pricing once again before the end of the year, and that's something that both you and you think your peers could be doing, which would have a positive effect on '27 as well?

Yes, Janardan, already in our last earnings call, we have been talking about supply constraints, in particular, in AI power business that has started to impact also adjacent areas to then also having an effect on more favorable pricing environment in those. We have, as you rightfully said, informed our customers about increases to come, which now are effective from the running quarter onwards going forward. As this upcycle effects more and more affect broader parts of the market, we expect cyclical dynamics also to accelerate, including pricing to improve in the coming quarters.

So having said that, the environment definitely is changing in that regard. And we will see where that brings us then also going forward in terms of broader pricing. Definitely, talking about the price range that we gave for the current fiscal, in between medium to low single digits, that figure is trending more towards the lower part of the bar.

The next question comes from the line of Francois Bouvignies from UBS.

I have one question on the capacity again for '27. So this EUR 2.5 billion for '27, is it a capacity number that you see right now or it's more a demand number? Or could you do still materially higher than this EUR 2.5 billion if the demand were coming through?

Yes. Good morning, Francois. So again, it's an indicative number. It depends a lot on the structure. Obviously, a vertical module contains the same silicon as a lateral one, but is asking for a much higher price. And also, of course, we are basically running a task force to beef up capacity. So please accept that I will not come up now with a max number, but we are working on clearly to beef up that number, the EUR 2.5 billion. That's very clear from a capacity point of view, regardless of the pricing.

Okay. And maybe on the content per kilowatt that you flagged, I mean, in the range of USD 100 to USD 250. I mean, it's a big range given all the uncertainty around the market. And I was wondering if you are thinking about this range, is it fair to say that the inference, ASIC, AI is more on the low end of this content per kilowatt when the training and GPU are more on the high end? Is that the right way to look at it as well from a mix perspective?

Directionally correct. Our content is almost -- or it corresponds pretty much to the power of the processor. And then that's first order effect, right? But I also said that the latest, let's say, wave on CPUs and these sort of products are not -- we are still working through it with our customers to see what is really the demand, get the orders and then assess it. So I would call that whole wave now work in progress.

And Francois, maybe just to add, I think you and your colleagues have grilled us so many times that because we only said it's north of USD 100. So now please give us some applause that we are now giving you not only a range, but also an average point. So I think that's a lot of precision in this very dynamic environment.

That's true. And we appreciate that, to be honest.

The next question comes from the line of Joshua Buchalter from TD Cowen.

As we think about sort of this year being capacity constrained, can you maybe talk through some of the implications of that? And are there changes you're making internally from a mix standpoint to favor maybe more vertical power? And then any competitive implications? Like is this allowing others to sort of enter the market given you're not able to fully service all the demand that you're seeing?

Yes. I'm not quite sure whether I understood the question correctly. So please tell me. But what we are doing from a portfolio point of view in front-end capacities, as said, we see the weakness in the high-voltage E-mobility part. We redirect these capacities to AI. Also, there are some spots in GIP, which are strongly growing, others less so. Of course, we take that also as an opportunity for margin optimization.

And then whether we are selling a vertical module or a lateral module, that, of course, depends then on the architecture of the customer. And here, we are trying to serve both. Also, the supply chain beyond the front-end. So back-end is obviously considerably different, and we are trying to maximize here the output given the fact that we also have some limitations in back-end. Yes, that's -- but maybe -- is that answer to your question? Or did I miss a point?

No, I think that mainly got it. I guess for my follow-up, on the high-voltage silicon headwinds, should we think about those being mostly complete this year, and then it's a smaller headwind next year? And maybe you could speak to your confidence that it's going to remain relegated to just the high-voltage IGBTs, and that why you're confident that we won't have similar pricing issues longer term on the silicon and silicon carbide MOSFET side?

Yes, I said high voltage. So the pricing pressure is on the silicon side and on the silicon carbide side. I also mentioned that on the silicon carbide side, again, on the inverter in the car, the pricing pressure comes from Chinese competition on the silicon side. On silicon carbide, it comes not from Chinese players, because they are not yet there, but from Western players. But it doesn't extend at all to other product families of automotive. So the closest you would think of is MOSFET. But here, I can tell you that the MOSFET business of automotive is clearly above our target operating model. So we have here really a unique breadth and width of our portfolio and a very high economy of scale. So I think that is a very good position.

Yes. And IGBTs, again, are good enough in certain solutions, and we did not invest into R&D as we have shifted the R&D on silicon carbide, and the silicon carbide for the Infineon Group is growing as we are having lots of opportunities here also in AI, but also in power infrastructure.

We now have a question from the line of Stephane Houri from ODDO BHF.

I also have a question on the automotive business and notably on the evolution of the margin. So I understand that you had some exceptionals during the quarter. And you also said that the backlog is improving and that you have a better visibility on automotive. So what is the visibility that you have on the improvement of the operating margin in the automotive business going forward? Is it going to be quick or not?

And looking maybe longer term about your 25% EBIT margin model, at what point do you think that automotive can come back to it, because it's still 50% of your business. So it really depends a lot on the automotive ability to improve the margins also.

Yes, the high-voltage business will be a drag on the margin, as I said, for the next 2 years, mainly this year, as we are redirecting the capacities and we're restructuring, but somewhat also affected next year. But let me put it like that. If I take out the cyclical idle costs and the high-voltage business, then automotive would be clearly at the 25%. So it's really the restocking will lead to a higher volume over time. Again, we indicated that the order book for the second half of the calendar year is particularly strong also for automotive. So I would expect that the idle costs come down over time. And then we have to work on this high-voltage area and then everything will be in shape for auto.

The next question comes from the line of Jakob Bluestone from BNP Paribas.

I had a question on your order backlog. A year ago, your backlog was about EUR 18 billion, and it looks like this year, you'll do about EUR 16 billion plus of revenues. The backlog is now at EUR 25 billion, so implying quite strong revenue growth to come. And I was just wondering, is there something in the composition of that backlog that has changed? So are there more longer-term orders in there? And maybe -- I mean, you've mentioned a number of times the auto backlog, but just sort of interested if you can give any kind of mix in terms of divisions on that backlog?

If I plot the order backlog over lead times, all categories are going up. It's, of course, AI related, but it's also automotive related, and it's also GIP, so power infrastructure related. And coming back to the auto side, as I said before, 50% of what we incurred over the last 2 months came in for next year already and 30% about for this year. So it definitely looks like a very healthy buildup of our order book backlog, especially across these 3 major themes, which I just mentioned, AI, automotive and power infrastructure.

Last question, please, operator.

We now take our last question from the line of Sébastien Sztabowicz from Kepler Cheuvreux.

First one would be on the fab loading. Today, where are you standing in terms of fab loading? And what do you expect for the next 2 quarters for fab loading? And when do you expect to be back to full capacity? Is it possible to reach full capacity already in '27? Or is it a bit too early?

Okay. So the fab loading is particularly high in the 300-millimeter fabs. They are basically fully loaded. Front-end is around 90%, back-end is around 75%. We still incur EUR 650 million idle this year. We think that this will decrease. On the other hand, please also remember, we want to reduce our inventories in order to beef up our cash flow. And of course, we will reduce idle, I think, significantly next year, but too early to quantify.

Okay. And in China, I know that you have a stronger competitive pressure from Chinese competitor on silicon IGBT and you have also pressure on silicon carbide. How do you see the competitive landscape in the rest of the business from the Chinese competitors, notably around microcontroller, sensors, connectivity? Have you seen any kind of ecosystem building up there over the past few months or so on? And how do you see the deal activity on all these growing areas?

Yes. Our local competition in China is really particularly on IGBT. Again, they caught up as we have focused on silicon carbide. But once it comes to higher reliability, and that's not only automotive, but also power infrastructure, once it comes to higher power, I think we are still also the choice for high-voltage.

If you talk about other categories, I'm pretty sure we are winning, for example, as we speak, automotive MOSFET market share in China, as customers realize that quality matters in these sort of applications. And in terms of microcontroller, let's say, we do not really feel yet competition. But of course, we stay paranoid and we look around every corner where things might happen. But right now, it's confined to IGBT to the largest extent. And of course, we are acting on that.

And maybe, Andreas, you want to add on what we are doing in China for China in order to position us well in the local market?

First, local innovation. So we are tightly working on one or the other customization element, be it on product level or application level. Second is then also local operations. So we are about to further strengthen also our ability to service customers, logistics locally. Third point is then also local manufacturing. So for selected technology and product buckets, we have a strategy, and that has been shared with you a couple of times in the meantime, where we say we bring those products into local manufacturing sources, if you will.

Typically, these are generation today minus N kind of products in order to supply the China market in China for China. And fourth point I want to mention is then also our strengthening of local ecosystem, what we call. So we're working together with quite a comprehensive network of design houses, if you will, value-added resellers that then, together with Infineon and Tier 1s, Tier 2s and OEMs form, so to say, ecosystems that drive innovation in key applications for Infineon together with Chinese market players then also going forward.

All right, everybody. We are reaching almost the length of the full football match here. We are now concluding our fiscal second quarter conference call. Thanks for all your questions. To twist an old saying for the IFX stock, buy in May and stay. Further questions, please contact the IR team. Take care, enjoy springtime, and have a good day.

That concludes today's conference call. Thank you, everyone, for joining us. You may now disconnect.

Good morning, and welcome to the conference call on the results of the Second Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator [Operator Instructions] And that the conference call will be recorded. [Operator Instructions] The conference may not be recorded for publication.

I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead.

Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers, welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon Management Board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management; and Dr. Sven Schneider, Chief Financial Officer.

Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the Management Board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 a.m. Of course, our press team, led by Andre Tauber and I will remain at your disposal afterwards.

Having said that, I'll hand the floor over to Jochen Hanebeck now.

Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis I mission returned to earth about 3 weeks ago, 4 astronauts landed back safely on earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations even under the extreme conditions of space from critical power supplies and control systems to data communication, our technologies and radiation hardened components made a significant contribution to the electronic backbone inside the Orion capsule.

My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. However, we're also seeing some success on our planet, a broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets. While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rate and inventory levels are showing a significantly improved picture. This picture continues to vary by application area.

In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the Automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters, while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing.

Now let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations. Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis as the U.S. dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects, on the one hand, the positive effects of rising volumes.

On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high-voltage business in the Automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second. Now the recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%.

And the order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters.

Now let's turn to the results of our 4 business segments in the second quarter, starting with Automotive. Before we look at ATV's quarterly performance, let's take a brief look back. We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-on-year from 32% to 36%.

Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.830 billion during the reporting period. We were able to offset price declines in the low single-digit percentage range with high unit volumes. Segment earnings amounted to EUR 331 million. The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors: charges related to our businesses with high-voltage power semiconductors for electric powertrains as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds.

Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm, S&P Global, revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth driven, for example, by the rapid proliferation of software-defined vehicles is more important than actual vehicle sales figures.

The trend towards electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected. Market pressure is particularly pronounced for high-voltage power semiconductors for the electric powertrain. Intense competition driven in part by the significant expansion of the manufacturing capacity in the sector and the shift in attitude towards e-mobility promotion has led to prices and volumes falling faster than expected. The result of this, the profitability level in our automotive high-voltage business is unacceptable to us. That is why we are fundamentally realigning it.

In addition to the restructuring of our back-end production of automotive frame modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. However, this is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply.

Let me now take this opportunity to emphasize 2 important points. First, Infineon is committed to electromobility, and we will continue to drive it forward, but we will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high power voltage -- high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors and sensors in any way, not even MOSFET transistors.

Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. Now in the meantime, Infineon is driving the adoption of software-defined vehicles. The combination of powerful computing power, fast and secure connectivity and intelligent power management forms the foundation of these vehicles, and Infineon is a leader in all of these areas.

A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, the connectivity from the BRIGHTLANE family, our power management ICs as well as smart power switches and eFuses. And of course, it has an electric powertrain. This just demonstrates how closely the 2 structural trends in the automotive sector, software-defined vehicles and electromobility are actually intertwined.

We're also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands. These successes underscore the strong value proposition that Infineon offers to its Chinese customers.

Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories.

The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery. Inventory levels in the supply chain are reaching low levels. And as a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution.

The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. And in some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for semiconductor-based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density and improved scalability. As a result, they will increasingly replace conventional transformers.

We are already generating initial revenue in this area in the current fiscal year. We have also built up a robust design in pipeline and our business with solid-state power switches is developing well. So we have a solid foundation for future growth.

But let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.260 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solution for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They rose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter, another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions.

Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. And currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We, therefore, confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year as well as EUR 2.5 billion in fiscal year 2027 despite a weaker U.S. dollar.

With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out, thanks to deep system understanding, quality and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures. A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance.

Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players.

The semiconductor value per kilowatt of installed power ranges between $100 and $250. The average has now risen further to around $175. This semiconductor value per kilowatt installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion to EUR 12 billion by the end of the decade. Now the background of this, gigawatt installation plans are growing rapidly, also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic.

Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the Government Documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter.

Now the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum in design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems.

Another positive impact of AI adoption for Infineon is growing demand for our secure element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data.

Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon. Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely, Automotive, Power Systems and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems.

Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. And we aim to meet these demands by further enhancing customer value, reducing complexity and thereby becoming more agile. Now the guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it.

Automotive, of course, remains responsible for the key trends in the Automotive sector, software-defined vehicles and e-mobility as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure.

In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is, therefore, formed from the combination of GIP and the power business of PSS.

Edge Systems or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation and smart home applications. ES brings together the current CSS division as well as PSS' sensor high-frequency and USV business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter.

With the 3 divisions and clear responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS and 20% ES. The new divisions can thus also leverage economies of scale.

Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely. We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the Automotive sector, we see manufacturers replenishing their semiconductor inventory to reasonable levels.

On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are, therefore, raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the U.S. dollar and the euro from EUR 1.15 to EUR 1.17.

For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit percentage range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth.

For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is, of course, a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue. The ATV business unit is expected to post slight revenue growth, driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high-voltage business on the other hand.

Now to put this in perspective, excluding our high-voltage business and the Ethernet business, which is being consolidated for a full year for the very first time and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. Now for the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions.

For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising. The segment profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. However, the planned reduction of inventory levels is having a dampening effect here.

These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy and freight due to the war in the Middle East. We also have factored in these direct impacts. However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions.

Now to our investments. In the current fiscal year, we continue to plan our capital expenditures of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our smart power fab in Dresden on July 2.

We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies. Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles as well as robotics and Edge AI in the coming years.

Finally, here our expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously.

Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I'm happy to answer your questions.

[Operator Instructions] The first question comes from Hakan Ersen from Thomson Reuters.

Mr. Hanebeck, earlier you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year?

No. This doesn't generally translate into that message. But in some areas, we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There, we are doing all we can to continue expanding our capacities. But whether this will be sufficient for everyone and everything isn't something I can say today.

Okay. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct?

Yes, that is correct. Especially the 300-millimeter fabs really have very, very high capacity utilization. That I can tell you.

[Operator Instructions] The next question comes from Joachim Hofer of Handelsblatt.

I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion, that is roughly 10%. Is that correct?

Yes, that is correct.

Okay. Great. The second question, because you -- a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials?

Sven Schneider will answer that question.

Yes. Indeed, we see that, but it is safe for you to assume that the industry has learned its lessons from the past crisis in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. This is something that we do with helium as well. So we see that, but we can always work around such problems.

So from our current standpoint, we don't have any material effects. But as Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook.

The third question I have is this, perhaps you can give me a more detailed explanation of what you want to do with the high-voltage business because it was rather complex in your presentation. So what you're doing is fitting out the portfolio, if I understood it correctly. But what are you doing above and beyond that?

Yes, that's correct. But let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. Now there's one area, the high-voltage products. And here, we're talking about the inverters, in particular, which take the current from the battery. They turn the AC current into DC current. And in the past, this was done by IGBTs. And now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure.

IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China. This coupled to a drop in worldwide volumes because you mustn't forget that the market in the United States has basically collapsed. It is growing in Europe, but not as fast as anticipated. And China as a local market is running into a phase of stagnation.

So unit figures are going down. And therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities can be repurposed or rededicated quickly, for instance, into AI applications, if needed. And when it comes to assembly, we need to adjust capacities. And this is why we are taking the measure in Warstein, which we announced in November.

Above and beyond that, we are taking a look at our portfolio to figure out where in the future, when new price points are formed, we can generate customer benefits. And here, in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise.

We have the right manufacturing footprint and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or maybe put on the back burner. So what we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high-voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do. Thank you very much.

[Operator Instructions] We do not have any further questions. I hereby close the Q&A session, and I would like to ask Mr. Hanebeck to make his concluding remarks.

Dear listeners, I'll summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area.

Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from 4 to 3 business divisions with a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory.

Thank you for your interest, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2026 Fiscal First Quarter Results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technologies. As a reminder, this call is being recorded.

This conference call contains forward-looking statements and/or assessments about the business, financial condition, performance and strategy of the Infineon Group. These statements and/or assessments are based on assumptions and management expectations resting upon currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control.

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

At this time, I'd like to turn the call over to Infineon. Please go ahead.

Thank you, Mathilde. Good morning, ladies and gentlemen. Thank you for joining our first earnings call in 2026. New beginnings, tried and tested setup. At this call, you have our CEO, Jochen Hanebeck; our CFO, Sven Schneider; and our CMO, Andreas Urschitz.

Jochen and Sven will provide an overview on the market situation and divisional performance, key financials and of course, our outlook with a spotlight on our AI business. After that, we will start our Q&A session. As usual, the illustrating slide show is available at infineon.com/slides. And we will provide a PDF with Jochen and Sven's introductory remarks in the course of the call on our website, namely infineon.com/investor. This is also your go-to place for a recording of this conference call, including the aforementioned slides, a copy of our earnings press release as well as our investor presentation. And now, Jochen, over to you.

Thank you, Alexander, and good morning, everyone. 2026 is barely more than a month old, and yet multiple dynamic geopolitical developments have unfolded, affecting our markets in various ways. At Infineon, the past few weeks have been eventful and successful. Already in our last earnings call, we discussed how the breadth and intensity of the recovery in semiconductor markets outside of AI would be challenging to predict in the light of very dynamic external circumstances. Near-term indicators such as order intake or lead times are now starting to align in a positive way and visibility is improving.

That said, we feel our view of a gradual and uneven recovery remains appropriate for the time being. In addition, setting a prudent bar has proved to be a sound approach to full year forecasting in these times. Automotive and industrial markets are beyond the cyclical trough, but demand has yet to really inflect. Consumer compute, xAI and communication markets are in the early innings of the up cycle.

AI remains the clear standout, continuing its extraordinary growth propelled by sustained massive investment in data centers and related infrastructure. We will double down on the highly attractive opportunities opening up for Infineon as the leader in powering AI by ramping up capacities even faster than previously planned and pulling in related investments.

At the same time, we are continuing to strategically build the best-in-class portfolio in the categories of power, analog and sensors, control and connectivity aligned to our leadership plane in Power Systems and IoT. With adding the non-optical analog/mixed-signal sensor portfolio from ams OSRAM addressing automotive, industrial and medical applications in equal parts, we are significantly strengthening our sensor capabilities and will be able to offer our customers even more comprehensive system solutions.

More on both topics, accelerated AI investments and the acquisition of ams OSRAM sensors in the PSS section. As you can see, Infineon and the beginning of 2026 have one thing in common, speed. Our fiscal year 2026 saw a successful start pursuant to our guided numbers. Revenues in the December quarter came in at EUR 3,662 billion. The sequential decline of 7% is basically in line with our usual seasonality. Compared to the same quarter 1 year earlier, our first fiscal quarter's revenue were up 7%.

On a currency-adjusted basis, annual growth would have been close to 14%, given that the U.S. dollar has considerably weakened over the past 12 months. The segment result for the December quarter amounted to EUR 655 million, corresponding to a resilient segment result margin of 17.9%, relatively stable compared to 18.2% in the quarter before.

Sven will talk about the puts and takes in his section. Our order backlog increased by a good EUR 1 billion quarter-over-quarter to around EUR 21 billion at the end of December. It is rising continuously now for around 6 months. Given that this number reflects price adjustments resulting from annual contract negotiations, the underlying uplift is stronger as recovery momentum is building.

Now to our divisional review, starting with Automotive. In the first quarter of the 2026 fiscal year, Automotive revenues amounted to EUR 1,821 billion, sequentially down by 5%, driven by usual seasonal order patterns and the anticipated pronounced inventory management by customers towards calendar year-end. On a year-over-year basis, Automotive grew by 4%, which equates to about 10% at constant currencies. The segment result came in at EUR 403 million with a segment result margin of 22.1%, relatively stable compared to the quarter before. Fall-through from volume declines was mitigated by a lower underutilization costs resulting from internal capacity transfers to AI-related products as well as positive mix effects.

Looking at the overall market development for automotive semiconductors in 2026, we continue to assess the situation in the same cautious manner as communicated in November. Car volumes have thus far been tracking in line or slightly above expectations, while several uncertainties regarding momentum in China or the impact of U.S. tariffs persist. Looking at secular content drivers, the near-term picture remains differentiated. E-mobility is challenged by headwinds like withdrawals and reduction of subsidies and a generally less favorable regulatory background. Recent announcement like the re-introduction of EV purchase incentive in Germany will have a limited impact on the current year.

In contrast, the transition to software-defined vehicles is gathering momentum and more and more such models are being launched globally. Further trends supporting semi content growth such as higher-level ADAS, increased comfort features and the upcoming introduction of the 48 Volt architecture remain unabated. With our leading franchise of automotive solutions, Infineon is ideally positioned to serve customers across all the mentioned trends. Recognizing there are different developments, we are actively shaping our business portfolio.

On the power side, for electric vehicles, we are reducing our exposure to less differentiated silicon-based high-power parts for drivetrains, focusing instead more on silicon carbide, complemented by analog/sensor, control and connectivity parts. On the side of software-defined vehicles, the recent addition of Automotive Ethernet capabilities proves to be ideal to comprehensively support our broad customer base. Furthermore, our family of AURIX microcontrollers, which is defining the gold standard from zone to edge computing is outgrowing the MCU market, and we expect several new platforms in 2026 to ramp.

Lenovo's choice of Infineon's AURIX as safety host for their flagship autonomous driving domain controller units is another testimony to our global customer landscape. We also see consistent design win momentum in our non-drivetrain, powertrain and analog categories. This includes component for the latest 48 Volt-based power steering for a major American OEM platform as well as an upcoming functional safe steer-by-wire system for a German premium OEM. The Design-Wins covers our line of automotive-grade MOSFETs as well as related analog power management ICs and gate drivers and of course, AURIX microcontrollers.

Now to Green Industrial Power. The segment recorded revenues of EUR 349 million in the December quarter, which is typically the seasonally weakest one. All areas witnessed sequential declines with the exception of grid infrastructure, where revenues rose substantially. With effect of the beginning of our running 2026 fiscal year, we merged our gate driver business with a high double-digit million euro annual sales volume from GIP into PSS. Historic numbers have been adjusted accordingly.

Bearing this in mind, the like-for-like, quarter-over-quarter revenue decline of GIP was a steep 21%, reflecting besides seasonality and ongoing challenging market environment. Correspondingly, the segment result of GIP dropped to EUR 31 million, equivalent to a segment result margin of 8.9%. Industrial markets revenues are closely correlated with global economic health. In the light of continuing macroeconomic uncertainties, only a shallow recovery for core industrial applications is expected in the near term.

Similarly, there are no clear signs for an upswing in HVAC or home appliances. Regarding renewable energy generation, solar and wind installation are expected to stay on a high level, leading to a more or less flat inverter market. The picture on the grid infrastructure side is brighter and will support midterm growth. Continuously rising investments into AI data centers and the higher share of renewables in the energy mix call for expanding, modernizing and stabilizing the power grid. High reliability is a key requirement here.

Our product portfolio, in particularly, our leading silicon carbide technology and related module offering positions us optimally to benefit from grid upgrades. Such upgrades will involve applications like large-scale energy storage systems, uninterruptible power supplies and solid-state circuit breakers and solid-state transformers. Regarding the later, we are engaged in dozens of customer projects with very promising midterm business potential.

Let's now move to the Power & Sensor Systems segment. PSS printed revenues of EUR 1,171 billion in the December quarter. The small sequential decline of 3% on a comparable basis adjusted for the transfer of gate drivers from GIP is the result of opposing developments. On the one hand, power solutions for AI servers saw unabated very strong momentum. On the other, smartphone components showed their usual negative seasonality.

Furthermore, as we had flagged in our last earnings call, we faded out so-called fab fillers, which we had temporarily put in to utilize otherwise idle manufacturing capacities. These developments are also reflected in the margin trajectory of PSS. The segment result increased to EUR 204 million, corresponding to a segment result margin of 17.4% after 14.5% in the previous quarter.

On the market side, demand for consumer, general compute and communications applications show signs of a broader pickup, yet customer ordering behavior remains short-term oriented amid macroeconomic volatility. A vastly different dynamic applies to AI. Powering data centers constitutes an unprecedented growth opportunity. Infineon is at the forefront of it. Our unmatched portfolio breadth, system understanding, speed of innovation, quality and delivery capability make us the partner of choice for all relevant GPU makers and cloud providers.

Our revenues from AI power solutions keep growing steeply. We re-confirm our target of around EUR 1.5 billion for this fiscal year. This number is still supply limited. In other words, not capped by demand, but by how fast we and our manufacturing partners can bring up capacity. And let me be clear, in contrast to some peers, which in their disclosure do not differentiate between AI and other enterprise data center business, the EUR 1.5 billion of Infineon are purely related to AI. Separately, we do another EUR 500 million, give or take, of classical data center revenues.

Meanwhile, projections of build-out of AI data centers and related infrastructure keep going up. More and more AI is showing tangible benefits and real-life use cases. Several of these we witnessed in our own company, for example, improving speeding up chip design, software development or customer engagement. The demand from our customers for the coming years is still going up quarter by quarter. Therefore, we are doubling down on AI. We have decided to pull in EUR 500 million this fiscal year to accelerate AI-related capacity increases in order to fuel growth beyond the running fiscal year.

These investments, including the conversion of existing IGBT capacities are capital efficient and will underpin our market leadership. Large part of them will be used for faster than originally planned ramp-up of our new power and analog/mixed-signal fab module in Dresden. Fortunately, we are able to accelerate the opening of the facility to the summer. With the additional capacity, we project to achieve AI-related revenues of around EUR 2.5 billion in our 2027 fiscal year. Said differently, we will add another EUR 1 billion of margin accretive business next year, thus expanding our AI revenues by a factor of 10 within just 3 years.

Let me also briefly comment on the announced acquisition of the non-optical analog/mixed-signal sensor portfolio from ams OSRAM’. The transaction is a perfect strategic fit as it will strengthen our position as a leader in sensors for automotive industrial markets through a complementary portfolio and extend our product range in medical applications. The acquired portfolio adds advanced mixed signal and medical imaging technologies that complement our strong position in high-precision sensing. The transaction is structured as a fabless asset-deal with a purchase price of EUR 570 million, covering sensor products, R&D capabilities, intellectual property and equipment.

It is subject to customary closing conditions, including regulatory approvals and it is expected to close by the second quarter of calendar year 2026. Around 230 highly skilled employees will join our sensor units and RF organization within the PSS division. The business is expected to generate around EUR 230 million in revenue in calendar year 2026. The transaction will be accretive to earnings per share right upon closing with future synergies enabling substantial additional value creation. There with our acquisition criteria for strategic, financial and cultural fit are all fully met.

Now to Connected Secure Systems, the revenue of CSS of EUR 321 million constitute a quarter-over-quarter decline of 13%, driven by a mix of seasonality and the fulfillment of CRA orders in the preceding quarter. The segment result of CSS decreased to EUR 23 million, resulting in a segment result margin of 7.2%. The market for IoT solutions remains in the doldrums at present with macroeconomic risk and low consumer confidence weighing on recovery expectations.

Over time, AI moving to the edge will open up more and more opportunities for innovative industrial and consumer applications. AI enables secure, connected low-power devices will proliferate. Market researchers project their number to reach EUR 30 billion by 2030. By strengthening our hardware and software competencies in this field further, we are positioning Infineon optimally to reap structural growth opportunities.

Take connectivity as an example. We announced the industry-first Wi-Fi 7 20 megahertz tri-radio device optimized for IoT. The new product integrates Wi-Fi 7, Bluetooth Low Energy, Thread and Matter in a single device. It has the lowest Wi-Fi connected standby power in the market and allows customers to achieve reliable performance for increasingly congested smart home and commercial environments.

Now over to Sven, who will comment on our key financial figures.

Thank you, Jochen, and good morning, everyone. Let me first highlight our margin development in the December quarter notwithstanding the sequential revenue decline, the adjusted gross margin expanded by 230 basis points to 43% after 40.7% in the quarter before. The reported gross margin increased quarter-over-quarter from 38.1% to 39.9%. As predicted, the temporary fab fillers on the consumer side of PSS, which had burdened margin levels at group level by around 1 percentage point in the previous quarter were ended.

Furthermore, the margin was supported by improved productivity and by lower idle costs quarter-over-quarter. After loading reduction in the previous quarter, we selectively increased fab loading and inventory levels again to be well prepared for the recovery in broader markets. Offsetting the gross margin expansion somewhat was the increase in research and development expenses from EUR 565 million to EUR 626 million in the December quarter. While items like public funding or capitalization rates fluctuate and can distort quarterly comparisons, the underlying trend reflects our clear conviction that innovation remains key to our differentiation and hence, value creation.

In the field of connectivity, we are further expanding our BRIGHTLANE family of Ethernet switches and PHYs or think of the Tri-Band device for IoT, including Wi-Fi 7 that Jochen just mentioned. Unlike R&D, our selling, general and administrative expenses remained practically flat with EUR 409 million. Non-segment result charges for the first fiscal quarter amounted to EUR 267 million. The financial result for the December quarter amounted to minus EUR 56 million after minus EUR 64 million in the quarter before. Income tax expense for the December quarter was EUR 82 million, a noticeable decline from the EUR 152 million in the quarter before, which had contained several valuation effects related to deferred taxes.

The effective tax rate for the first quarter of our 2026 fiscal year was 24%. Cash taxes for the same period were EUR 70 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 15%, given typical time lags between prepayments and adjustments we currently expect this rate to go up throughout the year towards 20% to 25%. Our investments in property, plant and equipment, other intangible assets and capitalized development costs increased quarter-over-quarter from EUR 451 million to EUR 582 million. Depreciation and amortization expenses, including acquisition-related nonsegment result effects, amounted to EUR 478 million.

Our free cash flow in the quarter under report came in at minus EUR 199 million given that the previous quarter's number was significantly influenced by the closing of the acquisition of Marvell's Ethernet business a like-for-like comparison should consider the strong organic free cash flow of EUR 904 million recorded in the September quarter. Compared to this figure, we saw a lower business volume, fewer public funding receipts, higher investments, the payout of the bulk of annual variable compensation and an overall negative working capital effect in the December quarter. The latter was mainly driven by the increase in on books inventories. As mentioned earlier, their reach now being at 183 days.

Now to our liquidity and leverage situation. The negative quarterly free cash flow led to a decline in our gross cash position from around EUR 2.1 billion to around EUR 1.8 billion at the end of December. Gross debt remained unchanged at EUR 6.8 billion after the initial financing of the Marvell Ethernet acquisition in the previous quarter. The resulting net debt amounts to around EUR 5 billion. Our gross leverage remains around our self-defined threshold of 2x net leverage is corresponding to 1.4x. For funding the takeover of sensor activities from ams OSRAM, we plan to incur additional debt, so no equity, only debt as part of our annual corporate financing plans. The transaction will add approximately 0.1x to our leverage at current cyclically subdued EBITDA levels.

I'm pleased to report that Standard & Poor's this morning have confirmed our rating at BBB+ with stable outlook, including the ams OSRAM sensor acquisition, reflecting our strong business profile and our conservative financial policy.

Back to the ROCE. Our after-tax reported return on capital employed came in at 5.2% for the first quarter of our 2026 fiscal year. Before giving back to Jochen, who will comment on our outlook, just a quick reminder. Our Annual Shareholders Meeting will be in about 2 weeks from now on the 19th of February here in Munich for the first time in a physical format again after several years. You can, of course, also follow it online.

Yes. Thank you, Sven. Our outlook continues to be framed by our market view of a gradually -- gradual and uneven recovery. Timing, pace and slope of the cyclical upturn very considerably across market segments. Despite persistent geopolitical and macroeconomic uncertainties, visibility is incrementally improving as customers are putting in more and more orders for delivery in 2, 3 quarters. This appears to be partly driven by fears of capacity spillover effects from booming AI, potentially resulting in supply tightness for similar products in non-AI areas. Inventory levels have generally normalized throughout automotive and industrial supply chains, yet customer confidence needs to further improve for a restocking.

Against this background, we are, at this point in time, reiterating our annual outlook, which had been derisked to account for the mentioned headwinds. For the sake of clarity, our forecast does not include any effects from the pending acquisition of the sensor portfolio from ams OSRAM. For the currently running March quarter, we predict revenues of around EUR 3.8 billion based on an unchanged assumption of a U.S. dollar-euro exchange rate of [ 115 ].

By segment, revenue at ATV and CSS is expected to remain roughly stable quarter-over-quarter. For GIP, a moderate increase as expected, whereas PSS revenue should grow significantly. For the second fiscal quarter segment result margin, we expect a mid- to high teens percentage level. As always, in this quarter, volume growth will be offset to some extent by contract-based annual price adjustments kicking in. For the group, these are in line with our initial assumption of a low to mid-single-digit decline with considerable variance across the different businesses.

For the full 2026 fiscal year, we continue to expect revenues to be moderately up compared to the previous fiscal year based on an assumed U.S. dollar euro exchange rate o 115. As a reminder, we expect our business segments to follow markedly different patterns. ATV should grow below group average. In contrast, we expect PSS to grow significantly faster, driven by very strong demand for our AI power solutions for which we reconfirm our revenue assumptions of EUR 1.5 billion for this fiscal year.

For GIP, we assume revenues to grow slightly year-over-year, whereas for CSS, we expect revenues to be -- remain flat as IoT demand remains sluggish. Regarding profitability, we continue to expect our full year adjusted gross margin to come in at low 40s and our segment result margin to land at high teens percent level. The adverse currency development together with typical price decline will work against the positive fall-through effect from volume growth and further benefits from our step-up program.

In this context, we announced today the completion of the divestiture of the former Cypress back end in Bangkok. We will pull in around EUR 500 million of investments related to powering AI to support steep revenue growth in the next fiscal year, as already mentioned. This will bring total investments in this fiscal year to around EUR 2.7 billion.

As the majority of the additional equipment will arrive late in our fiscal year, there will be no material impact on our depreciation and amortization this year, for which we anticipate a value of around EUR 2 billion. This includes amortization of around EUR 400 million, resulting from purchase price allocations mainly in connection with the acquisition of Cypress and Marvell's Ethernet business, which will be recognized in our non-segment results.

For the free cash flow, we now expect a level of around EUR 1 billion for fiscal year '26, down from previously estimated EUR 1.1 billion. Given that a portion of the increased investment will be paid for within the running fiscal year. Our adjusted free cash flow net of investment into major front-end buildings and M&A transactions is likewise expected to come in at a lower level and amount to around EUR 1.4 billion after EUR 1.6 billion before in the context of significant value creation from profitable AI growth.

Ladies and gentlemen, let me summarize. The first quarter of our 2026 fiscal year came in at the better end of our guidance, a result of the anticipated seasonality, geopolitical cross currents and macroeconomic volatility continue to temper cyclical dynamics. Therefore, our base case of a gradual uneven market recovery still fits well for the time being. We reiterate and confirm our outlook of moderate revenue growth, low 40s gross and high-teens segment result margin for our 2026 fiscal year, a prudent base case.

Within this guide, low growth is expected for Automotive, muted short-term xEV demand is more than offset by the trend towards software-defined vehicles. We shift our business focus accordingly. There is no AI without power, and we are doubling down on this unprecedented opportunity.

We confirm our revenue targets of around EUR 1.5 billion for fiscal '26 and around EUR 2.5 billion in fiscal '27. With the acquisition of the automotive, industrial and medical sensor portfolio from ams OSRAM, we strategically strengthened our unparalleled portfolio of power, analog sensors and control and connectivity solutions in line with our claim for leadership in power systems and IoT. We optimally address therefore, secular growth drivers and nurture profitable growth.

Ladies and gentlemen, this concludes our introductory remarks, and we are now opening the call for your questions. Tried and tested procedure, we kindly ask you to limit yourself to 1 question and 1 follow-up. Operator, please start the Q&A session now.

Thank you. [Operator Instructions] And we'll take our first question from Lee Simpson from Morgan Stanley.

Great. Jochen, maybe just kicking off on that data center sales guide. As we look at the landscape, there really aren't that many gigawatt scale capable racks, racks that can be put into gigawatt clusters. There's maybe 2 today and maybe a third provider likely coming by that '27 time frame. So the sense here looking at Infineon is that you have some pretty solid and growing market share in support of that EUR 2.5 billion guide. Is that the right way to look at this? Or is it more about the broadening incidence of new technologies, in particular, things like vertical power delivery.

And I think maybe just as a quick follow-up. Just looking at that acquisition of ams OSRAM, it would seem you've taken in a pretty good mixed signal business, could that be integrated into Kulim or Dresden? I mean I guess what I'm looking here is trying to understand where the production integration gives you future synergies from this business.

Okay. So I'll take the second and then Andreas will talk about the first question, Lee. So ams OSRAM, indeed a very attractive portfolio for a very attractive price, right? EUR 230 million in calendar year '26 expected. The profitability was announced yesterday by the seller to be EUR 60 million, and we are paying EUR 570 million for a sticky mixed-signal portfolio. Indeed, we will at first place, of course, integrate functionally, so R&D and so on, but we will also start to transfer high-volume products into our facility in Kulim and this way benefit from material value creations in this context.

So -- and that will, of course, take a while, a couple of years, but then this will take the business to a very profitable part in our portfolio. And now I handover to Andreas.

Yes. Coming back to the question on data centers. So first, regarding data center capacity deployment -- we see reality being pretty much in line with what is being also told by analysts. So just to give you an example, the Big 4 data center operators talking about AI data centers in the U.S. have issued plans and are in deployment of these plans to double down in data center capacity in the upcoming 1 to 2 years. Having said that, we, on the 1 hand side, see an increase of data center capacity driven demand for semiconductors that power these data centers.

Second of which, we also see that accompanied by improvement of GPU, GPU capability. It's just a rollout of next-generation GPUs, which are, on the one hand side, more performance. On the other hand side, also more power hungry. This results in higher power requirements and an increase of average power consumption per rack.

So having said that, Infineon is benefiting from this trend of more data centers plus higher power on the one hand side. On the other hand side, we are also benefiting from architecture changes in terms of customers moving from lateral power solutions at a fast pace towards what we call vertical power. And that has to do with huge power amounts and currents to be switched next to the processor that results in vertical power becoming imperative to efficiently power GPUs of future generations.

And maybe let me add. So we are clearly benefiting here also from a broad customer portfolio, right? We are not only engaged with 1 or 2, but with all hyperscalers and relevant GPU makers across the globe. And for us, of course, the second stage part is giving us particular growth momentum. So we expect the share of the second stage in the overall numbers to increase over the quarters to come, as Andreas pointed out that vertical power deliveries, the modules have a much higher value. And again, we are here teaming up with all GPU makers or ASICs makers whatever you want to call them.

The next question comes from the line of Joshua Buchalter from TD Cowen.

I also wanted to unsurprisingly ask about data center power. Could you maybe -- any metrics you're able to provide on how much you think you're undersupplying this year? And are there any share implications of you guys and being able to -- or not being able to meet the full extent of your demand? And does the number for 2020 -- fiscal 2026 -- or excuse me, fiscal 2027 that you just gave, does that assume that you're able to meet demand? Or are you still constrained with that EUR 2.5 billion number?

Yes. This market is extremely dynamic. And first of all, we will try everything to serve our customers' demand to the maximum extent this year. This has to do with internal ramp-up of new capacity, but also very much conversion of IGBT capacity to leading edge MOSFET capacity for the AI world. So here we have a task force running under the leadership of our COO, to really capture the maximum value. The number for next year, we came up is EUR 2.5 billion. This is not necessarily the max number, but also please keep in mind that these platforms, which are launched pose very challenging technical situations, and we need to execute on them.

And I think over time, we will be able to give more transparency on this. But again, the biggest opportunity I've seen for the company in the last 30 years, but also a very challenging for the teams to capture technically with very demanding customers. So at this point in time, I would like to leave it with this.

Okay. And then for my follow-up, I wanted to ask about gross margins. So it sounds like you took up utilization rates to built some inventory in the December quarter, and then that was reflected in the printed gross margins, you maintained the guide for the year, I believe, of low 40%, which kind of implies flat to down for the rest of the year. Is that a fair read? And sort of how are you thinking about managing utilization rates from an inventory levels from here and the read-through to gross margin?

Yes. On the under-utilization, I will answer, and then Sven will take the effect on the gross margin level. But from a utilization point of view, you can assume that the 300-millimeter factories will -- are or will be soon fully loaded as we are converting IGBT to AI MOSFETs. So that's happening as we speak. Then, of course, we still have some idle in non AI-related technologies. But also here, we are trying or there will be sort of -- we expect a certain spillover or, call it, halo effect from this AI boom, meaning that MOSFETs going into telecommunication or automotive will, of course, be also see this demand.

So in other words, this MOSFET market below 100 volt, which is the main area we are talking about is typically before AI, a market of EUR 6 billion, $7 billion. And now this whole AI demand comes on top, of course, you have to subtract then the module share because the market is defined by die in a package. But still, it's a very significant impact on this EUR 6 billion to $7 billion depending on the currency market. And we expect this to have significant effects, and we are trying to serve customers with our leading-edge MOSFETs across all end markets ranging from AI to automotive to telecommunications in the best manner. But of course, here also the supply-demand situation will be reflected in our pricing.

Yes. And maybe now some other information on the numbers, Josh. I mean, let us run through. First of all, there is a strong increase on the gross margin from Q4 to Q1, 230 basis points up. There is a negative contribution from lower revenues, which has been overcompensated by the end of the fab fillers and the PSS division by more productivity and by lower idle as you pointed out. You may recall that in Q4 in order to manage also inventory levels for the year-end, we have reduced loading. So idle went up. Now we are back to higher utilization rate, therefore, the idle is coming down. So that explains Q4, Q1.

Now for the -- you're asking for the trend of the rest of the year, I mean, we are guiding for low 40s. I think the 43% is, in my mind, consistent to such a guidance. And now it depends on the perspective on the different quarters. You are aware that in this fiscal quarter, there are these price agreements from especially automotive kicking in. On the other hand, there is continuous improvement on the productivity and step-up side.

And if you think about the idle cost development, we are guiding down a bit compared to November in terms of idle given that we are successful with the conversion of idling IGBT capacity. So the number is now in the ballpark of EUR 700 million for the full year compared to EUR 800 million. I would say for modeling, take half for the first half and half for the second half.

And now lastly, on inventories. You also asked for that one because everything needs to be synchronized as you rightly mentioned, inventories in days are 183 given also that Q1 is a seasonally weaker quarter. End of the year target should be, again, 150 days range. So this is how I would look at the equation for the quarters to come.

We now have a question from the line of Janardan Menon from Jefferies.

I just want to look at your growth profile going forward given this very strong AI growth that you're seeing, you have guided on your target model for more than 10%. But roughly the EUR 1 billion of additional revenue in FY '27 is itself about 6% of growth for you in that year. So what -- I mean, the growth will probably -- the contribution will probably decrease into subsequent years. But because of the very strong AI demand coming through, are we looking at a mid- to longer-term growth profile for Infineon, which is well above what you had previously put into your target model. Any commentary there would be great.

My short follow-up is just on the AI power side. You did make a comment that you are seeing demand from all GPU and data center makers globally. Just want to know about China. There is a lot of GPU activity there. A lot of data centers as being put up there as well. Do you have a footprint for AI power solutions in that market to domestic players? Or is your market very much in the U.S. or the major U.S. players?

Yes. Andreas will take the second question, and I answer the first one. So we feel that our target operating model calling for 10% over the cycle and a 25% segment result margin. And please remember that was stated at a dollar-euro exchange rate of 1: 1 is still valid. And the growth in AI certainly helps. We also have given you numbers for the midterm. We have talked about a SAM of EUR 8 billion to EUR 12 billion by the end of the decade. We have given indications on market shares. And I think this is what we can state at this moment in time because for sure, we cannot give yet a guidance for '27 or beyond.

And talking about the China data center market, [ Jochen ], let me just add on. Yes, so Infineon is engaged, obviously. Historically, we used to be very active already in the recent past in the hyperscaler business. The typical hyperscalers in China, as a matter of fact, also move fast into building AI data center infrastructure as well. So as a function of this, Infineon is moving from its position in hyperscaling towards AI data center at pace with one of the same players, plus also additionally vertically integrated players that play in the league of large language model service providing and so on and so forth. So also there we are. So in summary, yes, we are engaged in China.

Next question comes from the line of Didier Scemama from Bank of America.

I've got a first question on pricing. Just wanted to understand a few things. You've got a few levers to pull, it feels. So first, I mean, clearly, with all the GPU customers you have, presumably, you've got also the customer AC customers plus inferencing where you also have content. I mean is that a lever you could pull already in '26? -- in your AI business if everybody wants the same chips. And obviously, for them, the ROI would be extremely positive if they could secure supply when the others cannot. And then related to that, I think, Jochen, you mentioned that for 48-volt MOSFET, there is a bit of tension with your customers.

So I just wondered because you've alluded also you could -- situation in stand. Is that something you could potentially contemplate raising pricing? And in that context, is that already reflected in your negotiation with Tier 1s? That would be great if you could give a bit of color on all these elements. In fact, if you could also comment on what your assumptions are for pricing for the full year? And I've got a quick follow-up.

Yes, Andreas speaking. So let me first react on the pricing question as such before I hand over to Sven to answer its implications in the P&L. So as far as pricing is concerned, Jochen said it before, we see this strong increase in AI-driven demand. Supply constraints are already here while we speak. There is a potential spillover of capacity resulting in supply tightness also for similar such products. Again, Jochen mentioned medium-voltage MOSFETs just as one example also outside AI. Therefore, as a matter of fact, pricing environment for affected product segments turn into more favorable territories. And last not least, we will adjust prices to reflect current market circumstances going forward. As far as, so to say, that being translated into P&L effects is concerned, I hand it over to Sven.

Yes. Thank you, Andreas, and hi Didier, so let me be very clear here. It's our rule that we first want to conclude discussions with customers on pricing before we reflect it in the guidance. Therefore, the answer is what Andreas was talking about is not included in this guidance. So this would be an upside, and there would be also a contribution in '26. But let's be also fair talking puts and takes. We also need to see how the dollar and how the commodity prices are developing for the remainder of the year. So there will be puts and takes. Therefore, from today's perspective, we believe it's the right guidance, but the additional pricing is not included.

Fantastic, very clear. Maybe looking at another potential challenge or at least a challenge is the memory shortage situation. So -- what have you contemplated in your guidance for the full year, in particular on the automotive side? I mean, are you assuming any volume destruction from the [ 91 million ], [ 92 million ] global [indiscernible], I think, consensus. Equally, are you seeing any [ despecking ] of certain function, whether it's [indiscernible] or ADAS, given the potential negative impact it would have on the -- on your automotive customers?

Yes. You know, Didier, that we are not much present in, let's say, high DRAM content products like smartphones or laptops, our share there is limited. In automotive, there might be an effect, but I still doubt a little bit that it has such a strong effect overall. But also please keep in mind that we are somewhat for various reasons, more conservative in our automotive sales -- global sales guidance. So I would think that this covers any effect out of this DRAM or NAND topic as well.

We now have a question from the line of Sandeep Deshpande from JPMorgan.

My first question is regarding your guidance for the year. I mean, you have changed the guidance slightly on GIP, where you were previously saying moderate increase, you're saying slight increase on CSS, where you said slight increase, you're now saying flat. At the same time, for this year, you haven't changed the AI guidance. And so I mean, there is no qualitative difference in your guidance on PSS. So how is it that the overall guidance for the year has remained unchanged?

Sandeep, yes, I mean, you're always very accurate in your observations. So everything you said is true for the divisions. So why does the 2 -- why did the 2 changes on GIP and CSS not change the overall guidance? Just look at the relative contribution of both divisions to the group, 2/3 remain stable. Now you can also turn the argument around and say, implicitly, we have upgraded the AI guidance because we stick to EUR 1.5 billion despite the fact that the dollar is weaker, which would be a counterargument. So basically, I would consider it to be, give or take, unchanged to November.

I mean just quickly on that. I mean, your FX -- the guidance on FX has remained [ 1.15 ]. So I mean, how does that FX impact the guidance? Because I mean then you should have raised the number, right, on AI for this year?

Yes. So Sandeep, again, that's, of course, always an important element, not only for you, but also for us in determining the right guidance. I mean, let's be very transparent here. First of all, we are living in volatile times for various reasons. And we cannot and don't want to adjust the FX rate every time when the dollar moves up or down. We are now at [ 1.18 ] spot. Yes. By the way, the first quarter was [ 1.16 ], where we were guiding for [ 1.15 ] and did even better in terms of revenue and profitability. So you are aware of our rule of thumb.

So if we just assume now for argument's sake, the dollar would stay at the [ 1.18 ] for the rest of the year, that would translate into the well-known, give or take, good EUR 200 million of revenue headwinds and below 50 basis points margin headwinds. So therefore, from today's perspective, we do not see an immediate need to adjust the guidance for currencies. And we believe that our operative strength will allow us to compensate for negative currency effects to a certain degree. And I would stop here. The rest we need to see, as I have given up on forecasting dollar rates, to be honest.

I mean just my follow-up question is on AI again. When you guide to this EUR 2.5 billion, which is a very strong number, is this based on regular orders that you get in the rest of your business? Or do you have contracts signed and that there are some kind of agreements with your customers that this is the level of revenue that will occur? Or how is this negotiated between yourselves and your customers that this revenue will come because the main customer there has, as you know, said publicly, they're going to get new suppliers into the market by next year. So how are you definitely because you are putting capacity in place for the customer?

So Sandeep, this is Jochen. There are no customer agreements at this moment in time, extending into '27, but we see a strong interest from all players to come up with longer-term agreements, potentially even CRAs because these customers all feel that this market might get into a supply shortage. And of course, here, Infineon is very well positioned in terms of supply capabilities given our Dresden facility, which will kick in next year at the perfect moment in time.

But again, I would like to say the EUR 2.5 billion is from our side, an estimate for next year. It's not necessarily the maximum, but we definitely also need to execute, especially all the technical challenge that are inherent to this sort of business with a very risk customers. And again, please do not think about one customer only. We have a broad customer base. We have vertical power deliveries across many of them. So that drives revenue to the largest extent.

The next question comes from the line of Alexander Duval from Goldman Sachs.

Just to go back to the ams-OSRAM deal. You referenced the solid profitability. I wondered if you could give us a sense of growth expectations, what's been seen historically there and how you're thinking about that going forward? And then going back to the automotive business, obviously, there have been discussion about China being somewhat weaker on the EV side. I wondered if you could give us some color about how that is balanced by what you're seeing in software-defined vehicles, which I think you highlighted is an area of strength.

Yes. Thank you, Alexander. So -- we said on ams-OSRAM, this portfolio we are buying. I think the seller says EUR 220 million last year. We are saying EUR 230 million this year. Don't take that as a growth trajectory. We are always a bit cautious in this phase over from a seller to a buyer, how much inventory we really find them at the day of closing. I would consider this business clearly as a business in the high single-digit growth area, much like other sensor players are also stating probably close to 10%. On the second question, EV China, indeed, the EV market overall is in, I would say, even a turmoil. U.S. situation known, European situation known.

China, you asked for, we will see less growth in EVs than in the past, we see price erosion, and that's why we have decided to reduce the exposure on silicon-based inverter products and rather focus on silicon carbide and take this IGBT capacity then to fuel our AI business. the overall high voltage or high-power business within automotive is now about -- projected to be around 10% of the automotive business. So we are defocusing part of that business. But of course, the inverter and silicon carbide-based inverter are clearly a focus for the company. But on the IGBT side, we have decided to go for a more margin accretive path leading towards AI.

We now have a question from the line of Andrew Gardiner from Citi.

Another one on the AI side, if I could. I'm just trying to sort of step back from what you have said in terms of being supply constrained this year and that limiting the potential upside. I'm just wondering what you're hearing from the customers as to the relative degree of supply constraint across these products across the market. I presume everybody is supply constrained. I'm just wondering about your -- let's say, your relative strength compared to the others. Even if you are supply constrained, are you in a relatively better position than some of the smaller peers given your scale?

And then also a quick clarifying question for you, Sven, on the cash flow guidance. Operating profit, you've kept similar. You've raised CapEx by EUR 500 million, but you've only lowered the free cash flow by EUR 200 million on an adjusted basis and EUR 100 million on a reported basis. What are the other moving within that perhaps around working capital that is sort of causing the lesser impact at free cash flow?

Yes. On the -- Andrew, on the customer side, so first of all, I can repeat all AI customers are basically interested now to engage with us on CRAs. I think we can update on the situation then in May, and they would not do this if they would get ample supply from other sources. given Infineon's position in the power MOSFET market below 100 volt, I think it's safe to assume that, of course, they watch us, they watch at our capability to supply. They watch at our investments into more capacity. And all of that is currently in discussions with relevant customers, how we can help them to not get into another bottleneck as they have seen with other parts like memory. So very dynamic situation, and we will update here in May.

Yes, Andrew, thanks for the question. Again, spot on to the free cash flow. I mean, here, 2 answers to the question. Firstly, the spend, given the lead times of the equipment and the tools we are acquiring means that some part of the additional invest in '26 will probably only be paid in the beginning of next fiscal year. So that explains already part of the fact why not EUR 500 million lower free cash flow, which was your question.

And secondly, to be very honest, it's an ambitious target to go to the EUR 1 billion reported and EUR 1.4 billion adjusted given that we want to be as close as possible to the targets we have communicated so far, yes, that's not a walk in the park, but we are working on all areas, be it on investments, be it on inventory management, working capital in order to support that. That's the background behind the free cash flow target.

The next question comes from the line of Johannes Schaller Deutsche Bank.

I wanted to zoom in a little bit more on the SDV side in automotive. Jochen, if I heard you correctly, I think you said that the demand in SDV is kind of compensating for the EV slowdown. I think Peter end of last year, maybe more suggested a kind of gradual ramp over the course of this year with more momentum in the second half. So has anything changed here in terms of what you're seeing for time lines and the demand on the software-defined vehicle side? And then secondly, just on your sensor business now. I mean, you obviously regrouped the sensor assets. You now bought the AMS business. How should we think about your positioning in sensors for your end markets and also some future markets like robotics? Do you feel you're relatively well positioned now? -- and maybe your M&A focus is shifting a little bit? Or is there more to do here.

Okay. So Johannes, on the SDV ramps, you're correct. SDV ramps do not come by surprise. They are long-term planned. And I would not expect here within a year to see shifts. But the SDV ramps notionally, of course, fuel our revenue growth on the micro side, on the Ethernet side, on the power distribution side, all very good business, whereas on the EV side, I mentioned the shortcomings in that area. On the -- on the sensor portfolio, we have taken a good step. You have seen the slides depicting the very nicely complementary portfolio in terms of technologies being capacitive sensors, be it additional magnetic sensor, which are addressing applications we have not addressed yet within Infineon and then, of course, the medical part.

So sensors keeps -- is, for me, an interesting area, but honestly, a very -- an area where you really seldomly find an asset like we have found now with ams-OSRAM. Typically, the valuations are very high. If you think about dedicated sensor players, they trade at up to 6x revenue. We are buying here a business of 2.5x of revenue. So a unique opportunity, and that's why we decided to go for it. Again, any future acquisition needs to align with the 3 dimensions we have always talked about strategic financially and culturally in this case, all tick marks and future opportunities, we need to see how the market develops. But by now, 30% of our revenue is in the analog and sensor area, and that is even without the ams-OSRAM.

So I think we are building up here a very nice portfolio and always aligned with our 2 major claims being the leader in power systems and IoT. So we are not buying assets across an area, but really targeted, and that helps here in this case a lot.

We now have a question from the line of Jakob Bluestone from BNP Paribas.

I had a question on industrial. I guess one of the sort of themes from the earnings season listening to your peers is the improvement in industrial. And that's not really what we've been hearing from you, and I appreciate there are differences in terms of product mix and how you allocate revenues as well between the different segments. But just interested in hearing your thoughts on what you're hearing from peers around industrial recovery versus, I guess, a sort of more stable message from you? And then I have a follow-up quickly after.

Yes. Thank you for the question. So indeed, our scope of industrial is slightly different. We have some business in automation, but that's not the big part. The big part is power infrastructure there in the renewable part, the expectation is that in 2026, global installation of renewables will in total volume, rather flatten off and therefore, will not contribute to a positive growth momentum, whereas this subsection under power infrastructure, what we call grid infrastructure, that is clearly showing a strong growth already as we speak.

But of course, it's only a share of the business. But we expect here for years to come, demand matching also very nicely our capabilities in terms of high reliability solutions and so on, whereas PV -- for example, there are some areas like in the IGBT-based EV inverter where we feel that the margin is less attractive, and we are also converting the IGBT capacity then towards AI in order to improve our margin profile. And on the grid infrastructure side, there are many interesting opportunities, ESS, solid-state transformer, solid-state circuit breakers, but they will play out in the midterm, but very interesting stuff.

And then just a quick question on R&D. Your R&D has been sort of historically pretty steady at about 550-ish per quarter and then this quarter jumped quite sharply. Is that sort of a lumpy one-off? Or is this the new run rate for R&D spend?

Look, Jakob, I think we are guiding nearly everything, not only a quarter for full fiscal year. We are now giving even revenue numbers for '27 for various rates. So please understand that I do not now want to go into components of OpEx and guide them. As I said in the intro, I mean, there are very, very important innovation areas. This quarter, it was a lot about connectivity and software-defined vehicle Ethernet. And if we see that, then we will invest the money, but I don't want to guide now a run rate. But of course, that's clear. R&D needs to work within our target operating model, and that gives you, I think, some boundaries for what we are investing.

That was now the financial interpretation and now comes the CTO telling you that, of course, we are ramping up R&D in the AI space. I mean that's obvious to create such a revenue performance. We need also additional R&D. In the other areas, we are gross or motor rather stable, so not much on the hiring spree. And of course, P&L effects like capitalization and funding also play a role in that regard.

The next question comes from the line of Francois Bouvignies from UBS.

I have 2 quick ones. The first one is on the gross margin. I mean, quickly, Sven, if I look at your gross margin, I mean, 43% in Q1 is very strong. You guide for low 40s. And if I look at your history, the 10 years history, usually gross margin is up in H2 versus H1. In fact, it has only happened twice that the gross margin was flat or lower, and it was during post-COVID margin or revenues under pressure. Otherwise, you consistently have higher gross margin. And based on what you said on the utilization rate or the unloading charges being flat through the year, H2 versus H1, I struggle to believe -- not to believe like that the gross margin will go up in H2.

So I just wanted to have your perspective on that. And my follow-up question is on the free cash flow. I mean, obviously, you have this CapEx increasing. and you have this acquisition again. So all you see in terms of top line recovery of the cycle plus the AI boom, when are we going to see more free cash flow coming through? I mean, is '27 a possible scenario after all these investments you are making right now ahead of it? Just to understand a bit maybe the free cash flow dynamic to unlock what you see on the top line and margins.

Yes. Thank you, Francois. I mean on the gross margin, I do not disagree with your statement to the historic patterns. They are, as you described. And in normal years where you have the seasonally weakest quarter in terms of revenue in Q1, then usually you have the prices kicking in, in Q2 and then you have a stronger second half, then this is, I think, a normal consequence. And I would not say that this year should be very different, but we also mentioned that there are some other things at play like the dollar, like the commodities, like the price increases Andreas was talking about.

And now it really depends on when they will kick in, and then we can jointly look again at the gross margin development. For the free cash flow, I mean, yes, it is this year, as we -- as I said already before, it's tight given that it's a year where many things come together. The non-AI business is not growing at the pace we wish it to be, given that the uncertainties remain. We call it a gradual and uneven recovery. Number two, we are investing into Dresden Module 4 and Wide-bandgap [ in ] Kulim at the same time.

And now we pull in AI investments. If you take all that together and we are still at the lower end of our free cash flow range, I think that shows the resilience and the attention we are paying. Now asking for '27. Of course, if you paint a picture, just taking consensus numbers that growth will be stronger next year, then there is, of course, a possibility that we will not stay at 150 days inventory levels for a long time. And of course, that would be very positive also for the free cash flow. I would probably stop there.

Yes. And besides the inventory for next year, of course, then it will depend on our outlook for the following fiscal year. that is then already what is the 2028 fiscal year on AI. So if this boom continues, we will definitely want to participate in that boom as it is highly accretive revenue. So too early to really predict. But I would say inventories related to especially automotive recovery as well as further AI investments beyond the EUR 2.5 billion will determine the free cash flow for the next fiscal year.

Thanks, everyone. Ladies and gentlemen, after generous overtime, it's not the final whistle on our Q1 earnings call. Any further questions, please feel free to contact the Investor Relations team. Take care, and have a good day.

Good morning. Welcome to the conference call on the results of the First Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilde. I'm your Chorus Call operator. [Operator Instructions] The conference call is being recorded. [Operator Instructions] The conference call may not be recorded for publication purposes.

I would like to now hand the floor to Florian Martens.

Thank you very much. Good morning, ladies and gentlemen. I hope that you all got off to a wonderful start to the new year, and I would like to welcome you to our conference call on the results of the first quarter of fiscal 2026. Participating at this conference on behalf of the Board are Jochen Hanebeck, the CEO; and Dr. Sven Schneider, our CFO.

Dear listeners, as usual, Mr. Hanebeck will start by giving you an overview of the business performance of Infineon. Afterwards, both members of the Board of Management will be available to answer any questions you may have. Our conference call will end on time at 8:45. Of course, our press team headed by Andre Tauber and me myself will be available for any follow-up questions.

And I'd now like to hand the floor to Jochen Hanebeck.

Thank you, Florian. Hello, and welcome. Dear listeners, we're only 1 month into 2026 and yet a lot has already happened when you consider the numerous geopolitical developments of the past few weeks. The markets and Infineon as well have seen quite a few events in the few recent weeks, and our company has been successful.

At our annual press conference call in November, we already noted that the highly dynamic conditions make it challenging to predict the breadth and the intensity of the recovery in the semiconductor markets, with the exception of the AI-related business. We are seeing initial positive trends in the short-term indicators, such as order intake and lead times, which means that visibility is slowly improving. Nevertheless, we still believe that our assessment, that the recovery will be gradual and uneven is correct.

The automotive and industrial markets have passed through the cyclical trough, but demand has not yet really picked up. The markets for consumer communications and computing applications, with the exception of AI, are only slowly beginning to recover. In contrast, AI-related applications continue to experience rapid growth. This is driven by ongoing massive investments in data centers for AI and the associated infrastructure. To make the most of the highly attractive opportunities available to us as the market leader in powering AI, we will expand our manufacturing capacity in this area even faster and bring forward the corresponding investments.

Let me start by commenting on our planned acquisition of the non-optical analog/mixed-signal sensor portfolio of ams-OSRAM, which we announced last night. The EUR 570 million acquisition is a perfect strategic fit. We are further expanding our leading position in sensors, and we'll be able to offer our customers even more comprehensive system solutions in the future. The additional portfolio includes advanced mixed-signal products and leading solutions for medical imaging. We are strengthening our leading position in sensors for automotive and industrial applications and expanding our product range in sensors for medical applications.

The additional portfolio covers these 3 end-markets in equal parts. The acquired business is expected to generate revenue of around EUR 230 million in the 2026 calendar year and support Infineon's profitable growth. The transaction will have an immediate positive impact on earnings per share upon closing. Future synergies will enable additional substantial value creation. Part of the agreement is a multiyear supply agreement with ams-OSRAM.

Now as part of the transaction, approximately 230 highly qualified and motivated employees with expertise in research and development, marketing and management will join Infineon from ams-OSRAM. They will strengthen our sensor unit and radio frequency business unit within the PSS division. We highly value the extensive experience and expertise of our future colleagues and are looking forward to welcoming them very soon.

The transaction does not include any production facilities. It comprises sensor products, research and development expertise, intellectual property and test and lab equipment. The completion of the acquisition is subject to the customary conditions, including regulatory approvals. We expect to complete the process in the second quarter of the calendar year.

We are convinced that ams-OSRAM's sensor portfolio is a perfect strategic fit for Infineon, not only technologically and financially, but also culturally. The acquisition opens up new opportunities to us in established as well as in emerging target markets, such as the market for humanoid robotics. Now as you can see, Infineon and the start of 2026 have one thing in common, momentum.

Let's now take a look at the development in Q1 of fiscal 2026. Infineon generated revenue of EUR 3.662 billion, the decline of around 7% compared to the previous quarter and is in line with our expectations and usual seasonality effects. To put this development into context, compared to the same quarter last year, our revenue rose by 7%. Adjusted for currency effects, growth would have been almost 14% compared to the same quarter last year as the U.S. dollar has significantly weakened over the last 12 months.

The segment profit has declined to EUR 655 million. The segment profit margin was at 17.9%, which was relatively stable compared to the previous quarter at 18.2%. Our order backlog rose by a good EUR 1 billion compared with the previous quarter. At the end of December, it amounts to around EUR 21 billion. We are encouraged by the fact that we have now seen a continuous increase for around 6 months.

Free cash flow amounted to minus EUR 199 million in Q1 compared to minus EUR 1.276 billion in the previous quarters. The previous quarter's figure, however, was significantly impacted by the completion of the acquisition of Marvell's Ethernet business. When comparing the figures, the strong organic free cash flow of EUR 904 million in the September quarter must also be taken into account. Now this was offset in the December quarter by lower business volumes, less public funding, higher capital expenditures, the payment of most of the annual variable compensation and an overall negative impact on working capital, the latter, mainly due to higher inventories. Those have been deliberately built up in preparation for a broader market recovery.

Now on to the results of our 4 business areas in Q1. The Automotive segment generated sales of EUR 1.821 billion. This represents a decline of 5% compared to the previous quarter. The main reason for this were the usual seasonal order patterns and as expected, our customers' pronounced inventory management at the end of the calendar year. Compared to the previous year, ATV grew by 4%. At constant exchange rates, growth would have been as high as 10%.

Segment earnings amounted to EUR 403 million. The segment earnings margin remained virtually stable at 22.1% compared to 22.4% in the previous quarter. Lower sales volumes weighed on the margin. We were able to largely offset this effect through lower underutilization costs in our production and product mix effects. We shifted production capacities to AI-related products.

Looking at the development of the automotive semiconductor market in 2026, we continue to assess the situation as cautiously as we did in November. Vehicle numbers are in line with expectations or slightly above. There are still some uncertainties regarding the dynamics in China and the effects of U.S. tariffs. As far as the development of the semiconductor value per vehicle is concerned, we see a mixed picture in the short term. In the field of electromobility, there are headwinds due to the less favorable regulatory environment and the withdrawal or reduction of purchase incentives. Recent announcements, such as the reintroduction of purchase premiums for electric cars in Germany, will only have a limited impact on the business development in the current year.

In contrast, the transition to software-defined vehicles is gaining momentum as more and more models are launched worldwide. Progress is also being made in advanced driver assistance systems, more comfort features and the switch to 48-volt architectures. All of these trends are continuing unabated.

With our leading range of automotive semiconductor solutions, we are ideally positioned to supply our customers in all of the above-mentioned areas of application. We are aware of the different developments and are aligning our portfolio accordingly. In the case of power semiconductors for electric vehicles, we are reducing our involvement in less differentiated silicon-based solutions for the powertrain. Instead, we are focusing more on silicon carbide solutions, supplemented by analog sensor and control and connectivity components.

In the area of software-defined vehicles, our recently acquired automotive Ethernet expertise and portfolio are proving ideal for providing comprehensive support to our broad customer base. In addition, sales of our AURIX, microcontroller family, are growing faster than the market, and we expect several new vehicle platforms featuring our products to be launched this very year. Lenovo's decision to use our AURIX microcontrollers as the safety host in the company's most advanced zone controllers for autonomous driving is one of the latest examples.

We are also seeing continued design win momentum with power semiconductors outside the powertrain and with analog semiconductors. These include the latest 48-volt-based control system from a major American automaker and a steer-by-wire system from a German premium manufacturer.

Let's now move on to Green Industrial Power. This division posted sales of EUR 349 million. The December quarter is usually the weakest in the fiscal year, and all application areas recorded declines in sales with the exception of the grid infrastructure segment, where sales increased significantly.

I would also like to point out at this point that we took the GIP gate driver business and transferred it to our Power & Sensor Systems division at the beginning of the current year. This business has an annual sales volume in the high double-digit million euro range. The historical figures have, of course, been adjusted accordingly. On a comparable basis, GIP's 21% decline in sales compared to the previous quarter is high. In addition to the seasonality mentioned above, it reflects the continuing difficult market environment for GIP. Accordingly, of course, segment earnings also declined significantly to EUR 31 million. The segment result margin fell to 8.9% after 16.3% in the previous quarter.

Our sales in industrial applications are, of course, closely linked to the global economic situation. Now in view of the continuing macroeconomic uncertainties, we expect only a weak recovery for core industrial applications. There are also no clear signs of a recovery in demand for air conditioning systems or household appliances. In the renewable energy sector, we expect demand for solar and wind power systems to remain at a high level, but not to grow significantly compared to the record year of 2025. In contrast, demand for grid infrastructure looks more promising, steadily increasing investments in AI data centers and a higher share of renewable energies in the energy mix require the expansion, modernization and the stabilization of the power grid. This trend will support our growth in the midterm.

With our product portfolio, in particular, our leading silicon carbide technology and power modules, we are excellently positioned to benefit from the grid expansion and conversion. Key elements include large energy storage systems, uninterruptible power supplies, electronic circuit breakers and semiconductor supported transformers. With regard to the latter, we are working on dozens of customer projects to drive forward medium-term business opportunities.

Now on to the Power & Sensor Systems segment. Sales in Q1 amounted to EUR 1.171 billion, which represents a decline of 3% compared to the previous quarter. On the one hand, our power supply solutions for AI data centers continued to enjoy very high demand. But on the other hand, we saw the usual seasonal weakness in demand for smartphone components. In addition, as announced, we reduced sales of less profitable products compared to the previous quarter.

The aforementioned revenue effects are also reflected in the segment results, which improved to EUR 204 million, and the segment result margin rose to 17.4%, up from 14.5% in the previous quarter. Now looking at market developments, we are seeing the first signs of a broader revival in demand for consumer, general computing and communications applications. However, given the overall economic volatility, customers continue to place orders on a short-term basis.

The situation is quite different, however, for AI-related semiconductors. The power supply for AI data centers represents an unprecedented growth opportunity for Infineon, and we are the leader in this field. Our unmatched portfolio, our understanding of systems, our speed of innovation and our commitment to the highest quality and delivery reliability make us the partner of choice, both for leading manufacturers of AI chips and for large operators of high-performance data centers.

Our sales of AI power supply solutions continue to grow rapidly. We are reaffirming our target of around EUR 1.5 billion for the current fiscal year, and this figure is limited solely by supply, which is by how quickly we and our manufacturing partners can actually increase capacity. Actual demand is, in fact, higher. I would also like to emphasize that unlike some competitors who do not distinguish between AI data centers and other data centers in their sales forecast, Infineon's EUR 1.5 billion is purely AI-related business. In addition, we expect further sales of around EUR 500 million with power supply solutions for traditional data centers.

At the same time, forecast for the expansion of AI data centers and the associated infrastructure continue to rise. Artificial intelligence is demonstrating more and more tangible benefits and real-world applications. We are experiencing some of these in our own company. For example, the improvement and acceleration of chip design, software development and our customer support. Demand from our customers for our power supply solutions continues to rise from quarter-to-quarter. We are, therefore, bringing forward investments of EUR 500 million in the expansion of our AI-related manufacturing capacities to this fiscal year in order to drive growth beyond the current fiscal year.

These investments, including the conversion of existing production capacities for IGBT power modules to AI products are capital efficient and will reinforce our market leadership position. We are using a large portion of the investments to accelerate the ramp-up of our new Smart Power Fab in Dresden, which we will open this summer, just at the right time. With the additional capacities, we expect to generate AI-related sales of around EUR 2.5 billion in fiscal 2027, which is an additional EUR 1 billion compared to the sales forecast for the current fiscal year. This would equal a tenfold increase in our AI sales within just 3 years. And very importantly, this is a margin-enhancing sales.

Now to our Connected Secure Systems segment. In Q1, the division generated revenue of EUR 321 million. The 13% decline compared to the previous quarter is due in part to seasonality. In addition, however, we also had so-called capacity reservation agreements with our customers in the previous quarters, which we had fulfilled.

Segment earnings declined to EUR 23 million. The segment earnings margin was at 7.2% compared to 12.2% in the previous quarter. The market for IoT solutions remains in a weak phase. Macroeconomic risks and low consumer confidence are weighing on expectations of a recovery. Over time, artificial intelligence in end devices will open up more and more opportunities for innovative industrial and consumer applications. Secure connected devices equipped with AI and lower power consumption will become more widespread. Market researchers expect their number to reach the threshold of 30 million devices.

By further strengthening our hardware and software expertise in this area, we are positioning Infineon ideally to take advantage of structural growth opportunities. Connectivity is a good example. Infineon is launching the first Wi-Fi 7 20 megahertz tri-radio chip on the market. This new product integrates Wi-Fi 7 and Bluetooth Low Energy in a single device. Extremely low energy consumption, combined with high radio performance, the chip, which is optimized for the Internet of Things, enables our customers to achieve reliable performance in frequency congested environments.

Dear listeners, this brings me to the outlook. It continues to be determined by our market assessment of a gradual and uneven recovery. The timing and momentum of the cyclical upturn vary greatly across different market segments. Despite ongoing geopolitical and macroeconomic uncertainties, visibility is improving as our customers place more and more orders for delivery in 2 or 3 quarters. In some cases, this appears to be due to concerns that strong demand in the AI sector could lead to capacity bottlenecks for similar products in non-AI areas.

Inventories in the automotive supply chains have normalized, but our customers' confidence in the market still needs to increase before they replenish their semiconductor stocks. Against this backdrop, we are confirming our full year guidance today. Effects from the upcoming acquisition of the sensor portfolio as ams-OSRAM are not included in the guidance.

For the current second quarter of our fiscal year, we expect sales of approximately EUR 3.8 billion. Our forecast is based on a U.S. dollar to euro exchange rate of $1.15. We expect the segment result margin to be in the mid- to high teens. We expect that volume growth will be partially offset by contractually agreed annual price adjustments as is customary in the first quarter of a calendar year.

Now for the group, we expect price declines in the low to mid-single-digit percentage range, with significant differences between the individual business segments. For fiscal 2026, we continue to expect a moderate increase in revenue compared to fiscal 2025. The segment result margin should be in the high double-digit percentage range. The unfavorable currency development and the usual price decline will offset the positive effects of higher volumes and additional earnings contributions from our Step Up, structural improvement program.

Now on to our investments. As previously mentioned, we are bringing forward investments of around EUR 500 million to accelerate the expansion of manufacturing capacity for power supplies for AI data centers and to support the expected strong growth in this area in the upcoming year. We are, therefore, now planning total investments of around EUR 2.7 billion in the current fiscal year. Our expectations for free cash flow are as follows: Reported free cash flow is expected to be around EUR 1 billion, slightly less than the EUR 1.1 billion previously expected. The reason for this is that part of the increased investments will be paid for in the current fiscal year.

Free cash flow adjusted for major investments in front-end buildings and acquisitions is expected to be around EUR 1.4 billion, down from EUR 1.6 billion previously. This should be viewed in the context of the expected significant value creation from profitable AI growth.

Dear listeners, this concludes my remarks. Before we now move on to the Q&A session, I would like to remind you of an important date. In just over 2 weeks, on February 19, our Annual Shareholder Meeting will take place. After several years, we are once again holding this as an in-person on-site event. We cordially invite you all to participate either on-site at the Munich, the trade fairground, or online via the live stream, which we will be, of course, offering on our website.

And now together with Sven Schneider, I will be happy to answer your questions.

[Operator Instructions] The first question comes from Sebastien Ash from Financial Times.

I wanted to know about the prices for raw materials. In recent weeks, they have changed substantially. They have fluctuated actually. Do you believe this will have ramifications on the business operations of Infineon during the course of the current fiscal year?

Yes. Sven Schneider here. Thank you for your question. Indeed, you're right. We have witnessed price increases in a market that has been very volatile to a certain degree. Gold, palladium, silver have all demonstrated this dynamic. These increases have been calculated into our guidance. Of course, we have to brace ourselves for this situation continuing, but the price increases that we've seen so far have been considered.

The next question comes from Joachim Hofer from Handelsblatt.

I have 2 questions. The first one is what volumes are you unable to handle when it comes to AI chips? Because you may be lacking capacity. What ballpark are we talking about here? That was the first question. The second question is you said that you are placing your bets on silicon carbide more than ever before. Can you tell us how these operations are actually faring? If I remember things correctly, ST last week had news that was not very encouraging. What is the situation at Infineon in this regard?

With respect to your 2 questions, what I have to say is that demand for AI chips is slightly above the EUR 1.5 billion mark, and we're working extremely hard also with our suppliers to remove the bottlenecks in the supply chain and in the value-added chain. On top of that, we have a ramp-up ahead of us. This is progressing quarter-to-quarter.

Silicon carbide. Well, here at Infineon, the business is expanding this year as well. This has to do with the fact that from the very beginning, we placed our chips on a very broad basis, a number of applications, numerous customers, and all of that is paying off now. So we expect growth from one fiscal year to the next.

The next question comes from Joachim Herr from Borsen-Zeitung.

I have 3 questions with respect to the acquisition of ams-OSRAM or rather its subunit. Mr. Hanebeck, you said that from the beginning, it would be earnings accretive. Is it also margin accretive? The second question relates to a supply agreement that you have with ams-OSRAM. Are you talking about components that you will source from ams-OSRAM? Or will you also supply parts or products to ams-OSRAM? The third question is that in the Q1 report, you say that the acquisition was financed with equity and debt. How is the split?

I would like to answer the first 2 questions, and then Mr. Schneider will give you some information on the acquisition financing. The margin right after the acquisition, if you look at the segment result margin, right now is in line with Infineon's margin, and it will increase as a result of the transfer, which will be rolled out over a number of different years. A large share of the production volumes will then be shifted to our factories, in particular, Kulim.

And this brings me to your second question. What you can see in the press release with respect to supply agreements, means that the products that we acquire now will initially over a certain period of time, be manufactured in Premstatten. And then a large portion of that production will be shifted to Kulim. This overall will lead to further significant synergies and will make the business extremely profitable for us.

I will continue. I'm Sven Schneider. With respect to the margin, I have one further remark. The acquisition is, of course, in terms of scale, too small to have a huge impact on margins at the group level. We're only buying EUR 230 million in revenue, just to put that in perspective.

The second question related to refinancing. No, no equity. I must be clear about that. This is a fully debt-financed acquisition, and we will embed this in our normal customary refinancing measures in terms of investments because we also have other maturities. So it's all debt, no equity.

The next question comes from Christina Kyriasoglou from Bloomberg.

You're increasing your investments, as you said, in particular in Dresden. Could you give us some more information on the other manufacturing capabilities that are going to be expanded?

This is Mr. Hanebeck speaking. The increase in the investment budget by EUR 500 million is purely related to AI, in other words, the AI chips, and it relates to capabilities in Dresden, in Module 4, for highly differentiating leading-edge MOSFET -- silicon MOSFET generations, the type of which are required in data centers in order to maximize efficiency. And we also have the analog/mixed-signal products that latch on to that. A small portion of that goes to Villach, where we have a similar product portfolio.

What is wonderful, however, is that the market for AI chips and the strong demand for AI chips is a perfect match for our timing with Dresden. We'll be opening the fab in summer and actually can ramp up production right away as well.

The next question comes from Christoph Meyer from DPA.

I would like to have some more information about the dollar exchange rate and your forecast, the $1.15 rate, is lower than we have seen in recent times. How danger for your forecast is the fluctuation in the dollar? Could you give us your assessment on this? Now for example, if average over the year, it were $1 to $1.20, what would that mean?

Well, Mr. Meyer, this is Sven Schneider. Thank you for your question. First of all, the dollar indeed has weakened substantially in the last quarter. In the last fiscal year, we had an average ratio of $1.11. And now we're in Q1 and at $1.16, and now it's at $1.18. We can all see that it's extremely volatile and that it hinges on statements made by major market participants, they cause spikes and valleys. So we will remain at $1.15 for the time being.

You asked for the effects. Well, we have a rule of thumb here. It's a formula. If you see a change by $0.01, it has an effect of EUR 25 million on revenue per quarter and EUR 10 million per quarter in the result. So if instead of $1.15, the dollar wound up at $1.20 over the year, we would be speaking about 5x25 over 3 quarters. So that is roughly the effect that we would feel as a result of the weakness of the dollars. And of course, the opposite is also true.

[Operator Instructions] The next question comes from [ Samuel Reis ] from [indiscernible].

Last month, there were reports about an Infineon transistor being used in a drone in the Ukraine. Do you know how this component found its way into the Russian drone. It's a Russian drone, not a Ukrainian drone. It was used on an attack on Ukraine. Do you know how it found its way there? And do you know who supplied that transistor to Russia?

Thank you for your question. This is Sven Schneider. First of all, we take these events and incidents very seriously, and that is very displeasing, of course. But it is outside of our remit. We have no control over this. Since the beginning of the war on Ukraine, we have informed all partners, and we continue to do this time and again that we always comply with all statutory regulations because we're obliged to do so. We have certain customers and also countries that have been ruled out because of that.

On the other hand, if you look at Infineon, globally, we sell 30 billion chips worldwide, and they go to partners who may sell them on. And this is exactly the link in the chain that we cannot control. But believe you me, we're doing everything we can through order tracing and monitoring to ensure that what we can influence complies with the law.

This is Mr. Hanebeck. I would like to add that this is very demoralizing, but only 50 nations have signed off on the sanctions list. That leaves us with a number of countries who have not agreed with the sanctions, including countries in which a lot of our products are purchased. And if these products are then sold on 3 or 4 times, we cannot track them anymore. We regret this, but unfortunately, that's a reality.

[Operator Instructions] We have a follow-up question from Hakan Ersen from Thomson Reuters.

I have a question with respect to the AI chips. You spoke of bottlenecks, which you intend to remove. At the same time, however, you anticipate for 2027 a weakening of growth in this sector. Could you give us some more information on that?

This is Mr. Hanebeck speaking. I don't quite understand what you mean, weakening growth. We're talking about EUR 1.5 billion this year, going up to EUR 2.5 billion. So that means that we continue to grow. Now if you look at it in relative terms, we are talking about a doubling this year over last year, EUR 2.5 billion isn't quite a doubling, but quite a lot would have to happen for us to be able to implement this. On the one hand, we're talking about applications that are very sophisticated from a technical point of view, and we have very demanding customers as well.

On top of that, we have to make sure that the capacities are available along a long value-added chain that Infineon has through to assembly. We have a series of bottlenecks along the way, which we have to remove. So this means we have a lot of on our plate. And of course, we want to leverage the maximum potential on the market, both this year and next year.

And this is Mr. Schneider speaking now. With respect to the figures, I would like to offer you a commentary. We have said before that the biggest growth driver in our history is the AI server business, and this is just this year. The conventional server business also accounts for 10% of group revenue. If we go up to EUR 2.5 billion -- let us look at the consensus figures for 2027 in terms of revenue. We are trending towards 15%. For a company the size of Infineon, this is quite a substantial step. You can see how strongly this business is growing and how greatly it influences the company.

Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Hanebeck for his concluding remarks.

Thank you very much, ladies and gentlemen. Allow me to summarize. Infineon had a great start into 2026. The results of Q1 are at the top range of our expectations. The geopolitical and macroeconomic uncertainties continue to dampen economic momentum. This is in line with our base scenario of a gradual and uneven market recovery. We are reaffirming our forecast for the fiscal year.

Fact is, of course, without electricity, without power, there is no AI, and we want to seize this historic opportunity for our company in this area. We confirm our revenue target of around EUR 1.5 billion for the current fiscal year and expect around EUR 2.5 billion in fiscal 2027. The acquisition of the automotive, industrial and medical sensor portfolio from ams-OSRAM strengthens our outstanding portfolio. In the future, we will be able to offer our customers even more comprehensive system solutions. This puts us in an ideal position to leverage structural trends for profitable growth.

Thank you very much for your interest, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Hi, everyone. My name is Francois Bouvignies from UBS. And we are happy to have Peter, Head of GIP at Infineon and Adam, Head of PSS to discuss the power of AI and power of Infineon in this topic. So I will leave the floor to Adam and Peter in a second. Before that, if you want to raise a question, free to raise your hand, and then mute yourself when we tell you to speak. After the presentation, you'll have the Q&A session starting. So thank you, Adam, and Peter, and the floor is yours.

Thank you, Francois, and thank you very much for everybody dialing in and your interest in Infineon and how we are powering AI. So as we just heard, we'll be talking about the area of powering from the grid to the core. And from an Infineon perspective, this covers the two main segment application areas of AI data center as well as the power infrastructure. So of course, now with the massive AI infrastructure build-outs, this is now translating into a multiyear CapEx expansion. And recently, we talked about our AI business really from last year going up to $700 million and with this year, doubling our revenues to an ambitious $1.5 billion in FY '26.

The addressable market, which we'll talk about no doubt as we walk through the presentation is at the end of the decade, $8 billion to $12 billion. Now why are we so excited about talking, about powering AI from grid to core is because we have an abundance of opportunities and addressable markets. Thanks to our system understanding, our talented organization of the technical communities and the customer intimacy, but of course, with that, the quality aspects. And what we're going to do today, Peter and I will share the material. Peter will head up the grid aspects, and then I will be further talking about going into from the grid to the rack, the core and then a brief introduction on the physical AI.

So with this, we're looking forward to giving you a glimpse, but then we will ensure in the Q&A, we can answer your questions. So with this, over to you, Peter.

Yes. Thank you very much, Adam, and also welcome from my side. So why grid to core? Because we realize that the demand of electricity due to the upcoming demand from data centers leads to significantly increase in demand of electricity generation and transportation. So we are a big player into the area of semiconductors for transmission and electricity generation. And just here as a teaser, we need the electricity fast, right?

The demanding customers having huge requirements with respect to additional electricity being generated. So looking into the lead times and into the available sources of electricity, this picture shall send a message with respect to cost and also lead time renewables, solar, wind, solar plus storage and gas are most likely the players, especially for the U.S. market who are very competitive and quickly available.

Now looking into how the data center of the future will look like. You have the connection line, high-voltage DC grid and then you come to the data center side. And there are some very interesting architectures which now evolve and have a high additional demand for leading semiconductor solutions. First to mention is the solid-state transformer because converting high voltage to lower voltage levels required by the consuming data center side, traditional transformer as we speak, are in short supply. And there are solutions where we, together with our customers, work on replacing traditional transformers by solid-state-based solutions, and I will come to a second what this means in more detail.

Then the second topic with the evolution of the data center is that data center goes DC grid. And with DC grids, you need specific protection features as, for example, circuit breakers. The traditional forms of circuit breakers do not fulfill with respect to tripping time, the advanced requirements and therefore, also the solid-state circuit breaker is a very attractive solution for our customers, which generates additional market size for Infineon and our industry.

Then, later on, looking into the IT Racks, I will hand over to Adam to explain you more about the details. But before this, we do have the UPS as in the past, but is now being complemented by energy storage, battery-based energy storage systems. And let me start with the latter one at the moment. That is a market that we know pretty well, already exists today, and it's not only being used for data centers, of course, but as of today, it is being used for grid stabilization on the utility scale and of course, also in private households for buffering energy down in the basement.

So Infineon offers a very comprehensive set of semiconductors ranging from power via control and connectivity to sensing solutions. And this market is expected to grow with a very solid CAGR of around 30% in the years to come. So we are engaged with all big players in those ecosystem, ESS inverter companies, system integrators and, of course, also battery OEMs. And the content, the semiconductor megawatt is estimated to be a little bit above EUR 2,000 in average. So that is available. That is now growing nicely.

Now we come to a topic which is very fascinating for technical people like me, and that is replacement of the traditional transformer by a solid-state solution. So on the left-hand side, just to exemplify what we are talking about, you see the traditional transformer. Semi content for transformer is, as we speak, 0. It's a piece of metal, of course, also a metal piece of art consisting of metal, wood and oil inside and the total transformer market is estimated to be around USD 15 billion. So what is the beauty of the semiconductor solution?

With semiconductor solution, we transform the passive transformer to an active device. So higher switching frequency gives the capability to significantly reduce the footprint, making it much, much smaller and lighter and most important, making it quickly available. So we provide semiconductor solutions like, for example, our EasyPACK module based on silicon carbide, which has a very high blocking voltage up to 3.3 kV, which eases the construction and realize a very compact design, and we are collaborating with quite a couple of customers. Two are mentioned at the bottom line. And what is very remarkable is the fast evolution of customer interest in the market.

So beginning of the year, I was known of roughly 5 start-ups in the U.S., who was working on the topic. Now as the year comes to its end, this number of start-ups quadrupled, adding to the established incumbent players, which are working on those solutions sometime since many, many years. So the dynamic here is very high. And the most important topic, it's a real new market for us as a semiconductor provider. Second, as mentioned, with respect to the DC grid, we need to protect the devices, the electric devices behind.

We know about the huge value of a GPU, the final computing core and the traditional electromechanical circuit breaker, which is shown in the picture on the left-hand side, has a reaction time in the order of milliseconds. Now seeing on the bottom, the market for industrial electromechanical circuit breakers, you see it's a multibillion market. Overall circuit breaker market is significantly higher. That is only the industrial portion.

So what's now, again, the beauty of the semiconductor solution, we provide a solution which has 3 orders of magnitude faster switching time. And first, players and customers adopting our semiconductor solution. You see in the lower right corner, Siemens allowed us to share that we are in their devices, and we do believe into a market which grows a bit south of USD 1 billion until 2030 as indicated on the lower left-hand side. The interesting topic is about also semi-solutions, which are perfectly meeting the requirements of the solution.

Just again, to explain a bit the circuit breaker has not the intention to switch. The circuit breaker is always on, but if it is required, it has to react pretty fast. And why I just explained to you the value proposition of semiconductors going down to reaction times 3 orders of magnitude faster compared to the electromechanical device. There's another solution besides the traditional MOSFET, which is perfectly suited for such kind of application. And that is now why we reintroduced on silicon carbide, the JFET. JFET is a very competitive device because it's perfectly suited for this kind of application.

And while we speak, we are in qualification of our first 750-volt and 1,200-volt blocking voltage devices, which have an industry benchmark RDS(on), which is in the area of 1.5 or 2.3 milliohm per device. And now the beauty of us being a portfolio player is, of course, that we are not only capable of offering this device as a single switch in a discrete package as it's shown up there, but we have the ability to combine it with our module expertise. So by paralleling this device, you can drive down the resistance even to significantly lower values. So 10 devices in parallel with 1,200-volt blocking voltage and then you're at 0.23 milliohm or you can think about stacking those devices and then achieving very much higher blocking voltages.

And that is a compelling value proposition for DC grids as for the AI data center, but of course, also for other applications as it's indicated by the picture in the lower right corner, for example, battery main switch disconnect for trucks, buses and even considerations for the automotive industry are very relevant. And the topic of DC grids is not only compelling for AI data centers, but of course, also for future industrial applications in the manufacturing environment. And that is now exactly the point in time where we both meet with respect to the business responsibility. We can, of course, also protect exactly those devices we are now talking about in the second half of our presentation. And here, I hand over to Adam.

Fantastic. Thank you very much, Peter. And as you can see from the grid update, there's, of course, a growing SAM service available market for Infineon. Now we're going to move into the rack. And of course, what we wanted to show is really the evolution of what is happening in the industry and more to the point, how Infineon is at the table with the lead GPU, TPU, ASIC providers in shaping the future of these data centers. So today, as we know, the racks are roughly at the power level, give or take, of 125 kilowatts. And for that, we can service around $15,000 of content for Infineon.

Now moving to the North Star, as I call it, on the farthest right, you will see this hybrid microgrid really going -- playing into what Peter was alluding to, moving to an 800-volt high-voltage DC architecture. Now within Infineon, our technical teams have been working with the customer base, the ecosystem to really validate, can we possibly get to this greater than 1 megawatt per rack. And the answer to that is yes. But of course, in order for us to get there from a technical perspective, from an ecosystem, from a reliability perspective, we also understand that there needs to be a stepping stone.

So in the middle, you see this 3-phase VDC power sidecar where, again, Infineon has an abundance of opportunities to really service these markets, not only in the car for the IT payload, but also in the power delivery and the backup power side. Now as you can see on the bottom, the Infineon content goes up significantly. As the power goes up, the Infineon opportunity goes up. Now what we'd like to also show is a little bit of this stepping stone, right? Talking about the 3-phase power sidecar. And here, we are seeing then this will, of course, accelerate the compute, but also accelerates the content growth.

And we wanted to show you this because in the top side of this -- on the top of this graph, you can see here the server rack itself, talking about the compute blades plus the switch trays. And then as you move forward into the motherboard, then you've got the components like the intermediate bus converter, the high voltage, what we call the first stage. But then we've also got the GPU board on the second stage where Infineon also has significant share opportunities in.

Then at the bottom here, we talk about the power sidecar. And again, that is full of opportunities for Infineon. And what I'd like to do now is really walk through some of those examples, and I must stress now due to time and to allow Q&A, we can't show everything today. But we wanted to give you a flavor to let you understand that there is amazing opportunities for power management, thanks to our system understanding and how we're going to be addressing these markets.

So let's, first of all, talk about the PSUs. And of course, when we were here last year and the year before, we were talking about these solutions. And at the time, we were talking about the 3.3 kilowatt, 5.2 kilowatt, the 8-kilowatt designs and then the 12-kilowatt designs. Now what you see on this is an evolution up to a staggering 30-kilowatt 3-phase PFC opportunities where we are now working to get the technology evaluation boards for our end customers.

And again, Peter and I, we are tied at the hip between our divisions and our technical communities to make sure that we come up with a compelling solution for our customer base. And again, you will see here, we're moving away from just the single-phase PSUs more into the 3-phase PSUs as the evolution requires as the power goes up. But again, the takeaway of this slide is also Infineon is one of the few companies in the world that really has a play within not just leading-edge silicon technology, but the silicon carbide as well as gallium nitride. And very clear speaking, these designs will need wide-bandgap materials. There's no doubt about it by us working with our ecosystem and our customers, they have told us in order to get the efficiency at the right size, which translates to density, you need wide-bandgap, meaning silicon carbide, meaning gallium nitride.

So I also wanted to talk a little bit about the advancements in the architecture. And as we advance, there is now new opportunities for protection. And protection is very, very critical because, of course, it's essential to get high performance in the computing environments, but also monitoring to reduce disruptions and to, of course, maximize the server uptime. And these protection ICs effectively come in the area of the mid-voltage, for example, in the 48-volt smart eFuse families, plus at the end of the day, for the high-voltage solutions, which then service the opportunities for the architectures for 400-volt as well as 800-volt hot swap.

And here, we've also got reference designs. And as you can see here, you got the SAM projections. And whether this is conservative or not, we will have to see the adoption rate, but we can see now that the 48-volt will stay for some time, but now you see the introduction of the value of the 400-volt as well as 800-volt, especially as the AI power consumption significantly increases.

The next topic we want to talk about is the broad portfolio of high-voltage as well as medium-voltage intermediate bus converters. And again, these are required more and more. And this topic is a topic that Infineon has, quite frankly, been asked to address from some of our customers. We traditionally had discrete offerings at the bottom, and we see those, of course, proliferating as the content grows and the power requirement grows. But at the same time, we've also now been asked to do certain module designs because of understanding the design, but mainly on the areas to provide quality and reliability at a system level.

So this topic, again, is an area that is showing significant CAGR growth, as you can see here, plus 50% on already a number that is growing. And we feel now that we've got a dedicated team focused on these IBC solutions on the high voltage as well as the mid-voltage. Now let me go now from these IBCs, and we talk about converting the high voltage DC to the GPU supply voltage. And this is another great opportunity for Infineon. There's a number of topologies out there in the industry. We have the 3-stage approach, which takes the 800-volt to the 50-volt, then you can then step down to the 12-volt or the 6-volt.

And again, even in that 3-stage approach, there is a number of ways that you can do this from an architecture point of view. And again, the reason why we're showing this slide, look at the gallium nitride play. You see the GaN in this green circle where we are now seeing customers literally telling Infineon, we need GaN for this solution. And then on top of that, we have the 2-stage approach where, of course, you go from 800-volt straight down to 12-volt. We will have to see how the industry adopts and which ones of these topologies that they take.

Of course, there's risk rewards on those topologies. But again, as you can see, we have a silicon solutions as well on the high-voltage, we have a GaN solution as well. And the final statement, if you look at the 3-phase approach from the 800-volt to 50-volt down to 12-volt, we've also introduced to the industry an interleave buck topology, which we believe is now starting to proliferate with a very strong pipeline, and we believe will go into production very soon.

Now the magic, the second stage. This is a lot of the analysts are, of course, following very closely because this is the solutions that go very close to the GPU, TPU or the ASICs. And I didn't want to get too technical, but just at a flight height, there's three different ways that we see these markets developing. And we believe that we have got solutions for all of these ways, and I'd like to give a little bit of a glimpse and an introduction to those. First, you have the lateral, the discrete solution. And on the right-hand side, you see the XPU, which is a GPU, TPU or ASIC, whatever you may wish to call it. You then have the substrate with the motherboard. And effectively, you put down now your discrete solution down next to effectively the substrate and the GPU. That, of course, benefits on multiple areas. It's definitely the lowest cost. But of course, there are trade-offs on ultimate efficiency.

Now other customers we've been working with, we've actually started to develop the backside vertical module. And these are the vertical power delivery modules that we are shipping today already in the industry. And these are the customers that recognize if you take the vertical power module and put it underneath the GPU, of course, then you simplify the motherboard from the design perspective, but you also increase the power density and of course, ultimately bringing the efficiency to the next level. Then on top of that, we don't stop there. We also recognize SiVR is going to be a trend in the industry, and we are already developing the next solutions that actually go into the substrate.

Now from our portfolio perspective, we've, of course, got an abundance of modules today that are out there in the industry. And if you think about the Infineon journey, we started way back in 2011. We came up with a standard molded package. We then went into this chip embedding because we recognize the reliability and the performance of chip embedding actually provides to our end customers. And then as you can see, we then went to 1 amp per millimeter squared with our first-generation module in 2024.

And if you look now already coming out in 2027, we are actually 3x that going to 3 amp per millimeter square. And these renderings that you see, they're not just renderings. These are modules actually being sampled into our customers for the next generation because those customers recognize the performance benefits of having these modules for the VRM solutions. And of course, moving forward, we very clearly state that these solutions have to be greater than 4 amp per millimeter squared. So this really gives us a wonderful window of opportunity to demonstrate our capability of understanding the systems, taking the leading-edge technologies that we have within the company and absolutely without compromise focusing on reliability and system performance as well as quality.

So ultimately, we get the question, "hey, Infineon," why are you seeming to be winning from grid to core? And when I ask you, the audience, to really reflect on how many companies out there that can really understand and deliver solutions from the grid, what Peter very nicely presented to the core. And here at Infineon, we pride ourselves on this. From our system understanding, we've been in enterprise power for servers way over 20 years. So we have a lot of understanding of the systems and how these systems have to come together. We also have got this broad portfolio. And honestly, what Peter and I have shown today is just the tip of the iceberg of the opportunities that we and our engineers are working in within our labs, and it's incredibly exciting.

And then, of course, customer first. We, as a company, recognize that we need to accelerate our innovation to customer value. And there is no better opportunity to prove to the industry that Infineon can accelerate our innovation to customer value than using and demonstrating this empowering AI. And then, of course, the deep DNA of Infineon, quality. We honor our quality commitments. Then, of course, that translates to what we talked about earlier. Whilst we don't give the breakdown in all the customer specifics, but as you can see here, we effectively tripled our revenue back there in FY '24 to over EUR 700 million. We are, at the moment, committing the EUR 1.5 billion for FY '26 and that SAM at the end of the decade, the EUR 8 billion to EUR 12 billion.

Now let me just take two more slides here to really explain the physical AI. And there's lots of terms and edge AI. There's terms out there in the industry on how the tokens are used. But this is another really interesting area for Infineon Technologies. And here, I now, of course, take our hats off of our 2 divisions and really think about Infineon because Infineon has got an incredible play within enabling humanoids moving forward. And of course, this is some of the data analysis from Goldman Sachs on the Base case plus what they call the Blue Sky. And we have to see the adoption. But there's no doubt about it. We are seeing further adoption and a lot of money supporting these humanoids.

Now from an Infineon play, just look at this slide. Look at the building blocks, the functional building blocks that Infineon can service. From the processor, from the compute as it were, from the MCUs, for the motor control ICs, making sure also for security ICs. We also got the play within functional safety, thanks to our automotive colleagues.

Then on the connectivity side, of course, we've got the Wi-Fi and the Bluetooth where the new families are winning in the market. But on top of that, we've got the Ethernet due to the recent acquisition of the portion of Marvell. This now has given us a new entry and to make sure that we're working with the humanoid companies to look at how Ethernet can win in those markets. Power is given, but one of the areas that we see especially in the hands is the gallium nitride for the motor control with our microcontroller. And of course, on the storage, on the memory, many abundances on the analog and in the sensing area, of course, you've got to sense the physical world. And this is a topic that we are now really looking at focusing on for use cases with our end customers using the Infineon sensors.

And here, we believe we have actually a SAM opportunity per humanoid of $450. So my last slide before we open it up here for Q&A. We, of course, we are proud of powering AI because of the full system understanding, the portfolios, the technologies, the manufacturing scalability and of course, no compromise on the quality aspects. We also have the key functional blocks in the physical AI that I highlighted. And thank goodness, Infineon, we recognize that silicon, of course, will stay, but we need also mastering of the areas of wide-bandgap in silicon carbide as well as gallium nitride. And then, of course, at the end of the day, we believe that the revenue here will be the EUR 1.5 billion just for the dedicated on the AI revenue, and we will do this with the acceleration of the customer value through low cost of ownership as well as reliability.

So with that now, I will hand back to Francois, and then we will open up to Q&A.

[Operator Instructions] So let me start maybe with both of you, I will be very brief and I have one set of question for each. So that's where we get the picture. First, Adam, I mean, obviously, you talk about this AI is very interesting and this EUR 1.5 billion for '26. I was wondering is there any upside to this '26 number? And what is the driver? What would be the upside to that? Because you mentioned it's an ambitious target. So I'm just wondering, is it -- is there any room for more?

Yes. So let me -- so we stick to the EUR 1.5 billion. But I would say now having the opportunity to work in this industry for, give or take, 30 years, I've never seen anything like this before in my history of the semiconductor market. On top of that, this is more of, at this time anyway, a supply issue, not necessarily a demand issue. And if I don't mind quoting our CEO here that we've got recently a new COO, and it's a good problem for our new COO to address because, of course, this EUR 1.5 billion at the moment is also gated by supply.

And maybe a bit more longer term, I mean, you showed all this product road map and also this 400-volt, 800-volt and the content per rack increasing significantly. What's your visibility on your share here? Because obviously, you know better than me that you have a lot of competitors out there and everybody is trying to grab this very ambitious market. So do you have any visibility on that because the content is high, but we want to make sure you capture at least some more?

Yes. So obviously, tracking share is obviously problematic and difficult because there's so many variables. But traditionally, in enterprise power, we had anywhere between 30% to 40% share. And in AI, we see at least 30% to 40% going into the horizon.

And is it across all products area? Or you see significant differences depending on where you are motherboards or PSU, et cetera?

So we don't break that down because, again, the complexity and there will be variance and there could be platform changes, mix changes, award changes, ramp-up challenges. So it's very difficult. But what we are saying is ultimately at least 30% to 40% market share.

Moving on to Peter. I mean, when I look at your divisions, there is one cycle and one long-term question I have for you. One is GIP as a whole is still like 26% below the peak of '23. And if you look at PSS is above for the obvious reasons and auto is 8% below. So you seem to track a bit deeper in terms of down cycle. Maybe can you assess to why -- how can you explain this? And do you see any recovery from your perspective?

Yes. Now disregarding AI, definitely while we were enjoying, of course, the allocation and the good times heavily, now we are, of course, also -- we have to digest also the weak cycle of the market and particularly by the weakness of the European market and also China not performing as we predicted also for '25, we dropped further down than expected. The good news is that we -- there is evidence that we have now reached the bottom. The other good news is that we kept our inventory very much under control. So we do not have any over inventory issues looking forward.

And so there are first signs that now the demand comes back as typically for the seasonal pattern in the fiscal year, our first fiscal quarter, meaning the last calendar quarter is typically our weakest. That will be also true this year. But looking forward into the coming quarters, I'm cautiously optimistic that worst is over and markets start to recover. And that is now very interesting because the AI opportunities come on top, right? That was the question related to my core market, my core business. And this is now an exciting additional opportunity.

And the last one for me is on -- your division is mainly power semis, if not only power today and mainly discrete, right, power. So I was wondering as you see the grid appearing, there is, of course, this fear that China is investing a lot in power discrete significantly. How do you see the Chinese competition in your market here in terms of pricing behavior, market share rewards? Do you see any impact from that?

Of course. I mean, just to be a bit precise, right, if we talk about discrete, that includes modules and modules is the lion's share of my business. And here, luckily, we see still quite a lot of areas for differentiation. And the differentiation goes in both ways in performance and, of course, also in reliability.

While definitely, every competitor, also the Chinese tries to each the lunch of the other, meaning also ours, it's about price performance. And especially in demanding applications, we do excel in performance. And particularly true is it for the emerging wide-bandgap topics, while we now see also the design-in pipeline year-on-year increasing by plus 20% roughly. We see design win, especially for silicon carbide now skyrocketing for the industrial space year-on-year by 80%. So compared to the same time last year, I do have silicon carbide design win pipeline, which is filled by more than 80% on top. And that is also partly in line with the topics we just described, but that gives me high confidence that there's a future. And that, of course, also prevents us, myself, our business for being cannibalized and commoditized.

[Operator Instructions] So the next question comes from Lee Simpson.

Gentlemen, very, very interesting presentation. I really wanted to just sort of push on the supply constraint side, Adam, here. You talked about these supply constraints and it's hitting numbers potentially. And I just wondered, if we look at the whole supply chain, is -- are these supply constraints with your manufacturing? Or is it with the rack makers?

And really, as the supply of parts broadens, and I'm thinking power sidecars and cooling systems, do we see an increasing risk of supply constraints in the future? And maybe as a quick follow-on related to that, you've utilized prepayments in the past, I think, with the build-out, the fit-out of Kulim. Could we do the same thing here given that you probably have to fund the supply capacity growth via these customers?

Yes. Lee, good to see you. So look, ultimately, we're not upstream from understanding how the installations of these data centers are going to be built out. Of course, contractors, for example, getting all of the energy, meaning the electricity or the power into the data centers. So that is, of course, a topic that is something that we will be part of in the enablement. But ultimately, we're not the decision-makers on that.

Now coming particularly to the Infineon view on the supply, now of course, these markets are moving quickly, right? The volatility, the chunkiness of the business. When you are winning the business, it comes and it comes very quickly with very short lead times. And here, this is something that we recognize within Infineon. We are taking now measures to really support the adoption of our equipment to the leading-edge technologies for powering AI, meaning even in the areas of some of our IGBT technologies, we can switch and convert some of the fungible equipment into supporting some of the AI on the front end. That is something that we are doing. And I believe that, of course, logically makes sense and that gives us further capacity and opportunities to grow.

On top of that, we're working with our ecosystem partners, especially in these power modules, for example, there's lots of components that go in, and that's something we've got dedicated groups on to support those areas there. Then to really do the follow-up question on these capacity reservation agreements. Look, at the moment, what we sensed is a lot of the data centers have been, of course, focused on areas like the GPU supply or the TPU supply or the ASIC supply. They've been looking at the optics and making sure those areas are covered. But what we're sensing now is the customer base are coming to Infineon to really understand our capacity corridors and now beginning to open up discussions about how they can secure capacity to support their ramps. So a little bit premature, but the good news is we've got customers at the table recognizing that power management is a key topic because without power, there's no AI. And ultimately, they are now looking at securing those corridors.

Then, the next question from Joshua Buchalter.

Thank you for hosting such an informative presentation. So I guess the -- I think you gave a bunch of the pieces here, but maybe you could sort of simplify it for us. You guys have talked about this EUR 8 billion to EUR 12 billion TAM by the end of the decade. Could you maybe just help us how much of that is grid, core and on the rack? I think that would be helpful for investors. And I have a follow-up.

Okay. Thank you very much for the question. Yes. So look, rule of thumb on the EUR 8 billion to EUR 12 billion, right, on the addressable market, if you look at taking the first stage versus the second stage and the second stage really is the core, right? This is where we talk about the vertical power modules or the down solutions closer to the GPU. Roughly, give or take, roughly, it's about 50% of the SAM, yes. And then the other 50% is on the first stage. And of course, as we get closer to the end of the decade, more and more of that SAM opportunities open up here with GIP as well. So roughly 50% second stage, roughly 50% first stage.

And since we don't know yet, of course, how fast the different opportunities will grow, our assumption is that inside the range you just mentioned, the EUR 8 billion to EUR 12 billion a low double-digit percentage is GIP business.

Okay. I guess that's a natural so it's one for my follow-up. Within that, should we think about silicon carbide as only playing on the grid side? Or do you see opportunities even within the rack moving forward? And then I guess same question for GaN as well.

Yes. So very clear, all the things which relate to the data center starts with the solid-state transformer, goes forward to the solid-state circuit breaker. These are all silicon carbide-based solutions in different variants, but that is silicon carbide pure play, so to say. And therefore, also to a certain extent, that explains the high CAGR in my design win funnel. While, of course, on the grid side, it's a bit more complicated, the high-voltage transmission lines, which will also need significant investments and build-out, there are typically IGBT play for the foreseeable future far beyond 2030.

And then in the rack for the PSUs, as we presented earlier from the 3.3 kilowatts, especially move up now into the 8 kilowatt, 12 kilowatt up to the 30-kilowatt 3-phase, this will have all three technologies of silicon carbide, gallium nitride and silicon. Openly, the customers have told us they have to use the wide-bandgap to get the efficiency as well as the density. The other area for GaN, where you asked where the adoption of GaN will come in, most definitely in the IPC, the intermediate bus converters on the high-voltage as well as on the mid-voltage, for example, on the interleaved design as well as, as mentioned on the PSU. So wide-bandgap will be used in powering AI in the next generations and believe it or not, even today.

Congrats on the high order book.

Next question from Jakob Bluestone.

Just on the [EUR 8 billion to EUR 12 billion], is there any way you can break down how much is GaN, how much is silicon carbide? So maybe just sort of break it into some of the different materials. And then I had a follow-up as well.

Yes. So Jakob, so I don't know if we can go back to the material. I think your question is on the intermediate bus converters, if I'm not mistaken, Jakob, right? So this is on this slide here. Is that correct?

Yes.

Yes. So we don't break it out. But if you see here, the darker green color really shows the percentage of the dominance of the technology. So where you see GaN darker, that really shows that there's more of a GaN bias within the solution. And that, of course, happens most definitely in the 2-stage approach on the high-voltage IPC. I will quote one of the engineers at the customers, no-brainer. They literally told us, no-brainer, they will use a GaN-based solution.

On the mid-voltage, as we go through, of course, there is more of a mix between the silicon as well as the gallium nitride. And it really, it depends upon, ultimately, are they going to be looking for more efficiency on the GaN, but on top of that, the size as well for the density. And I can't break it out really any more than that because we have many, many solutions all coming through the pipeline, and there really is a fusion, a mixture of those solutions. Sorry, I can't be more precise.

Understood. And just a quick follow-up. From an ASP point of view, does it make a big difference, whether it's GPU, TPU, ASIC? Or is it all pretty similar from your point of view?

Yes, it's great if I like it, Jakob. So what we will say is the GPUs, of course, are growing significantly in the power. The GPU and the ASIC vendors, it's really been surprising us. They've even got more aggressive power ratings coming up. So remember, these GPUs were starting off whatever, 800 watt, 1,000 watts. They're going up to 2,000 watts and beyond. And we now, of course, are seeing some road maps well and above 4,000 watts now on these GPUs and ASICs. Now what makes -- so of course, that brings in more content. Openly, that brings in more power requirements for Infineon as well as our competitors.

Now in saying that, where we see the major difference is when the industry fully adopts into the vertical power modules, then, of course, the ASP is a significant factor. And that could be anywhere between 3 or greater than 3 from an ASP perspective as we go into the module solution versus discrete down solutions.

Next question from Janardan Menon.

Just following on from that last answer. Am I correct in understanding that the GPU is already a vertical solution and therefore, gives you a higher ASP? And what is the rate of conversion of broad ASICs, GPU to vertical power in the next -- will it happen in the next couple of years? Is it going to take time? And similarly, you said 3x for vertical power. If you go to the substrate integrated one, what would be the step-up there? And is that something that's going to happen within the next 5 years? Or is that sort of beyond the next 5 years?

Okay. Yes, good. So look, I would say the majority of the industry is already shipping or working on the vertical power delivery modules, so we're working a lot with those companies. There are, of course, 1 or 2 maybe that's still on the down solution. Then, of course, the next question is, will they stay on down or will they also see the benefits as the power of the GPU increases, whether they will need to go to a different architecture. There this luxury with Infineon, we can support both, right? And we will listen to the customer, we will focus on the customer voice, and we will then support what the customer needs.

Now why then are the others in the industry already on the vertical power module? Because honestly, it's again, the topics around the efficiency levels, it's about the total cost of ownership levels, it's also down to space saving and simplicity of these motherboard layout. So there's many reasons why the industry has gone that way. We are at least developing heavily on the vertical power modules, which I think should give you enough hints what I showed earlier on to the greater than 4 amp per millimeter squared, that's where we believe the industry will further adopt to. Then, on the question on SVIR (sic) [SiVR], yes, if you ask me for a 5-year window, I believe, yes. And I know certainly, Infineon will be developing and be working with customers for that type of horizon for SiVR.

And just you said that sort of Stage 2, Stage 1, roughly 50-50. I'm assuming that the competitive dynamics on both sides will be different. I mean, in Stage 2, we have sort of established competitors, what we hear about like monolithic and Renesas, and people like that. Whereas on the Stage 1 or intermediate or whatever all of that, we want to put together, NVIDIA signing agreements, left right and center with everyone they can catch on the roads.

So would that Stage 1 in the HVDC be a more competitive environment over the next 5 years and therefore, is there a potential that your market share there could reduce? And similarly, as you go more to vertical power and SiVR, given that that's where Infineon's capabilities and technologies are extremely differentiated, maybe that your market share there can increase. Would that be a way of looking at it?

Yes. So look, I'd like to answer it really on -- it's, of course, a technology-led discussion, especially on the second stage, as you highlighted, yes. And there's, of course, an opportunity for the industry to really demonstrate the leadership and the capabilities there. And again, it's not just having the latest technology, you need to make sure it works at the system level because the closer that you are to the GPU, TPU, ASIC, then you've got to get it right because you've got to protect that very expensive component.

Then on the first stage, yes, there's more overarching competitive landscape, but again, one thing that Peter and I are incredibly proud of, we're working for a company that is leading in multiple dimensions on figure of merits, meaning that we are really coming out with leading-edge technologies in the areas of silicon, silicon carbide, gallium nitride. And in those areas, we're not just thinking about today, look at gallium nitride. We are announced a 12-inch GaN capability within the Infineon offerings. And then on top of that, Peter, you may want to talk about silicon carbide, the opportunities for capacity.

Yes, of course. I mean we have our fab in Kulim, and we're now, as we speak, converting from 6- to 8-inch. So we have mastered the 6-inch ramp with high yields, and we have invested for Kulim only into bridge tools, meaning that we have the full capacity available once the material and the business case is there, and that is what is now the case, right? Of course, per square millimeter, 8-inch wafer being silicon carbide, I'm talking now about, right? It's being a bit more expensive. But due to productivity coming from 200-millimeter tools, we now already see a cost benefit for moving to 8-inch. I think that's not a big news. All the industry, including our competitors, do see it, but we are well prepared. The whole capacity in Kulim, we have invested is 8-inch ready, and that will give us an edge in ramp-up speed for sure, right? If there are significantly volumes required, we are able to supply and of course, down the road, cost advantage.

And my final statement here is even on the silicon, we are, of course, developing the next generations of silicon to support these markets. And on top of that, with our microcontroller families, embedded security in the microcontroller, we're also coming up now and working and offering system play within, for example, the PSUs, and there's a lot of interest there. And of course, that's the reason why on the first stage, yes, there's more competitors. But again, Infineon, we're very proud of the fact at a discrete level, including modules, we're a clear #1 in the industry, and we don't stop there.

And the next question comes from Sandeep Deshpande.

My question is regarding your exposure in this -- in the AI market. You talked about, I think, 10% or 12% of the exposure by the end of the decade will come from the GIP side. Is your competitive position in the GIP side much better than your position on the PSS side, given that many of these multiple competitors who are coming into the AI space don't really have that high-power capability that you guys have in GIP? And I have one quick follow-up.

So, I would say. I mean I do see certain areas of the market where we have a very high differentiated solutions. But since being quite a while in this industry, namely also much more than a decade, whatever kind of solutions we offer, right, there will be competitors around for no doubt. First of all, our customers hate single sources. So they will do everything to enable competition there. And of course, it's also healthy for us, while still on the topics we already mentioned, in certain areas, we face strong competition, commoditization.

In other areas, we have unique technology. And here, I would say it's very similar for GIP and PSS those kind of differentiated pockets, I would call them, are available on both sides. That would be my answer -- my first answer to your question. Adam?

I mean my question now, I mean, to Adam to you on your side is that, I mean, when you look at the solution, it's not a single point solution. It's -- there are a lot of components to the solution. When Infineon is on a particular board, is it that all those parts associated with power are Infineon? Or are you sharing various -- or maybe there is one stage where some parts are Infineon and some other ones of those competitors also on that same board. How does this play out overall? And associated with that, I mean, particularly associated with PSS, is this AI part of your business accretive to your overall margin?

Yes. So I'll take the second question first. Yes, for Infineon now overall, AI will be accretive and of course, higher than the average margin for Infineon moving forward. And then second of all, some of the customers are very particular of having a supplier that, for example, with the controller as well as the power stages that there's no mixing and matching because at the end of the day, they want system performance, they want to lead with a supplier that can offer all of the technical competency at a system level.

Now saying that, of course, if we stand back and look at the compute tray and look at the motherboard, it's amazing the auxiliary rails, for example, the point of load rails, for example, the protections, the eFuse, the hot swaps, the IBCs. This, of course, can really be a little bit more mix and match because those will be qualified under their own sort of conditions. But ultimately, what we're finding at the moment and very transparently that some designs and some of the orders that we're picking up now may have just been macro designs because we're the best performing and they're dropping us on the [indiscernible]. And some people call it the sort of the sprinkling and the shrubbery, but it's amazing how all of that adds up to a very healthy opportunity for Infineon as well. And that's because customers really believe in our technology, leading edge and of course, on the quality and the reliability.

And now the last question into sake of time, Sebastien Sztabowicz, please ask your question.

On NVIDIA and the 800-volt DC architecture, what kind of market share do you expect there? There are a lot of competitors in this project. Do you expect the same kind of market share you have on AI data center today, all over higher?

Yes. So we don't talk particularly about end customers because one we're not allowed to. But what I will say here is that, again, we are targeting at least a 30% to 40% share. And if you go back on the public domain information with NVIDIA, we did the collaboration announcement very early on with NVIDIA because, of course, that is a revolutionary opportunity for the industry. And we were one of those suppliers that could, of course, give them confidence that we could head towards the 800-volt DC opportunity. So to answer your question, we don't break it out by customers. But again, market share at least 30% to 40% to the end of the horizon.

And the last question is on the AI ASIC market and the acceleration of the investment for the large hyperscalers around ASIC. Do you have the same kind of exposure between hyperscalers or between hyperscalers and GPU vendors or you are overexposed to one of those kind of customers in terms of AI power semiconductor business?

Yes, it's a great question. I would say at the moment, Infineon, we are heavily engaged with the majority, if not all, of the GPU, ASIC and TPU vendors. And there's a rich opportunity there, meaning that most definitely on the EUR 1.5 billion here that is not coming disproportionately from one customer, most definitely not.

Yes. So I'm very sorry, we have now to end the call here. Thank you very much for your participation and your questions.

Thank you, a lot.

Thank you very much, everyone.

Good morning, everyone. Welcome to the conference call for analysts and investors for Infineon's 2025 Fiscal Fourth Quarter and Full Year Results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at Infineon Technologies. As a reminder, this call is being recorded.

This conference call contains forward-looking statements and/or assessments about the business, financial condition, performance and strategy of the Infineon Group. These statements and/or assessments are based on assumptions and management expectations resting upon currently available information and present estimates. They are subject to a multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance and strategy may, therefore, differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements.

At this time, I'd like to turn the call over to Infineon. Please go ahead.

Good morning, ladies and gentlemen. Thank you for tuning in to our earnings call for the fourth quarter and the full fiscal year 2025. On this analog bellwether call, you have our CEO, Jochen Hanebeck; our CFO, Sven Schneider; and our CMO, Andreas Urschitz. Jochen and Sven will provide an overview on the market situation and divisional performance, key financials and of course, our long-awaited outlook for fiscal '26. Our prepared remarks will also cover step-up sustainability achievements and the dividend proposal. After that, we will start our Q&A session.

As usual, the illustrating slide show is available at infineon.com/slides, and we will provide a PDF with Jochen and Sven's introductory remarks in the course of the call on our website, namely infineon.com/investor. As you know, this is your go-to place for a recording of this conference call, including the aforementioned slides, a copy of our earnings press release as well as our investor presentation.

At this point in time, Jochen, over to you.

Thank you, Alexander, and good morning, everyone. The turn of our fiscal year always calls for some look backs as well as future perspectives. In each case, cyclical factors need to be distinguished from structural ones. Successfully concluded 2025 fiscal year formed part of a prolonged down cycle in most of our target markets. End customers and channel partners have undertaken a major destocking exercise intending to reach target levels. Geopolitical instability and tariff turmoil made them cautious on the direction of end demand and caused short-term ordering behavior.

In this environment, we saw, as predicted, a slight annual revenue decline driven mostly by negative currency effects. We managed what we could control and maintain margins at a resilient level, supported by, first, meaningful benefits from our structural improvement program step-up coming in ahead of the anticipated time line. The other structural initiative we are driving is to accelerate our innovation to customer value to strengthen Infineon's position in secular growth areas like software-defined vehicles or AI data centers. Taking these initiatives together, we will benefit from a more competitive setup and an unmatched portfolio in any return to growth scenario.

In the just started fiscal year 2026, such growth will be tempered by adverse currency movements. Furthermore, growth will be a function of the intensity and breadth of the recovery, hard to predict due to ongoing geopolitical and tariff-related uncertainties. Therefore, we are once again setting a prudent bar with our full year outlook. From a more mid- to long-term perspective, we are in an excellent position to continue to lead in our markets and nurture profitable growth based on our well-known structural growth drivers. Before looking ahead, though, let's take a look in the rear mirror.

Revenues in the September quarter came in at EUR 3.943 billion, making the fourth and final quarter the strongest of our 2025 fiscal year. Sequential growth was around 6%, once again, including a negative currency effect as the U.S. dollar-euro exchange rate weakened to 1.17 versus 1.14 for the June quarter. At constant currencies, quarterly growth would have amounted to 8.5%. All segments contributed with positive revenue developments, in particular, PSS. Furthermore, our Q4 showed a slight year-over-year growth at constant currencies even of 5%. This is the first time within 8 quarters.

Revenues for the entire 2025 fiscal year amounted to EUR 14.662 billion, 2% down from the previous year. At constant currencies, our revenue would have been essentially flat year-over-year given that the U.S. dollar average exchange rate weakened from 1.09 in fiscal '24 to 1.11 in fiscal '25. This is quite remarkable for a year characterized by substantial inventory corrections by customers and unprecedented tariff disputes.

Using the product categories I explained in the last call, our full year revenue for fiscal '25 breaks down as follows: around 35% relates to power discretes and modules covering silicon, silicon carbide and gallium nitride. Around 30% pertains to analog and sensors. Finally, control and connectivity grew to around 35%, supported by the success of our automotive microcontrollers, which will be further strengthened by the acquisition of the automotive Ethernet business from Marvell. This balanced portfolio is illustrating the healthy degree of diversification we have achieved over the past few years.

Regarding our operating profitability in the September quarter, the segment result amounted to EUR 717 million, corresponding to a segment result margin of 18.2%. The slight improvement compared to the previous quarter is reflected -- is reflecting volume growth, which overcompensated the adverse currency development as well as some intentionally incurred opportunistic low-margin business for consumer-related products to avoid idle cost. More on this in the PSS section.

For the full 2025 fiscal year, the segment result margin was 17.5%, landing in the high teens territory as predicted, in line with the lower range of our target operating model. Compared to 1 year earlier, annual price declines, and negative currency impact and rising idle costs could be offset in part by contributions from our step-up program. Our order backlog increased by around EUR 2 billion quarter-over-quarter to close to EUR 20 billion at the end of September, a first proof of the recovery materializing.

Now to our divisional revenue, beginning with Automotive. In the final quarter of 2025 fiscal year, the Automotive segment achieved revenues of EUR 1.921 billion, a further uptick compared to the previous quarter. The most notable volume growth contributors were smart power components, microcontrollers and xEV-related solutions. The latter we ascribe to temporary pull-ins due to subsidy reductions in the U.S. and in China. Both the segment result of EUR 430 million and the segment result margin of 22.4% increased sequentially, driven by volume growth and improved mix as well as some smaller favorable nonrecurring effects.

Independent of near-term market developments, we continue to shape the future of mobility with our leading product portfolio across power, analog and sensors and control and connectivity based on our P2S approach. A few recent design win example underscore this. An established North American OEM will use AURIX TC4 microcontrollers, along with several analog components for an upcoming ADAS system. The total design win volume is a mid-triple-digit million-euro amount covering not only the MCU but also power management ICs, PROFET smart switches and NOR flash memory.

Our newly acquired BRIGHTLANE Ethernet product family is very well received by customers. They will be a crucial building block for software-defined vehicles and combined with our MCU portfolio, enable even more comprehensive solutions for our customers. As an example, they are currently ramping in the most recent platforms of 2 European premium OEMs.

Lastly, we have secured an additional cumulative triple-digit million-euro design win for our OptiMOS 7 MOSFETs across all regions. These cover key applications such as power distribution in several upcoming software-defined vehicle architectures as well as safety critical applications such as steer-by-wire systems, braking systems and active suspension. This success is underpinned by our differentiating technology, which enables leading-edge devices with superior quality, highly appreciated by customers.

Let's now move to Green Industrial Power, where revenues in the September quarter came in at EUR 463 million, an increase of 7% quarter-over-quarter. The sequential improvement was strongest in the areas of power infrastructure comprising renewable energy generation and grid infrastructure as well as rail systems and commercial electric vehicles. On the back of higher revenues, GIP segment result edged up to EUR 69 million in the fourth quarter of our 2025 fiscal year, equivalent to a segment result margin of 14.9%.

Besides the typical seasonal pattern, the market situation for the various industrial applications we serve shows a mixed picture. Macro uncertainty is prolonging the path to recovery for automation and drives. Similarly, there are not yet clear signals for an upswing in heating, ventilation, air conditioning or home appliances. Regarding renewable energy generation, market conditions throughout the delivery chain continue to show some signs of weakness.

That said, we see structural drivers on the power infrastructure side getting stronger. A higher share of renewables in the overall energy mix and the proliferation of AI data centers at gigawatt levels in various parts of the world caused the need to significantly upgrade and strengthen the power grid. Critical applications providing attractive evolving content opportunities for us are, for example, large-scale energy storage systems, uninterruptible power supplies and solid-state transformers and circuit breakers.

To advance the latter, we are partnering, amongst others with SolarEdge to develop highly efficient next-generation solid-state transformer technology for AI and hyperscaler data centers. The collaboration focuses on combining advanced silicon carbide technology from us, Infineon with SolarEdge power conversion and control topology to enable direct medium voltage conversion. The solid-state transformer technology will play a crucial role in future, 800-volt direct current AI data center power architectures. The technology enables highest end-to-end efficiency and offers several key advantages, including a significant reduction of weight and size, a reduced CO2 footprint and accelerated deployment of power distribution, among others, when connecting the public grid with data center power distribution.

The Power & Sensors segment recorded revenue of EUR 1.189 billion in the September quarter, 13% up sequentially. The main contributors to this significant growth were our power solutions for AI servers. In addition, we saw strength for products going into smartphones and accessories like MEMS microphones. Notwithstanding the strong revenue pickup, the segment result of PSS decreased to EUR 179 million, leading to a segment result margin of 15.1%. Besides adverse exchange rate effects, the main factor were so-called fab fillers intentionally addressing low-margin market segments on the consumer side to utilize otherwise idle production capacity. We plan to fade out such business in the near term, being replaced more and more by strongly growing margin-accretive AI volumes.

On the market side, consumer and general compute communication continue to see a tepid recovery. In stark contrast, the AI boom remains a powerful growth engine for us with data center build-outs accelerating dynamically. Managing the power flow in line with the exponential compute growth across all power conversion stages from grid to core becomes mission-critical to scaling AI. Said differently, there is no AI without power. With the unmatched breadth of our product portfolio in silicon, silicon carbide, gallium nitride, various package concepts, speed of innovation, quality and delivery capability, we have become the leading partner of all relevant GPU and ASIC providers.

This success is clearly visible in our numbers. In the 2025 fiscal year, our AI data center-related revenue nearly tripled to more than EUR 700 million. We thus were able to beat our originally predicted numbers of around EUR 600 million despite the adverse currency development. For fiscal '26, we are raising our growth expectations significantly from around EUR 1 billion to around EUR 1.5 billion, more than doubling year-over-year. The strong momentum of our business is coming from the unabated market momentum for AI, strongly rising power requirements of new processor generations, rack configuration and data center architecture as well as expected further content gains. By the end of the decade, we expect the addressable market for us to be in the range of EUR 8 billion to EUR 12 billion, depending on factors like module share, customer structure and speed of AI build-out.

Combining the expertise and unrivaled product portfolio of our GIP and PSS segments is putting us at the forefront of both the energy transition and the AI revolution. This creates highly attractive idiosyncratic business opportunities for us, more on these in an investor deep dive that our 2 division heads of GIP and PSS will host on 26th of November. On our Investor Relations homepage, you will find details about this event.

Now let me touch on wide-band gap. Our unique setup of having the worldwide most innovative, cost-efficient and scalable in-house manufacturing of silicon carbide and gallium nitride is fully recognized by automotive, industrial and AI data center customers. Talking about the later power systems of 800-volt AI server power supplies are only conceivable with best-in-class silicon, silicon carbide, gallium nitride and package product combinations.

In the overall silicon carbide market, supply is currently outstripping demand. In this competitive environment, we could keep our silicon carbide revenues in this 2025 fiscal year at the level of the previous year at around EUR 650 million despite headwinds from pricing and currency. Given the favorable design win trend, amongst others, linked to rising usage in the aforementioned AI data centers, we anticipate again growth for our 2026 fiscal year. Gallium nitride is at an earlier stage of the market uptake and system topology changes are necessary to reap the full benefits of GaN. We are encouraged by an increasing design win momentum at automotive, industrial and data center customers, which value our power systems expertise combined with in-house manufacturing. Looking ahead, GaN is poised to play a pivotal role in areas like automotive, AI servers and robotics.

Let's complete the divisional review with Connected Secure Systems. CSS recorded quarterly revenues of EUR 369 million, 6% up from the June quarter. The main driver were payment solutions in part due to the fulfillment of CRA orders. The segment result of CSS improved to EUR 45 million, corresponding to a segment result margin of 12.2%. Macroeconomic risk continue to dampen consumer confidence in corporate spending causing sluggish demand for IoT and security solutions.

Looking beyond the near term, we continue to invest into innovation to foster profitable midterm growth. To further strengthen our position in Edge AI application, we introduced DEEPCRAFT AI suite optimized for our PSOC Edge family of microcontrollers. To unlock the full potential of Edge AI, we provide a comprehensive set of hardware and software solutions to seamlessly integrate AI and machine learning capabilities in the next generation of IoT edge devices.

Our solutions empower customers to either develop their models from scratch or to integrate off-the-shelf models and solutions into their products, thereby shortening time to market. AI in its various shapes and forms will bring significant business opportunities to Infineon across all our segments. Beyond AI, we are actively helping shape the quantum area. Based on our innovation strength and excellence in volume manufacturing, we have developed trapped ion quantum processing units, so-called QPUs. Together with strategic partners such as IonQ and Quantinuum, we are focusing on scaling qubit, counts and fidelity.

Quantum and AI are complementary. AI enhances calibration, control, error mitigation of quantum systems, while quantum computing can generate high-precision data sets that accelerate AI-driven discovery, for example, in materials, pharmaceuticals and logistics optimization. In parallel, we are winning business at customers preparing for the security implications of the quantum age with post-quantum cryptography-enabled products, including our Common Criteria certified implementation on a security controller, helping safeguard today's data against tomorrow's threats.

Now over to Sven, who will comment on our key financial figures.

Thank you, Jochen, and good morning, everyone. In my part, I will mostly focus on the September quarter, occasionally adding comments about full year numbers. Let's start with our gross margin development. The adjusted gross margin for the final quarter of our 2025 fiscal year came in at 40.7% after 43% in the quarter before. The reported gross margin decreased quarter-over-quarter from 40.9% to 38.1%. The temporary fab fillers on the consumer side of PSS that Jochen mentioned burdened margin levels by around 1 percentage points. Furthermore, mix effects, the weaker U.S. dollar and slightly higher idle costs were headwinds quarter-over-quarter.

As you know, the background was our goal to manage on books inventory as previously indicated. With a DIO figure of 153 days as per the end of September, we have achieved our target for the end of the fiscal '25. Keeping stock levels under control will remain a focus area of our cycle management. However, the uneven recovery will stand in the way of further near-term inventory reductions.

For the full fiscal year, which was the second consecutive year with a declining top line, we managed to keep the adjusted gross margin well above the 40% mark at 41.4%. Therein, idle costs amounted to close to EUR 1 billion, the vast majority of them reflecting cyclical underutilization. These correspond to around 600 basis points of margin potential without considering the fall-through from additional volumes. On the positive side, we have been reaping first material benefits from our step-up program focusing on improving our structural cost competitiveness. In fiscal '25, step-up has contributed about 200 basis points to our gross margin.

Now turning to the OpEx side, looking first at reported quarterly numbers. Research and development remained practically flat at EUR 565 million in the September quarter. Also, our selling, general and administrative expenses moved sideways to EUR 401 million. On an annual basis and net of nonsegment result charges, r&D as a percentage of revenues was around 15%. Bringing out innovation to address customer issues is key to our differentiation and hence, value creation. The SG&A percentage of revenues net of nonsegment result charges was just under 10% in our 2025 fiscal year. Our step-up program entails also structural improvements of our operating expenses. And here, we see positive contributions coming through nicely, too. Overall, with step-up, we have so far recorded about half of the total targeted impact for the first half of our 2027 fiscal year when all the measures will become fully effective.

Nonsegment result charges for the fourth quarter amounted to EUR 263 million, bringing the total for the 2025 fiscal year to EUR 1.45 billion. The biggest component therein was acquisition-related amortization with around EUR 400 million. Other major parts were impairment and other charges related to the sale of our Austin manufacturing site and step-up related one-timers. The financial result for the September quarter amounted to minus EUR 64 million after minus EUR 40 million in the quarter before. Contained therein are, among others, funding costs related to the debt financed acquisition of the Ethernet business from Marvell as well as noncash interest expenses on uncertain tax positions.

Income tax expense for the September quarter amounted to EUR 152 million after EUR 95 million in the quarter before. Valuation effects related to deferred taxes have led to a noticeably quarterly increase and influenced the effective tax rate for the entire 2025 fiscal year, which came in at around 27%. Cash taxes for our fourth fiscal quarter were EUR 106 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 21%. Going forward, for modeling purposes, a tax rate between 20% and 25% is and continues to be a reasonable assumption.

Our investments into property, plant and equipment, other intangible assets and capitalized development costs increased slightly quarter-over-quarter from EUR 442 million to EUR 451 million. For the entire fiscal year 2025, investments amounted to around EUR 2.1 billion, coming in slightly below our guidance. Depreciation and amortization expenses, including acquisition-related nonsegment result effects for the September quarter were EUR 484 million, leading to an annual total for fiscal '25 of EUR 1.9 billion as predicted.

Our free cash flow in the September quarter was significantly influenced by the closing of the acquisition of Marvell's Ethernet business. The reported number of minus EUR 1.276 billion would have been plus EUR 904 million without the acquisition. The strong quarterly improvement of our organic free cash flow was positively influenced by increased volumes, the predicted receipt of public fundings, in particular, for the ramp of Module 4 at our Dresden site as well as the quarterly reduction of our own inventories. For the full year, the free cash flow amounted to minus EUR 1.051 billion. The adjusted free cash flow considering acquisitions and expenditures for large front-end buildings, in particular, our analog mixed signal power fab in Dresden came in at EUR 1.8 billion, corresponding to 12.3% of sales, fully in line with our target operating model.

The Marvell Ethernet acquisition also had a noticeable impact on our liquidity and leverage figures. At closing, we drew down the committed acquisition facility from our banks, consisting of a EUR 1 billion and a USD 1 billion tranche. The remaining purchase price was paid from our own liquidity. As a result of this and the strong organic free cash flow in fiscal Q4, our gross cash position at the end of September stood at around EUR 2.1 billion, equivalent to around 14% of sales, in line with our liquidity target.

Our gross debt amounted to EUR 6.8 billion, the resulting net debt to EUR 4.7 billion. Our gross leverage is now at our self-defined threshold of 2x. Net leverage is corresponding to 1.4x. We view this situation as temporary as increased financial debt following our Ethernet acquisition is meeting a cyclically subdued EBITDA. Our after-tax reported return on capital employed remains at a depressed level. For the complete 2025 fiscal year, our return on capital employed came in at around 5%, clearly falling short of our aspirations. This is due to an increase of capital employed, driven by organic and inorganic investments over the last years compared with a temporarily lower NOPAT.

Finally, to our dividend proposal for the concluded fiscal year 2025. To our next Annual Shareholders Meeting in February, we will propose a dividend of EUR 0.35 per share, unchanged versus the prior year. This would result in a payout of about EUR 460 million. Keeping the dividend constant in a second downturn year with lower net earnings compared to the previous year shows our strong commitment to shareholder remuneration. We are again striking a balance between shareholder remuneration and sufficient financial flexibility for the company.

Now back to Jochen, who will comment on our outlook.

Thank you, Sven. As of today, it is challenging to predict a 1-year business trajectory in an environment where short-term ordering is limiting visibility. We see the still cautious ordering behavior of customers primarily as a reflection of geopolitical and tariff-related uncertainties. Inventory levels have generally normalized throughout supply chains. That said, there are lingering pockets of digestion and further working capital reductions. And on the other hand, also a few instances of supply tightness.

In addition, the underlying demand will determine the magnitude and pace of the recovery. As a base case, we are expecting volume growth to return in 2026 amid a gradual up cycle. For the currently running December quarter, the first of our 2026 fiscal year, we predict revenues of around EUR 3.6 billion based on an assumed U.S. dollar-euro exchange rate of 1.15. This would equate to a sequential decline of about 9% above our typical seasonality because in the near term, there's a risk that some Automotive customers are driving down inventories to critical levels below target into calendar year-end. Also from industrial customers, we expect pronounced destocking towards the end of December.

By segment, revenue at GIP and CSS is anticipated to decrease more than group average, whereas sales of ATV and PSS should decline less. Compared to the first quarter of our previous fiscal year, we expect 5% nominal growth despite a significantly weaker U.S. dollar. Adjusting for this, like-for-like growth would be 11%. For the December quarter segment result margin, we expect a mid- to high teens percentage level resulting from the lower sales volume.

Now to our outlook for the full 2026 fiscal year. In the light of low market visibility, we have to allow for a certain range of outcomes and act swiftly. In our base case, we expect our full year revenues to be moderately up compared to the previous fiscal year. Besides an assumed typical price decline and unfavorable currency development is masking a stronger underlying volume growth. We assume a U.S. dollar-euro exchange rate of 1.15 compared to the average of 1.11 realized in our 2025 fiscal year. This translates into about EUR 400 million of top line headwind using our rule of thumb.

In line with the assumed uneven and overall gradual recovery, we expect our business segments to follow markedly different patterns. Regarding automotive semi market, several headwinds make us cautious. While the trade and tariff situation remains fluid, we expect it to have an impact on vehicle affordability and thus weigh on underlying car demand. The latest production forecast for 2026 S&P sees only a very small decline to about 91 million vehicles. We see this as a best case. Regarding automotive content dynamics, we anticipate the Chinese xEV market to moderate significantly in terms of growth now that it has surpassed 50% penetration, also caused by subsidy reduction and rising efficiency requirements. Europe should see some improving momentum, whereas xEV sales in the U.S. will suffer from the lack of government support.

Accordingly, we are seeing pushouts of several new EV platforms across the Western OEM landscape and/or production mix shifts in favor of ICE cars. In light of this, we have taken action to restructure our frame-based module production in Warstein in Germany and concentrated at a more cost-competitive Hungarian site in Cegléd.

The picture is brighter for the other big auto content driver, the proliferation of software-defined vehicles. Here, we expect market momentum to accelerate from the second half of 2026 onwards, driven by more and more SDV launches, further supported by the automotive Ethernet business from Marvell. In total, we expect our Automotive segment to grow below group average. In contrast, we expect PSS to grow significantly faster than corporate average, driven by buoyant demand for our AI power solutions for which we assume revenues now of EUR 1.5 billion. We enable this revenue growth in a very capital-efficient way by converting idle IGBT capacity from ATV and GIP to advanced MOSFET capacity for AI throughout the year.

For GIP, we assume revenues to grow moderately year-over-year based on CapEx restraints by industrial customers, some remaining inventory digestion, moderating growth of renewable energy build-outs and accelerating investments into grid infrastructure. For CSS, we expect only slight yearly growth as IoT demand remains sluggish.

Regarding profitability, we expect our full year adjusted gross margin to come at low 40s and our segment result margin to land at high teens percent level. The adverse currency development, together with assumed typical price decline will work against the positive fall-through effect from volume growth. Idle costs are expected to go down only gradually to an annual level of around EUR 800 million. They will, therefore, still constitute a considerable margin drag of around 400 basis points without considering the positive fall-through from additional volumes.

Further benefits from our step-up program will support our 2026 margins as more and more measures are becoming effective. Investments are key variable within -- are a key variable within our control and the consecutive reductions throughout 2025 show how we take related decisions in an agile manner. For fiscal 2026, we predict investments, including capitalized development expenses to amount to around EUR 2.2 billion, a level very similar to the previous year. A focus area will be the finalization of the construction of a fourth module in Dresden and equipment just in time to match strongly growing customer demand for our AI-powered solutions.

For depreciation and amortization, we anticipate a value of around EUR 2 billion in our 2026 fiscal year. This includes amortization of around EUR 400 million resulting from purchase price allocations, mainly in connection with the acquisition of Cypress and Marvell Ethernet business, which will be recognized in our nonsegment results. For the free cash flow, we expect a level of around EUR 1.1 billion for fiscal year '26. Our adjusted free cash flow net of investment into major front-end buildings is expected to come in around EUR 1.6 billion.

Given the limited visibility, we view our current guidance for fiscal 2026 as the appropriately prudent base case with upside and downside scenarios. The base case already factors in certain headwinds, including persistent tariff impacts and compared to some market researchers, a more cautious near-term view on xEV adoption. Further downside could stem from escalating geopolitical tensions or unresolved supply chain disruptions. Upside could come from stronger recovery in end markets, less rigid inventory management by customers, even higher AI revenues and a more benign outcome of tariff bargaining.

Let me spend a few words on sustainability metrics. We are well -- very well on track towards CO2 neutrality by 2030, covering direct and indirect energy-related emissions, Scope 1 and 2. In all our sites, we are procuring electricity from renewable sources only. We have exceeded our stated milestone of reducing CO2 emissions by 70% by '25 compared to the base year '19. As per end of September, the reduction amounted already to more than 80%. Furthermore, our climate target was validated by the science-based target initiative. This includes our Scope 1 and 2 emissions. And additionally, it also covers our Scope 3 emissions in close collaboration with our supply chain partners.

Before going into Q&A, ladies and gentlemen, let me summarize. We closed our 2025 fiscal year fully in line with guidance, both in terms of revenue as well as profitability. The latter was supported by cycle management and step-up benefits. As we move into our 2026 fiscal year, geopolitical events and macroeconomic volatility are tempering cyclical dynamics and cause customers to order on site. Our base case is a gradual uneven market recovery. AI is standing out as a bright spot. Our market-leading solutions for the grid to core power flow provide us a powerful idiosyncratic growth opportunity. We will more than double our revenue to around EUR 1.5 billion in fiscal '26 and further significant growth is to come in the subsequent years.

Expectations for Automotive are bifurcated muted for short-term xEV demand and currency headwinds, more than compensated by software-defined vehicle trends supported by further growth in analog microcontrollers and the Ethernet business from Marvell. We expect moderate growth for our 2026 fiscal year, including a significantly negative currency impact and assumed typical price declines. Continued implementation of step-up will support a high-teens segment result margin. With our unparalleled portfolio of power analog sensors and control and connectivity solutions, combined with our P2S approach, we are addressing secular growth drivers while focusing on accelerating innovation to customer value.

Thank you very much, ladies and gentlemen. This concludes our introductory remarks, and we are now opening the call for your questions. [Operator Instructions]

Operator, please start the Q&A session now.

[Operator Instructions] And we'll take our first question from Didier Scemama, Bank of America.

I've got a couple. Maybe starting with the big picture, Jochen. I think you very kindly gave us the mix earlier for '25, which is showing a sort of progressive evolution away from power discretes into analog and microcontrollers and sensors, obviously, recently augmented with the acquisition of the Marvell Ethernet automotive switch business.

So I just wondered what is -- is it the direction of travel for the company given the headwinds you're seeing in, let's say, silicon power devices and the reshaping of manufacturing you've announced away from high-cost location to lower-cost location, the slower growth in EVs? So is that something you are thinking about? And if that's the case, should we expect over the medium term, a lower capital intensity for the business? And I've got a follow-up.

Okay. So you know that we want to lead in power systems and IoT. In that regard, we need a broad portfolio, which combined with the P2S approach will also differentiate us from pure component competitors, for example, also from China. So I believe that the portfolio in -- ranging from power to analog to sensors to compute and connectivity, combined with software, combined with the P2S approach is the way to differentiate us from a low price competition. Having said this, of course, we need to be flexible in each of this category and follow closely market developments.

And for the time being, as I mentioned also in my summary, we are less hopeful for a xEV -- for the xEV market. In fact, we believe that the development will be less -- showing less growth than many market participants anticipate. And in the IGBT domain for xEV as much as for certain applications in photovoltaics, we believe that it's better to use this capacity, as I outlined in my intro, to convert it to leading-edge silicon MOSFETs and use it for the fast-growing margin-accretive AI business. So in principle, I would like to be leading in all 3 categories. But in detail, we have to then react to market development and focus on profitable growth.

Okay. And then on the AI server, just wanted to look at the puts and takes within that. So first of all, congratulations for getting to EUR 1.5 billion, or at least guiding to EUR 1.5 billion for '26. So if we peel the onion a little bit, what's your assumption for market share in '26? Is that flat, up, down? And then if you could give us a sense of any initial contribution from either GaN or SiC in that EUR 1.5 billion, that would be extremely helpful.

Andreas will start and then I can add.

Yes. So Didier, Andreas speaking. So in terms of market share, '26, what we foresee is an increase of our market share given the projects that we are currently working on with major suppliers of server racks and GPU builders and so on and so forth. So definitely, here, we are going northwards based upon all the portfolio offering and all the undertaking that we are having with those guys in terms of joint innovation and us providing most efficient and the world's best semiconductor solutions, if you will, to power AI efficiently.

Jochen, if you build on this?

Yes. Maybe let me add a qualitative personal comment on this. In my 30 years in the company, and I think Andreas would add just the same, I've never seen such a growth momentum coming on us. It's amazing. Our positioning in the market ranging across the whole grid to core power flow, customers coming to us for performance, for quality and also now for delivery capability.

So I think the EUR 1.5 billion is a step in this year. But based on the platforms that will ramp at the customer, I think there will be also strong growth into the following year. GaN and silicon carbide are already, of course, included in that number. If you ask me for the first application of GaN, it's likely going to be beyond the parts which are right now already in the PSU. It's going to be the 48-volt IBC, where we see high potential for GaN adoption.

Okay. Brilliant. And maybe just one final quick follow-up. When I do the math on your full year guide and taking into account what you said on ATV, on GIP and CSS, as well as AI server, it feels like your PSS revenue growth for '26 ex-AI is about -- is a decline of about 8% year-over-year, which sounds pretty bad. So are you perhaps overly cautious? Or is there anything we should be aware of like loss of sockets in smartphones or anything like that, that would justify the decline year-over-year in the PSS revenue ex-AI?

No, maybe Sven you take.

Yes, Didier. So I mean, I'm comparing now, of course, the actual numbers for AI, so no longer the EUR 600 million, but more than EUR 750 million to EUR 1.5 billion, which gives you, let's call it, EUR 750 million AI growth. If you now look at the rest of the -- so the non-AI business and you take into consideration currency and negative PV, there is also growth on the non-AI PSS side.

We see good traction on the sensor side. The weaker elements right now are really e-mobility and photovoltaic. And again, we will reuse or repurpose these capacities in a capital-efficient manner to grow in AI.

The next question comes from Francois Bouvignies from UBS.

I have actually a follow-up from Didier's question more at the group level. So moderate growth, if you assume 3% to 5% growth, so that's EUR 500 million, EUR 800 million incremental revenues. If we take into account the currency, so EUR 400 million, you said, Jochen, so it's a EUR 1 billion constant currency incremental revenues in your guide, roughly EUR 1 billion to EUR 1.2 billion. Now AI is EUR 800 million alone, and Marvell have EUR 200 million to EUR 250 million. So all in all, Marvell and AI, it's EUR 1 billion, which is basically what you guide for, for incremental revenues.

So in other words, without currency and without AI, you guide flat at the group level revenues. And I absolutely understand that you need to be cautious in this time, a lot of uncertainty around macro, but flat would be well below what you would expect to be with the content growth, what you have laid out for many years. And I would have thought that '26 would be more normal years, less inventory correction. So is that fair to say that you take like extra conservatism and your guidance implies still significant inventory correction into '26?

So Francois, let me take that one. I expected it. So first of all, I start by saying we have the honor and the onus to give annual guidance, as you know, in times of low visibility. We provide like in the past year, and I think looking back, this worked pretty well as also many investors have reconfirmed a qualitative outlook. And we said it in the script that it is a prudent base case given where we are in the cycle and in the geopolitical framework.

Moderate growth for us means it's a mid-single-digit percentage territory. So you mentioned 3% to 5%, that would be a bit too low in my mind. So if you then run the numbers again and you take the AI out, you take the FX out, you take Marvell out, there is still some growth, but it is a tad lighter than in the past for the reasons we have mentioned and also for the reasons that this is the start of the year and the guidance contains some kind of conservatism in it.

Great. And maybe on the profitability side, I mean, it's kind of a similar question. In fiscal year '25, so you just reported, you had 17.5% segment margin and 41% gross margin, and you guide low 40s and high teens for both for fiscal year '26. So basically the same. So despite the growth that you see, I would have expected as well lower underloading charges and also the cost-saving program coming through. It seems very conservative again to me. So maybe, Sven, could you maybe quantify what you assume in the underloading charges and cost savings, pricing kind of a bridge for those margins to understand?

Yes, happy to do so, Francois. And I think it's a question which probably is relevant to many of you. So I will be pretty explicit here. So first of all, there is a kind of an idle assumption included. We are coming from a year where idle cost went up to EUR 1 billion. We are now forecasting around EUR 800 million. The question comes, why is it still at that elevated level? And why is it not going down quicker and further? So here, the 2 answers are we are super strongly growing, as you have heard in AI. So here, nothing is idling. We have to build new capacities to support the growth. So that does not help on the idle front, number one.

And number two, we also see nice growth opportunities on the microcontrollers, on the software-defined vehicle-related parts, which is mostly outsourced. Again, no real help on the idle front. That's why we are not reducing idle to the extent probably some of you had in the models, which is then relevant for the year-over-year comparison in terms of gross and segment result margin. And some more flavor. So if you look at the bridge year-over-year, there are puts and takes. On the positive side, there is a positive volume effect. I mean, our volumes are in the growing in the low teens. So that is, I think, a good sign. So of course, there's a positive contribution. There is a positive contribution from step-up. I said it in the last call and happy to repeat 50% last year, 2/3 this year included in our numbers. So yes, that's positive.

On the other hand, there is a single to mid-digit decline in PV included. There is EUR 400 million of FX included. And if you add all that, you end in the high teens. And here again, we do not want to be more precise starting this year from today's perspective. So these are the factors. And maybe last comment, gross margin in the low 40s is, in my mind, pretty resilient in this environment. And that's why you can see here very nicely the 200 basis points contribution from the step-up program, which are 3 quarters gross margin accretive and only 1 quarter goes into OpEx. So a very long and detailed answer, but I hope it helps all of you to build the right bridges.

Let me add one aspect because maybe it was otherwise confusing because I said we convert IGBT capacity for leading-edge MOSFETs for AI. That is a true statement. But what Sven also said is that we build up new capacity for AI that is mainly on the AMS side. And the conversion of the IGBT capacity, which, of course, then reduces idle will take several quarters to become effective.

The next question comes from Andrew Gardiner from Citi.

Sven, perhaps first one for you. Just to clarify some of what you described in the last answer to Francois, you talked about the volume growth of low teens. Can you also sort of give us the detail on what the price pressure is going to be sort of ASP pressure into next year as well? It feels like if you're growing at low teens, then given the FX headwind of EUR 400 million, the Marvell boost that the pricing is perhaps down a bit more than we would have normally anticipated. So can you just specify where that's coming out?

And then secondly, perhaps for you, Jochen, you mentioned a couple of times delivery capability when it comes to AI. So is that helping you to gain share in the near term relative to what you might have expected? Just because of your size, your ability to get those parts out in what is a very rapidly growing market relative to perhaps some of the smaller players that have previously led in the power space?

Okay. Andrew, I'll start with your question. So again, I do not want to be more precise now than guiding comparatively. But if you look at the numbers or the guidances which we have given you, I mean, there is this EUR 400 million of FX, that's clear. On the pricing front, although it's very early stages because we are in the midst of the negotiations with the customers as usually, we are anticipating low to mid-single digit.

So that's something you have to deduct. And if you deduct these 2 and you add then the volume of low teens, then you come into the moderate growth territory, which is, as I said, low -- sorry, mid-single digits. So that's all I can say at that moment in time. We will, of course, specify that then over the quarters.

And then in terms of the delivery capability, you're right. In the past, I stressed our differentiating factors in the AI -- powering AI domain is performance and quality. I would now add delivery capability. I mean there will be always small players around, but the industry needs players that can really scale. And I think here, we are in the prime position, and we see customers coming to the table and trying to secure capacities for this ramp to happen. And of course, that is then a great opportunity on our side. The facility in Dresden then comes perfectly in time. But of course, we will take here also an approach that we will not take the whole risk on our books.

The next question comes from Stephane Houri from ODDO BHF.

Actually, I wanted to come back on the AI opportunity. Because in the press release, you gave a targeted market of potential market, I would say, about EUR 8 billion to EUR 12 billion by the end of this decade. So the question is what kind of market share are you targeting at this target? And can you maybe repeat what is your market share at the moment?

Yes. I think we always gave you the indication that in the classical data center, we have today a market share of 30% to 40%. That should be our minimum achievement. Honestly, on this market outlook towards the end of the decade, it's very, very difficult as -- to come up with good numbers, as I said in my intro, it depends on the module share, the customer structure and of course, the speed of AI build-out, which may depend also on other factors other than, of course, the power part.

So very, very difficult to predict, but we wanted to give you some sort of mid- to long-term view. But I would not be surprised if that number is changing also over time. In general, I would say, if you ask me about the risk entails, it's up to us to execute. So it's all about us to get the volumes in quality, in time for the various ramps to the customers.

Okay. And another question is on the Automotive segment where you seem to be pretty conservative at the start of this new fiscal year. And you notably talked about the kind of price war in China. Can you maybe come back on the upside -- potential upsides and downsides to this market? And if it is spread, I mean, the conservatism on China, but also on the rest of the market?

I can give you some insights. We expect clearly our microcontroller business to continue to grow also into next -- into this fiscal year. So that is clearly on the upside. Also the Ethernet business. So everything related to software-defined vehicles is on the upside. On the xEV side, we take a very cautious note. I mean, look at the BEV sales in the U.S. in October, they tanked as predicted. In Europe, yes, there is some growth. But in China, there is not only a price war taking place, especially on this power inverter that sticks out in a regard that, yes, I would say each procurement department will find that component and rather be 10x on that one compared to microcontrollers where the switching efforts are much, much higher.

So we take a very cautious note on that. And that, of course, is driven also by the price wars of the OEMs. And therefore, I expect even a revenue decline in power modules in the Automotive division. If we are wrong, fine, but that one is -- we are clearly cautious.

And is there a question about competition? That's my last one, sorry -- in China, I meant.

Yes. Again, I mean, there are Chinese competitors. For example, in the IGBT modules as well, there is less competition or no competition yet to be seen in the microcontroller or the Ethernet or the radar components, which we are selling. So it really depends. But again, our defense line for that is we are not a component supplier in China -- in particular in China, where customers are eager to adopt solutions very quickly to get their products out in time.

And therefore, I think our overall position in automotive China is strong, but we are cautious on the xEV power modules. And the whole thing, of course, doesn't come now unexpectedly. We expected this. And again, we are converting capacities as we are not willing to follow any price war to any unreasonable level.

Just quickly jumping in here at this point. Alex Foltin speaking from Infineon IR. Great to see so much interest. We still have a pretty extensive queue of analysts waiting to ask their question. [Operator Instructions]

I think the Board here is generous with its time. We can do a little bit of overtime, but please be crisp.

The next question comes from Janardan Menon from Jefferies.

I'll be quick. I've got one question, and it's on your capacity planning for AI. I was actually interested to hear that your -- where you're adding capacity for AI, if I heard you right, is on the AMS side. So what exactly is the AMS component in your AI solution? How much is pure MOSFETs, whether that is silicon, GaN or SiC? And how much is any other kind of component in that? Any idea?

And when you talk about the conversion from IGBT, which as you've just been saying, is a low-margin product for you because of price pressure in China, et cetera, and you're going into the MOSFETs. I know that FY '27 is quite far away. But if I look at FY '27, should we be seeing a lot of that effect coming through and get a big step-up in margin, both from underutilization and the effect of some of this conversion? Any kind of qualitative answer there would be great.

Yes. We take every challenge, but of course, we will focus this now on fiscal '26. I said that given the platform introductions of the AI guys, which are looming second half of '26, I think we will see there another growth step in -- clearly a growth step in our AI business. I would not like to allude now in general on margin on '27, but the AI business is margin accretive.

You were asking about where is AMS playing a role. In particular, it plays a role in the power stages. Each power stage comprises of an analog mixed signal part plus 2 advanced MOSFETs then combined in more or less complex packages ranging all the way up to vertical backside delivery modules, which, of course, command a much higher price than a simple power stage. But it's really there and some more analog mixed signal parts to come if you think about hot swap control and other ASICs.

But the biggest part is, of course, MOSFETs. And then I would say the next part is the assembly stack required to package the MOSFETs and the analog mixed signal part to the module level.

And would the analog mixed signal be about 10% of your total revenue in this area?

This, I would need to check, but probably in that range. But here, I would rather like to have a check.

And Janardan, just quickly, again, I will definitely not guide for '27 now. But I mean, you are on the right track. Because if you just think about the cyclical idle costs being a headwind of 400 basis points in this fiscal year without fall-through, then I think this is one of the key answers to a further margin progression in the years to come.

The next question comes from Joshua Buchalter from TD Cowen.

I'll follow Alex's clear instructions and just ask one. So congrats on raising the AI power number again. I was just hoping you could maybe help us with both the EUR 1.5 billion this year and the longer-term TAM that you gave. How much do you expect that to be coming from Stage 2 power on the GPU board versus other areas in the rack and also out to the grid? Any details you're able to share on that side, I guess, specifically on the Stage 2 power within the contribution would be very helpful.

Yes, it comes really all across, and it's very difficult to dissect this because on the second stage, the power stages, it all depends on whether it's a lateral power supply still or already a vertical power supply. But you remember my -- maybe my saying that we are on a good track to convince all customers to go for vertical over time. And that, of course, then changes this ratio dramatically.

And maybe on the -- another comment on the analog mixed signal part, which was just brought up before, it's, of course, one of these parts that also makes it very differentiating because to control these MOSFETs in this environment is a little piece of art where competitors seem to struggle. At this moment in time, I think Stage 2 is a very significant chunk of the money -- of the revenue. But that can increase for module and we also see in all the other components, power related now a demand coming towards us because we will be able to deliver.

The next question comes from Sandeep Deshpande from JPMorgan.

My question is regarding the auto market in terms of your FY '26 guidance. You are saying that it is below the moderate growth that you're seeing for the firm in the year. How does that break out into your expectation on volume growth and content growth, given the points you're making on the different -- on China, on the EV market, et cetera?

Yes. I'm not sure whether I can give you now on the top of my head the different structures. But again, microcontrollers will grow volume and revenue. Ethernet obviously will grow. Power modules will not grow. MOSFET in very good demand. Power or the analog parts also, I would say, reasonable. So content-wise, SDV is clearly helping us. The power module, as we said, is the weak -- the one weak element in the Automotive story as we speak. Does that answer it or what would...

In terms of your business in the auto market, how much -- would you say that the power modules is your biggest market? Or today, now, the mix has shifted much more...

No, no. The roughly EUR 7.5 billion more than EUR 3.5 billion in the Automotive division is microcontrollers. So the power module in terms of Automotive revenue for Infineon is in the range of 10%.

The next question comes from Alexander Duval from Goldman Sachs.

Just one quick question. You talked about various factors that can help you win in AI power, for example, your ability to deliver at scale. But you also touched on GaN as well as the packaging that you can offer. I wondered if you could provide some further color on how important those are in securing a strong market share in the AI domain.

Andreas speaking. So going forward, GaN is accelerating in terms of its importance to deliver outstanding and shiny efficiency and power factor, if you will, or size possibilities, which are very much important to power the servers going forward. So having said that, GaN, where do we see that this comes and becomes reality, you find it in the power supply units for secondary site rectification. But we also see now first concepts being evolving then also in the area of the intermediate bus converters.

Beyond this, while we are speaking, hard to say, but on the long run, given that Infineon pursues its strategy of offering GaN performance through our 300-millimeter scaling possibilities and scaling means that also cost performance. So we want to offer GaN performance at silicon pricing on the long run. We believe it will strongly proliferate, so to say, server power flow at scale where technologically it makes sense.

The next question comes from Jakob Bluestone from BNP Paribas.

I've got a quick question on the phasing of your revenues through the year. You obviously guided for below normal seasonality for Q1. And I think you mentioned that your orders were up by EUR 2 billion and also that SDV would sort of step up in the second half of the year. And so I just wanted to confirm, should we expect a sort of very H2 skewed '26? Or how should we think about the phasing over the course of -- over the year?

I think the -- if you take the last year's number, this quarter is EUR 200 million above last year. And then if you just take every quarter, EUR 200 million more. That's it.

We now take our last caller for today, Johannes Schaller from Deutsche Bank.

Jochen, you made some comments already on the last call, and I think again this morning on the press call about the inventory situation at your auto and industrial customers and then we're kind of destocking to maybe unsustainable levels. How big is the incremental risk you see from this continuing beyond the December quarter? Or are we really going to get so lean that this is then finally over? And has the Nexperia situation in your view, changed anything in terms of how customers are thinking about holding inventory?

Yes. Typically, it's a year-end effect. Obviously, there's a balance sheet reporting then. I -- to be on the fair side, I mean, there are several players, Tier 1s, OEMs, which are really in difficult territories and they are, of course, cash strapped. And then the question is where do you spend your cash. But I can only warn that situations like what we have seen in the last weeks, which hopefully now are resolved, may occur again if significant players are reducing their inventories to unsustainable levels. I would -- for us, I would expect the main impact to happen this quarter, like in the past as of this year-end effect.

So is it fair to assume that in your full year guidance, you have not baked in a kind of restocking from these customers, but more kind of...

No, exactly. If all these customers raise their stock, to reasonable target levels, we can debate reasonable, but I think that would be on the -- beyond the base case.

Johannes, maybe quickly to add. I mean, you heard me saying that on some conferences in some roadshows already. I mean I fully understand, and I'm part of the community who is really watching to manage working capital in an efficient way. But overdoing it is a risky thing, and we are just seeing it again with the case you were just referring to, but we can only encourage our customers to look at that.

Excellent. Thanks, everyone. With a quarter of an hour of overtime, we are now wrapping up the call. Thanks for the questions. Thanks for the interest. This concludes the fiscal year-end outlook 2026 conference call. Of course, you can reach us in the IR team here in Munich every time. My colleague on the press side said it feels a bit like pre-Christmas time. I find that a tad early, but still have a good time. Take care and talk soon. Bye-bye.

Good morning, media representatives, esteemed guests, colleagues and coworkers. I would like to welcome you to the annual press conference of Infineon Technologies AG. Thank you so much for having found the time to attend today so early. All of the members of the Board and management are participating. Our CEO, Jochen Hanebeck; our Chief Financial Officer, Dr. Sven Schneider; Elke Reichart, CDSO; Andreas Urschitz, Chief Marketing Officer; Alexander Gorski, Chief Operating Officer.

Mr. Hanebeck will start to give you an overview of the current fiscal year and forecast for the fiscal year that has just begun. The entire Board, of course, will be here to field any questions you may have. For all journalists, who are following us via the live stream, you're welcome to submit written questions. The question tool will be shown on your display on the screen. [Operator Instructions]

So having said that, I'd like to hand the floor to Jochen Hanebeck. Please go ahead.

Thank you. Esteemed members of the press, esteemed viewers.

Welcome to Infineon's annual press conference here on our site in our video studio and on our live stream. We are glad you could join us. Infineon met expectations in the 2025 fiscal year despite challenging macroeconomic and geopolitical conditions. The year was characterized by prolonged weakness in the majority of our target markets and customers and distribution partners have significantly reduced their inventory levels.

In view of geopolitical instability and the ongoing turbulency of tariffs, our customers are cautious about the future development of demand. This has led to last-minute ordering behavior for semiconductors. In addition, unfavorable currency effects have slowed our revenue growth for several quarters now. Given the ongoing geopolitical and tariff-related uncertainties, it is difficult to predict how strong and how broad the upturn in the semiconductor markets will be in the 2026 fiscal year. Therefore, we are adopting a prudent outlook.

Our priorities at Infineon remain unchanged. Firstly, we are leveraging existing opportunities for profitable growth and are expanding our production capacities in a very targeted manner to this end. Secondly, we are making focused and forward-looking investments in future technologies and in our expertise. Thirdly, we are keeping our expenditures under control.

We remain confident on our medium- to long-term development. We are making good progress on improving our cost competitiveness. At the same time, we are accelerating innovations with clear customer benefits and strengthening our position in growth markets such as software-defined vehicles and AI data centers. I'll come back to this. Infineon is well positioned for a coming market upswing.

Before we look ahead, let us first take a brief look at our business development in the past fiscal year. In the fourth quarter, group revenue increased to EUR 3.943 billion. This is an increase of 6% compared to the previous quarter despite a stronger headwind due to the weaker U.S. dollar. The exchange rate rose from USD 1.14 to USD 1.17 per euro. As expected, the fourth quarter was the strongest in the 2025 fiscal year in terms of revenue.

We were able to increase the segment results to EUR 717 million. This segment result margin reached 18.2% compared to 18.0% in the previous quarter. This slight improvement is mainly due to higher sales volume. This enabled us to compensate for the unfavorable currency development. For the 2025 fiscal year, revenue amounts to EUR 14.662 billion. This is a decrease of 2% compared to the 2024 fiscal year. The weaker U.S. dollar was an important factor in this development.

At constant currencies, our revenue would have remained almost stable compared to the previous year. This is a respectable result for a fiscal year that was characterized by substantial inventory corrections on the part of customers and by unprecedented trade conflicts. The segment result margin reached 17.5% after 20.8% in the 2024 fiscal year. Hence, the margin was in the forecasted high teens percent range. We were able to partially offset price declines, negative currency effects and rising idle costs with positive margin effects from our structural improvement program step up.

The free cash flow was minus EUR 1.051 billion. The adjusted free cash flow, which excludes investments in large front-end buildings and major acquisitions such as Marvell's Automotive Ethernet business amounted to plus EUR 1.803 billion. This corresponds to approximately 12% -- 12.3% of revenue. All 3 figures, revenue, margin and free cash flow were in the lower range of our target operating model applicable during cyclical downturns.

In a world full of uncertainty, Infineon remains on course. This is primarily due to the commitment of our teams worldwide. On behalf of the entire Management Board team, I would like to thank all our employees for their strong performance. Their commitment, passion and collaboration are key to Infineon's success even and especially during challenging times. Together, we have achieved much. And together, we are also tackling the current fiscal year, creating new things and shaping the future of our company.

Esteemed viewers, our dividend policy is aimed at paying out an unchanged dividend even in the event of stagnating or declining earnings. We will propose a stable dividend of EUR 0.35 per share to Infineon's shareholders at the upcoming Annual General Meeting. We want our shareholders to participate appropriately in Infineon's success. And at the same time, we want to maintain the financial leeway necessary to further develop our company for the future.

By doing so, we are focused on promising growth areas, especially in the field of artificial intelligence. AI will continue to drive the structural need for semiconductors and the demand for our solutions in the coming years. AI functionalities are indeed evolving at an incredible pace. They are changing industries and penetrating all areas of life. Generative AI, which can generate images, text, code and more, is increasingly being complemented by agentic AI, artificial intelligence that can perceive, reason, plan and act.

And the next big development step is already in sight. Physical AI. It enables autonomous systems, for example, cars or humanoid robots to perceive and understand the physical world and carry out complex actions. The use of AI requires enormous computing power that far exceeds the capacities of existing data centers. These requirements are increasing rapidly. Even before 2030, capacities of 1 megawatt and more per IT rack will be required. To put this into perspective, 1 megawatt is equivalent to the power of around 500 clothes irons.

The large U.S. tech companies, in particular, are driving the construction of specialized AI data centers worldwide. These data centers are reaching power levels in the gigawatt range. So we're talking about the power of 500,000 irons and upwards. 1 gigawatt is roughly equivalent to the full load of a nuclear power plant reactor unit. Meta, Amazon, Alphabet and Microsoft plan to invest over USD 300 billion in AI technologies and infrastructure this year. The announced projects alone represent an estimated output of up to 10 gigawatts. More will follow suit.

Power is the backbone of every AI data center. There is no AI without efficient power electronics. We supply fitting and scalable power solutions for the entire energy conversion chain from the power grid to the AI processor in the data center. Infineon is a clear leader in this field. We are also rapidly developing our range of efficient and scalable solutions at fast pace. In doing so, we are working closely with leading companies in the industry. An excellent example is our collaboration with NVIDIA in the development of a centralized 800-volt power supply architecture for future AI data centers. The new system architecture significantly improves energy-efficient power distribution in the data center and enables an even more efficient power conversion directly at the AI chip. As a technology leader, we want to shape the rapidly growing market in the coming years.

The fact that our solutions address an urgent and growing demand is also reflected in our business performance. We were able to almost triple our revenues from power supply solutions for AI data centers in the 2025 fiscal year, reaching over EUR 700 million. This is around EUR 100 million more than we had forecast despite negative currency effects. We are also raising our revenue forecast for the 2026 fiscal year from EUR 1 billion to around EUR 1.5 billion, which would mean more than doubling the revenues of the previous fiscal year. We also expect dynamic medium-term growth in this area. We expect the addressable market for Infineon to reach EUR 8 billion to EUR 12 billion by the end of the decade.

In addition, AI is increasingly developing beyond centralized cloud systems. Edge AI, the intelligent processing and analysis of data directly in the device or in its immediate vicinity is becoming an important driver for our business. Infineon supports developers of edge AI applications with a complete system based on our specialized microcontroller, PSoC Edge, which combines machine learning, advanced human machine interaction, low energy consumption and integrated security.

Added to this are our complementary sensor portfolio and our own edge AI development platform, DEEPCRAFT. By doing so, we offer a comprehensive set of hardware and software solutions for easy implementation of AI functionalities in IoT devices. Our customers can either develop their own AI models from scratch or integrate ready-made models and solutions into their products, thereby reducing time to market.

As already mentioned, we are on the verge of the next big technological step in AI evolution, physical AI. Take cars as an example. With the trend towards software-defined vehicles, the automotive industry is paving the way to a new era of mobility. Software supported by AI is at the heart of the vehicle. This enables new automated driving functions and enhanced safety features. Issues can be resolved without the need for a visit to the car repair shop simply via software updates over the air.

Software-defined vehicles lead to a new level of flexibility and efficiency. However, the necessary change of vehicle architecture is complex. Conventional electric and electronic vehicle architectures with a large number of distributed control units in the vehicle will not be enough. The automotive industry is, therefore, moving towards a more centralized approach. Infineon is playing a key role in this development. We are working together closely with many customers and partners to drive the development of software-defined vehicles around the world.

In addition to our system expertise, we benefit from our global market leadership in automotive semiconductors. We have consistently expanded our position in recent years. Our rapidly growing business of microcontrollers for automotive applications has contributed significantly to this development. These products are becoming increasingly important for controlling various critical vehicle functions in software-defined vehicles. We want to expand our leading position in microcontrollers for the automotive industry. The acquisition of the automotive ethernet business of the U.S. company, Marvell Technology, which we successfully completed last summer was strategically important to this end.

Ethernet is a key technology in software-defined vehicles. The technology is a perfect addition to our existing product portfolio. In combination with our AURIX microcontroller, it lets us offer a comprehensive product range that includes both communication solutions and real-time control. In addition to the car, ethernet technology is also essential to promising applications in the Internet of Things, especially for humanoid robots.

Esteemed viewers, Infineon is shaping the future with solutions that deliver added value to the economy and society. One technology with great potential for value creation is quantum computing, likely the next disruptive technology to follow artificial intelligence. Quantum computers use the laws of quantum mechanics to solve certain particularly complex tasks much more than -- much more efficiently and quickly than conventional computers can. This opens up completely new possibilities in various application areas from materials research to developing new drugs and optimizing supply chains.

At Infineon, we have key competencies for quantum computing. Our strategic partners include Quantinuum, a company in which NVIDIA also holds a stake and IonQ, the quantum company with the highest market value at present. Together, we are now taking the technology from the lab into application, pushing the boundaries of quantum computing. I'd like to offer deeper insight by sharing voices from our partners in academia and industry. Please take a look for yourself.

[Presentation]

You heard it. Quantum computing is no longer a distant vision. It is becoming a reality. Quantum computing and artificial intelligence are 2 of the most exciting and forward-looking technologies of our time. Above all, their interaction promises enormous progress in areas where conventional computers are reaching their limits. These 2 key technologies reinforce each other. Firstly, artificial intelligence accelerates quantum computers by improving error correction, calibration and control of quantum hardware. This removes major hurdles to the scaling of quantum computing.

At the same time, quantum computers accelerate AI by generating precise output data that serves as the basis for AI, for example, in developing new molecules for drugs, batteries and catalysts. Other potential applications range from optimization problems in logistics to cybersecurity and financial analysis. Quantum computing, therefore, does not replace AI, but rather expands its possibilities, thus opening new perspectives for data-driven innovations. And here, you can see one of our wafers with trapped ion quantum processors, which we are already developing and delivering to our lead customers.

Three things are crucial for industrial-grade quantum computers, the quality of the qubits, replicability and scalability. Our quantum platform and our semiconductor production bring precisely these characteristics to the quantum ecosystem. For our customers, this means a clear path from research to application.

A complete picture of quantum computing also includes a look at cybersecurity. Powerful quantum computers will be able to break established encryption methods within a few years, an enormous security risk for ID documents and payment cards for software-based devices and applications, for example, in industry, vehicles and aerospace. In particular, durable products with long development cycles are at risk. That's why we are already supporting our customers today with solutions for post-quantum cryptography based on the principle of protecting data today that must remain confidential tomorrow, so in the quantum age.

And we back this up with certified security. Infineon is the first manufacturer worldwide to receive the Common Criteria certification for the implementation of a post-quantum cryptography algorithm on a security controller. Common Criteria is an internationally recognized standard that independent experts use to systematically test and certify the security of IT products. Thus, we are sending a strong signal of trust and security at the highest level.

Esteemed viewers. Before moving on to our outlook for the 2026 fiscal year, a note for our guests on site. Following this press conference, we cordially invite you to visit our exhibition in the Cubis foyer. You will have the opportunity to discuss the topic of quantum computing in greater depth with our experts. Richard Kuncic, Head of our Power Switches business line; and Clemens Rössler from our Ion Trap Systems team will be happy to assist you. Many thanks to both colleagues.

Now to our expectations for 2026. We continue to operate in an environment in which short-term or last-minute ordering behavior limits the transparency of demand trends. This makes predicting business development for an entire fiscal year, a challenging task. Inventories in the supply chains have largely normalized. It is end customer demand that will determine the extent and pace of the recovery in the semiconductor markets. We anticipate that the volume growth will return over the course of the fiscal year and that we will see a gradual upturn.

In the current first quarter, we expect revenues of around EUR 3.6 billion. This forecast is based on an exchange rate of USD 1.15 to the euro. The segment result margin will be in the mid- to high-teen percentage range. This would correspond to a revenue decline of around 9% compared to the previous quarter, above our typical seasonality. We see a short-term risk that some automotive suppliers and manufacturers will reduce their inventories to no longer viable levels by the end of the calendar year. We also expect our industrial customers to reduce their inventories very significantly towards the end of December.

However, market transparency is low. Therefore, we must consider a certain range of possible outcomes for the 2026 fiscal year. In our base case, we anticipate moderate revenue growth. The negative effects of the expected usual price declines and unfavorable currency developments are likely to slow down revenue growth. We expect a U.S. dollar to euro exchange rate of 1.15. This is a weaker dollar compared to the average exchange rate of 1.11 in the 2025 fiscal year. According to our rule of thumb, this effect will reduce our revenues by around EUR 400 million.

The market environment remains mixed. We are cautious regarding the automotive semiconductor market in the view of various factors. We expect trade and tariff conflicts to have a negative impact on vehicle prices and customer demand. Growth in the electric vehicle market in China is likely to slow now that the share of electric vehicles in new car sales has exceeded 50% and government subsidies are being reduced. Momentum in Europe is likely to increase, while in the U.S., it will probably slow considerably due to the expiration of tax incentives. As a result, some Western manufacturers are postponing the launch of several new electric vehicle platforms in favor of combustion models.

However, the outlook for software-defined vehicles is more favorable. We expect market momentum to accelerate from the second half of the fiscal year as increasingly more software-defined models come on to the market. This development means that more and more semiconductors are being installed in vehicles. We see a mixed picture for industrial applications. Macroeconomic uncertainty is delaying the recovery in demand for industrial drives. Similarly, there are still no signs of an upturn in air conditioning systems or household applications. In renewable energies, record levels of solar and wind energy installations are forecast for 2025, particularly in China. However, growth in this market is likely to slow down in the future. We do not expect other world regions to fully compensate for this development.

Nevertheless, we see the structural semiconductor demand for the expansion of energy infrastructure is increasing. A higher share of renewable energy in the overall energy mix and investments in AI data centers in various parts of the world would necessitate a significant expansion and strengthening of the power grid. As already mentioned, we expect to more than double our revenues with our power supply solutions for AI data centers to around EUR 1.5 billion in the current fiscal year. Growth momentum in consumer-related applications is still subdued. Overall economic risks are dampening both consumer confidence and corporate spending. Thus, demand for IoT and security solutions also remains weak.

Now to our profitability outlook. The segment result margin in the 2026 fiscal year is expected to come in at a high-teen percentage range. The positive effect of volume growth will be offset by unfavorable currency developments and the usual price declines. We expect further positive effects from our step-up program as an increasing number of our measures take effect. At the same time, the high level of cyclical idle costs in our production facilities is likely to proceed only very slowly. We are planning investments of around EUR 2.2 billion for the 2026 fiscal year. A focus area will be finalizing the construction of our smart power fab in Dresden and equipping it in time to meet strongly growing customer demand for AI, our AI power solutions.

We are making good progress with the construction of the smart power fab. In October, we reached the ready for equipment milestone. We are ahead of our schedule and expect to be able to officially open the factory in summer 2026. Free cash flow adjusted for investments in front-end builders is expected to be around EUR 1.6 billion, and the reported free cash flow is expected to be around EUR 1.1 billion.

Esteemed viewers, let me summarize. Firstly, Infineon has met expectations in the 2025 fiscal year despite challenging macroeconomic and geopolitical conditions. In the current fiscal year, we expect a gradual market recovery and moderate revenue growth. Secondly, artificial intelligence is driving semiconductor demand. Our revenue from power solutions for AI data centers is growing rapidly. We continue to develop our portfolio of efficient and scalable solutions at high speed. Thirdly, quantum computing is becoming the next potentially disruptive technology. We are shaping the quantum age with semiconductor solutions for industrial-grade quantum computing and post-quantum cryptography.

Thank you for listening. Together with the Management Board team, I will now be happy to answer any questions you may have.

[Operator Instructions] So let's get started. I see that we have Joachim Hofer from Handelsblatt.

That's fine already. Your question has already been answered. I would like to know about the Nexperia case, what are the ramifications for you, for your business, either positive or negative? And I'd also like to know whether you have an opinion on whether fundamentally, this means anything for you and for the world, mainly the fact that China is expanding and perhaps what other conclusions you could draw from that.

Well, the case that has been covered in the last couple of weeks by the media and has made headlines demonstrates, first of all, once again, the realization that semiconductors are not just in time products, this applies to standard semiconductors as well as the entire other portfolio components such as power switches and the power semiconductors. In the supply chain, you need inventories in order to make sure that these 2 value creator chains of the automotive industry on the one hand and the semiconductor industry on the other hand are decoupled from each other because when such situations occur, you see what could happen. And you can also have natural catastrophes and other disasters that you have to be resistant to. So that's very important.

Now what does that mean for Infineon? Well, on the one hand, production lines actually did grind to a halt, it would affect us as well because sales would therefore tank. But at the same time, you can take a different view. This could be a wake-up call to industry to take a very close look at inventories. As a matter of principle, we at Infineon are extremely resilient in our setup, thanks to our manufacturing landscape. As a result, at some areas we were able to help. However, the overlap in products between Infineon and Nexperia is rather limited.

The second question, the geopolitical ramifications. Well, geopolitical environment remains the big unknown in our business. There is no blueprint that we can draw on from the past. We simply have to follow developments day in, day out. Basically speaking, however, here again, Infineon is set up quite resiliently, thanks to its manufacturing footprint, especially in Europe and Southeast Asia. We also have manufacturing partners in the United States and in China. However, having said that, this is a topic that Timon again, leads to new or can lead to new disruptions. And on a daily basis can be quite eventful.

We have a question that is quite similar that comes from Mrs. [indiscernible] from Bloomberg that has come through the live stream. It also relates to Nexperia, Jochen. You have received to replace Nexperia chips? How far will you be able to do so -- have done so? How long these processes are? Please, could you answer in German?

Yes, as I just said, the overlap in our portfolio between Nexperia and Infineon for the affected semiconductors. We must not forget that not all semiconductors of Nexperia were affected. It's quite limited. And therefore, here and there, we were able to help out a little bit. But basically, we also welcome the fact that apparently, the situation has eased and auto manufacturing has taken up again.

I think that also answers the second question from Mr. [indiscernible] that was asked through the stream and we can, therefore, come back to the room. This is Verner from Spiegel.

Yes, I have a follow-up question on that. In your speech, you said that you expect some automotive suppliers to reduce their inventories to a level that is no longer sustainable. And that doesn't really tie in very well. Now haven't they learned their lessons since the Nexperia crisis?

Well, this is the difficulty that we face, isn't it? Some companies in the automotive supply chain are in difficult economic conditions. We also have to look at how their capital tied up due to their inventories. That is always an issue for them, and they always have to take a very close look at that. I can only call on everyone -- in difficult economic times not to let your inventories fall below critical levels because should there then be a reinvigoration of the market, and that doesn't just have to come from the automotive industry, it could come from other sectors as well, then potentially, you can run into problems, the type of which we witnessed a couple of years ago.

Thank you very much, Mr. Hao. I see you raised your hand. You are from [indiscernible]. Please go ahead.

Yes, I wanted to ask you that very question, but I have another question. You said that the auto suppliers are -- have quite tight wallet. But you say that -- of course, they have to supply the automotive manufacturers and make sure that their inventories are good. Do you see any critical situations given this situation and now the capacity underutilization of your factories, what level is it at right now? And how high were the idle costs in the past fiscal year?

I will handle the first part of the question. Basically, it would be the most sensible thing if everyone involved in the value chain kept their inventories at such a level that they had a certain buffer. We do that. We have an inventory reach that is about 30 days higher than necessary, at 150 days. Normally, we would have a reach of 120 days. We're talking about EUR 1 billion in capital that is tied up in this manner. Of course, it would make a lot of sense if the Tier 1 and the OEMs were dedicated in the same manner so that such buffers could be established, which, by the way, in Japan are absolutely customary. With respect to capacity underutilization and idle costs, I'd like to hand the floor to my colleagues.

Just briefly on utilization. Right now, we are at about 80% capacity utilization. The forward-looking trend is improving, especially in the 300-millimeter sector within the scope of the gradual improvement in the market. Yes, and perhaps I can say something about the idle costs. Indeed, this is a very negative contribution to our profitability. In the past fiscal year. We're talking about just under EUR 1 billion in terms of idle costs corresponding to roughly 600 basis points, so 6% point margin headwind. We now assume that we're going to go back to about EUR 800 million, which is still quite a lot higher than the level that we normally have in terms of cyclical idle costs. This fiscal year, we're talking about 400 basis point headwind that are factored into the margin.

Thank you. We would now like to switch topics. Mrs. Maier, we will get to you in a minute, but Mr. [indiscernible] has a follow-up question with respect to AI data centers, an issue that we are all concerned with and the growing market, and the EUR 8 billion to EUR 12 billion, how much is supposed to be assigned to Infineon.

Well, the starting point right now is that Infineon is already in a leading position in this market for AI data centers. Roughly speaking, we're talking about, if you look at -- along the entire power supply chain, 30% to 40% market share. Looking forward, we will do everything we can in order to stay in this range. So I think that you can do the math in terms of the potential for Infineon depending on whether we're at EUR 8 billion or EUR 12 billion. That remains to be seen.

Thank you very much. Mrs. Maier, you had a question as well. We'll continue here in the studio.

Yes, I would like to -- I'm Angela Mya, The Market NZZ. I would like to ask you about the idle costs as well. This is being stretched out over years now. Did you do your math wrong. When is the upswing going to set in, the upswing that you planned with that is? In other words, when are we going to see a margin above 20% again? Other competitors have a margin clearly above 20%, but you are still below that. And that's what you're planning for this next fiscal year indicates as well. Maybe you can give us some insight into that.

Yes, thank you for that question. Let me begin with the fundamental categorization. It is important to look at the structural growth drivers and to believe in them which we do and Mr. Hanebeck was well eloquent in his speech on addressing this. The factories are being completed right on time. We have a very good track record back then when we constructed villa 300 millimeters, we were right on track. If you look at the smart power fab in Dresden, once again, we're doing the right thing at the right time. Of course, we can't always manage to do that. But you're right, we were more optimistic 2 years ago and 3 years ago with respect to our growth prospects. But the topics surrounding the geopolitical situation and tariffs weren't known back then.

What it may also be relevant in this respect is the following. We are growing this year. We are experiencing volume growth, but the growth is strongly driven by AI, we're adding capacities here. We're basically sold out in this year. We don't have any idle costs that are allocable to AI power supply. And the same applies to AI defined microcontrollers. These tasks are outsourced and that doesn't help us, and that's the reason why our idle costs aren't reducing as fast as we would like them to.

With respect to the margins, I already demonstrated in the impact that, that was just the effect of the idle costs. On top of that, there's a positive effect from the fall through, revenue generates some positive results. And of course, that would put us easily above the 20% that you mentioned.

And when is this going to happen?

Well, the markets -- when the markets play to our strengths. We depend to a certain degree on that. So final demand and inventory management are going in an opposite direction. So that's a little difficult right now.

The next question also deals with a growth trend that we described, the software-defined vehicle. Matthias [indiscernible] from Blick from Switzerland asks when will the Marvell Ethernet segment contribute to revenue? And what influence will it have on the segment result margin in the future? Sven?

Yes. Well, with respect to Marvell in the middle of August, we acquired the company. So that was in 2025. There were no notable ramifications there. In 2026, we expect EUR 200 million in terms of revenue from this business, and this is a positive business in terms of profitability. So it would make a positive contribution to the group margin. And strategically, speaking, if I may add, this is extremely important because our expertise in automotive microcontrollers will be married with the technology for communication in the future. We expect wonderful synergies in terms of architecture, but also, of course, in terms of positioning our products with the customers.

At a global level, I must add Marvell already has a wonderful design win pipeline that is built up over the years in the run-up to the acquisition, and we can build on that.

Thank you very much. We're going to come back to the room. Christoph Dernbach from DPA.

Yes. I hope I didn't miss anything, but I can't remember what you might have said about the U.S. tariffs, how much they might have cost you in the past quarter and fiscal year?

Well, the direct tariffs that relate to semiconductors are not really that material. The tariffs that are really effective are the ones that are imposed by China for imports into the U.S.A., but they hardly affect us at all. And the investigation according to Section 232, the outcome of this investigation is entirely open. However, there are some indirect impacts, which you can see reflected in the sales volume figures in the United States also experienced by European players. And this does have a tangible impact on us.

Okay. We'll stay in the room. Mrs. Verner has another question. Please go ahead, madam.

I have a follow-up question with respect to the data centers that we touched on already. There are a number of wonderful announcements in Germany, for instance, Google appears to be set to make a big investment. But is that sufficient from your point of view, if you compare the EUR 300 billion that are being invested in the United States and China? Doesn't it seem to be a drop of water in the bucket. What do you believe is actually necessary in Europe to have a chance in this place?

Well, the sums announced in Europe can only be a first step. Of course, you can break things down into AI infrastructure for learning. And the inference. Of course here, the necessary infrastructure costs are lower. The question is, however, shouldn't Europe become involved in the foundational models, and I'm sorry for using English terms all the time. From where I stand, there is clearly a vector. That means we're going to run into dependencies in Europe.

Okay. Maybe, Mr. Hofer, you have a follow-up question on that.

Yes. No, not really. It doesn't really tie into that, not quite. That's okay. Your fitness program. I would like to have some more information about that. What effect has it had, if you look at headcount, it remained essentially flat. Maybe headcount increased through Marvell. Give us some insight into that, perhaps. And now in the United States, do you think you're at a disadvantage relative to domestic competitors because we do have a very strong wave of patriotism in that country. What is the situation in the United States?

Okay. With respect to the last question, we don't feel anything from this at all. To the contrary, in California, if you look at the major AI infrastructure drivers, we are a supplier that is held in high esteem, an extremely high esteem, I must say. What we are feeling is that in the geopolitical arena, the American value creation chains and the Chinese value chains are slowly separating from each other. But I believe that our esteem in AI and autos and in the future, increasingly grid infrastructure is very good.

Hope, let me answer the question that you asked about the fitness program step up. Step up to us is a program which ensures improvements in the competitiveness. From a structural point of view, we are well on track. We're actually ahead of plan. We are shooting for a sum in the high triple-digit-million-euro range, which is going to be broken down into a number of different areas, the contribution that we achieved in the [ last ] fiscal year was 50% of this figure. We believe that 2/3 of this figure will be achieved in this fiscal year and then that will be at 100% in 2027. 1/3 of the measures relate to personnel 3/4 are efficiencies, productivity improvements, digitization issues.

And you asked us about headcount. You're correct. On the one hand, we have reduced headcount, but new people have joined the Infineon family through the acquisition of Marvell and some of the HR topics will be remanaged. We will move from high-wage countries to best-cost countries, but we have to build up the business in those countries first. So we will have some trickle-down effects in the next quarter.

I think that the question asked by Mr. [indiscernible] in the stream has been answered as well. He is asking about further plans to reduce headcount after [indiscernible].

No, we don't have any further plans. But if we look at the market, we have to keep on monitoring the dynamics to determine what our portfolio, our product portfolio or our fab portfolio is still fitting with our goals and where we want to be in the market, but we don't have any further plans right now.

Mrs. Maier, you raised your hand.

Yes. I haven't heard anything about China today. Perhaps you could tell us once again what the revenue share was in the past fiscal year and what it's going to be like in this coming fiscal year. I think it is probably going to drop in the auto market. Will this affect Infineon in China? And perhaps you can tell us something about the momentum of competition there. The Chinese chip manufacturers are on a strong upward trend. And Infineon, nevertheless, has always managed to command a very good position on the market. Do you think you can defend it?

Mr. Urschitz will start and then maybe Sven.

Okay, with respect to the share of revenue generated in China, I'll start with Greater China, including Mainland China and Taiwan. In the past fiscal year, we were at a 38% share of revenue. 29% -- 29 percentage points were achieved in Mainland China. So relative to 2024, in China, we have grown in terms of revenue share. This is in part due to the Chinese leading role in decarbonization and digitization trends, very exciting markets when it comes to automotive electronics and maybe I can make a forward-looking statement here and what we plan for the future in this respect? Well, on a large scale, the share of revenue is going to be maintained in this range in 2026 as well.

Yes. And perhaps there are 2 more points that we should raise here, the 29%. About 1/3 of it goes back into exports as a car or a smartphone, for example. So here, we believe that the value chains will continue to shift. If you would ask me today about a longer-term -- or for a longer-term outlook beyond 2026, well, then I would say that this share may drop somewhat in China. Of course, there are Chinese competitors. There are applications that have existed in the past as well, which achieve price points that make no sense for us whatsoever. That's why it's all the more important for us to look at topics like AI and regions such as the United States, Korea and Japan and to build up our business there.

In the past, we've been very successful at doing this. However, it is quite clear that our corporate strategy in this respect now is to have the broadest possible footprint on a global basis. A good example of this is our automotive business, which has equal shares of the markets in Europe, Japan, China. It's a little bigger in Korea, and it's a little smaller in the U.S.A. So our goal is to have a good equilibrium over all the regions that we are active in.

Thank you very much to the management team for the answers. Thank you, dear colleagues and coworkers for all of the questions that you've asked. I don't see any more questions in the pipeline in the stream, and I don't see any people raising their hands here in the room. So all I can say now is thank you for attending the annual press conference. We hope that you have a wonderful strong final dash towards the end of the year. The holiday season is around the corner. We're very happy to have hosted you here. Thank you for showing interest, and have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]