Infineon's Rich Content-Growth Mix Going Up Against A Tougher Chip Cycle

With high lead times leading the Street to expect serious inventory corrections and disruptions to sales and orders, leading power management semiconductor companies like Infineon (OTCQX:IFNNY), STMicroelectronics (STM), and ON Semiconductor (ON) have underperformed a weakening semiconductor sector over the past year. Although end markets like electric vehicles, wireless charging, and industrial automation continue to grow (and likely will continue to grow in 2019), lead times are still very high and Infineon is investing considerable resources to support future demand, pressuring free cash flow, and margins in the near term.

Infineon will see significant competition from STMicroelectronics and ON in key areas like auto power semiconductors, but there's likely to be significant underlying demand over the next 10 to 15 years. Infineon is, likewise, well-placed to benefit from the "inverterization" of home appliances, growth in factory automation, and growth opportunities in data centers and 5G wireless. I am worried that the semiconductor down-cycle could be worse than currently expected, but the shares are already discounting a lot and I do see upside from here.

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Infineon's Rich Content-Growth Mix Going Up Against A Tougher Chip Cycle