Infineon expects flat revenue and a fall in operating profit in its financial first quarter, but a good performance at the chipmaker's core businesses in the fourth quarter lifted its shares on Wednesday.

Expectations of continued improvement at the company's struggling communications unit also helped Infineon stock gain 7 percent to 9.90 euros by 1117 GMT, making it the leading gainer among German blue chips.

The German company said sales at its Automotive, Industrial and Multimarket unit are expected to decline by a high single-digit percentage rate in its financial first quarter ending December from the prior quarter, when sales had been particularly strong.

Infineon cited seasonal patterns, the weak dollar, price reductions and a deconsolidation in its bipolar business as reasons for the decline.

At its Communications Solutions business, it forecast significant revenue growth thanks to two acquisitions and an increase in shipments of mobile phone platform solutions.

It expects the unit to break even on an operating level in the first quarter.

Chief Executive Wolfgang Ziebart said he was confident Infineon would increase EBIT throughout the year.

We expect to make a significant step towards our fiscal 2009 goal of 10 percent EBIT margin, Ziebart said, adding that the company would be able to handle the extreme development of the dollar, which is near record lows against the euro.

It will be tough but it will be met, Ziebart said on a conference call.

Infineon said it wanted to keep growing its core business with acquisitions in the current financial year. Chief Financial Officer Peter Fischl said at a press conference that the company could handle an acquisition of more than 1 billion euros.


Infineon reported an operating loss of 241 million euros ($353.3 million) in the fourth quarter. Excluding its memory chip subsidiary Qimonda, the operating loss was 25 million euros.

It said EBIT in the fourth quarter included net charges of 94 million euros mainly relating to the sale of shares in Qimonda, which Infineon floated in New York last year to reduce its exposure to the volatile memory market.

Analysts had on average expected a group operating loss of 211 million euros, according to a Reuters poll.

Group sales in the fourth quarter were 1.84 billion euros.

EBIT at its core Automotive, Industrial and Multimarket unit rose to 98 million euros from 81 million the previous quarter. Its Communications Solutions business narrowed an operational loss to 16 million euros from 34 million in the previous quarter. Figures for the core business are encouraging, DZ Bank said in a note, adding that a turnaround in Infineon's communication business seemed to be materialising.

Analysts at Sanford Bernstein saw Infineon's stock supported by three strong business lines that make up 65 percent of logic revenue and by two businesses that have reached the bottom of commodity cycles.

We expect continued long-term solid performance in the Auto/Industrial businesses and a recovery of the commodities into early 2008, Bernstein said in a note to clients.

A trader said Infineon's operating profit actually improved excluding the impact of the group's sale of Qimonda shares.

Infineon trades at 24 times expected 2007/08 earnings, according to Reuters Estimates, above Texas Instruments (TXN.N: Quote, Profile, Research), at 15 times, which has a secure customer base for mobile phones. Investors see considerable upside for Infineon as its cellphone chips business steadily recovers and as it seeks to shed its stake in Qimonda. Global microchip sales rose 6 percent in the quarter to end-September, driven by demand for PCs and mobile phones, according to the Semiconductor Industry Association.

The industry has been seen as a safe haven amid recent turmoil stemming from U.S. subprime loans and credit markets.