German chip manufacturer Infineon On Tuesday, manufacturing partners highlighted a lack of investment in new capacity due to the tense situation in the semiconductor markets. They had invested to expand their own capacity to keep up with market growth.
A setback in demand for everything from smartphones to cars following a slump caused by the coronavirus pandemic has disrupted supply chains for chips, particularly in the auto industry.
Infineon said there have been bottlenecks in areas where it relies on contract manufacturers known as foundries, such as: TSMCespecially automotive microcontrollers and products used on the industrial internet.
“The foundries have not invested enough to keep up with the situation,” said CEO Reinhard Ploss to analysts after Infineon had increased its situation forecast for sale and Profit margins for the fiscal year ending September 30th.
Despite the bullish outlook, Infineon shares fell more than 4% in Frankfurt after a winter storm that wiped out its own plant in Austin, Texas, put pressure on profit margins in the company’s second fiscal quarter through March 31.
The Munich-based chip manufacturer assumes that the supply bottlenecks in its core automotive business, which accounts for 45% of sales, will ease in the second half of the year. The loss in volume is not likely to even out until 2022.
Contract chip manufacturers have mainly invested in the production of higher margin processors used in devices such as smartphones, so existing facilities cannot meet the demand for older chips in cars.
The shortage was particularly noticeable in older 20- to 90-nanometer chips, where foundries are only now realizing that investments in new production are an economically viable matter, said Chief Operating Officer Jochen Hanebeck.
“Foundries are investing now, but the lead times to get this new capacity on board will be through 2023,” he said.
Infineon raised its sales forecast for the current fiscal year to September 30 from 10.8 billion to 11 billion euros. A profit margin of 18% is now expected, compared to an earlier estimate of 17.8%.
In a survey of analysts published by the company, sales of 2.7 billion euros in the second quarter, an increase of 36% compared to the same period of the previous year, exceeded a consensus forecast of 2.69 billion euros.
The Segment Result Margin, management’s preferred measure of operating profitability, was 17.4% for the quarter, up from a consensus of 16.9% in a survey by Vara Research.
The week-long downtime at its Austin facility, which was hit by a triple loss of electricity, gas and diesel from the winter storm, slashed margins by an estimated 1 percentage point last quarter.
Austin production is not expected to return to pre-storm levels until June, Ploss said, adding that it will not be possible to make up for the lost production overall.