Infineon AG (IFNNY) shares extended declines Thursday after Europe's biggest chipmaker cautioned that 2019 profits would likely fall short of analysts' forecasts thanks in part to weakness in China's sputtering auto market.
Infineon said sales for its fiscal year, which ends in September, would likely rise 5.2% from the same period last year to around €8 billion, down from a prior forecast of a 9% advance. Infineon said vehicle sales in China, which represent around a fifth of group revenues, decelerated quickly in February, "causing dealer inventories to increase sharply" and pressuring profit margins, which it things will narrow by 150 basis points to 16%.
"Continued sluggishness in end markets led us to reassess our business outlook for the 2019 fiscal year and to cut our guidance for revenue growth and earnings," CEO Reinhard Ploss told investors on a conference call late Wednesday. "Macroeconomic uncertainties are stretching out. Unresolved trade tension negatively impact economic growth, particularly in China."
"Inventories throughout supply chains are at a comparatively high level, limiting visibility and indicating it will take more time for an acceleration to take effect from suppliers," Ploss added.
Infineon shares were marked 3.35% lower by mid-afternoon trading in Frankfurt and changing hands at €17.18 each, the lowest since January 4 and a move that wipes out all of the stock's year-to-date gains.
Car sales in the world's biggest market slumped for an eighth consecutive month in February, China's Association of Automobile Manufacturers said, falling 13.8% from the same period in 2018, as the broader economy grows at the slowest paced in three decades.
Infineon's profit warning rippled through U.S. chipmmakers in late Wednesday trading, with Texas Instruments (TXN) - Get Texas Instruments Incorporated Report and NXP Semiconductors (NXPI) - Get NXP Semiconductors N.V. Report each falling faster than the broader markets, in part because the German group appears to have dropped hopes of a second-half rebound in chip demand - a condition many if not most of the major suppliers have pinned their 2019 outlooks upon.
"The slowdown in demand is a result of ongoing customer inventory adjustments, as well as software optimizations at some cloud customers," Micron Technologies (MU) - Get Micron Technology Inc. Report CEO Sanjay Mehrotra told investors on a conference call last week, echoing similar assessments from sector peers. "We expect growth to resume in the second half of calendar 2019 as we see improvement in our customers' inventory position."