Infineon faces hardships

TAIPEI: Fluctuations in euro-dollar exchange rates spell trying times for German chip vendor Infineon Technologies AG. The company was beginning to enjoy double-digit revenue growth and operational relief after getting rid of its DRAM unit that was eating into profits. But this lull proved to be short lived, as the automotive and diversified semiconductor supplier is discovering. Economic events taking exchange rates on a rollercoaster ride have been compounding problems for Infineon. These complications are in addition to the problems that that company faces in an expanding yet precarious market.

There are several other companies along with Infineon that record their sales and costs in US dollars, but report their financial results in euro. It is expected that for several of the coming quarters, theses companies will be forced to engage in complex currency hedging while simultaneously managing through a tight demand and supply environment. Many consider this to be little more than a temporary glitch, and a complexity that many multinationals have encountered and successfully navigated through deft hedging.

But for companies like Infineon, the situation is compounded by the uncertainty of the global economy, debt crisis in many European countries and economic problems that are yet to be resolved in the US, which is the biggest market globally for many electronic products.

This development translates to a situation where it is difficult for the company to make projections about costs and sales. As a result, financial forecasts offered to investors will also be problematic at best and erroneous at worst. For the recently ended June quarter, Infineon’s revenue forecast updated April 28 was based on an exchange rate that has completely missed the mark.