German semiconductor powerhouse Infineon has committed to cutting its spending as demand for its chips dries up which is knocking the company's sales and profitability.
Shares rose by 5.6 percent on the announcement. As Infineon gets together its programme of "sharply" cutting spending, it has also frozen its headcount, worldwide. Investment cuts will beging in Infineon's fiscal year beginning 1 October.
Niels de Zwart, ING Groep NV Amsterdam analyst, told Bloomberg that the company has plenty of capacity to meet current demands, which should ease the transition from Peter Baeur as CEO to Reinhard Ploss, who will take up position as chief exec at the beginning of the new fiscal year. Baeur is stepping down because of ongoing health problems.
De Zwart said that Infineon's outlook is positive considering it is reacting and adapting its model to the current economic climate. According to De Zwart, the company has enough capacity to keep operations running through 2013 as well as enough flexibility for more investments if necessaray, for example, in the case of unexpected higher demands.
Investments for 2012 are looking a lot like 2011 - that is, roughly around $1 billion - including property purchases, internally generated assets, plant and equipment purchases, and intangible asset purchases.
Infineon estimates its operating margin to shrink between 13 and 14 percent this year compared to 2011, and sales are expected to drop three percent from 2011's 4 billion euros. It expects Q4 operating profit to make up roughly 12 percent of sales, down 0.7 percent from the third quarter.