UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

INFINEON TECHNOLOGIES AG

Am Campeon 1-12
D-85579 Neubiberg/Munich
Federal Republic of Germany
Tel: +49-89-234-0
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ   Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o     No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-___.

 

 

On July 16, 2009, Infineon Technologies AG (the “Company”) filed a Registration Statement on Form F-3 (the “F-3 Registration Statement”) in connection with a rights offering of up to 337,000,000 ordinary shares, including ordinary shares represented by American depositary shares. Also on July 16, 2009, the Company’s German prospectus (the “German Prospectus”) in connection with the rights offering was approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht). The Company filed portions of the German Prospectus on a Report on Form 6-K filed on July 16, 2009, which was incorporated by reference into, and forms a part of, the F-3 Registration Statement.

The Company is filing Supplement No. 1 to the German Prospectus (the “Prospectus Supplement”), which includes the Company’s Interim Group Management Report for the three-month and nine-month periods ended June 30, 2009, on this Report on Form 6-K. The Prospectus Supplement is hereby incorporated by reference into, and forms a part of, the F-3 Registration Statement.

 

Supplement No. 1

pursuant to Section 16(1) of the German Securities Prospectus Act
(Wertpapierprospektgesetz)

to the approved Prospectus dated July 16, 2009

for the

 

Offering of up to 337,000,000 Registered Shares

 

(with no par value) of

 

Infineon Technologies AG

 

(a stock corporation (Aktiengesellschaft) incorporated under the laws of Germany)

 

This is a supplement (the “Supplement No. 1”) to the approved prospectus dated July 16, 2009 (the “Prospectus”), which relates to a share capital increase against cash contributions and an offering of up to 337,000,000 registered shares of Infineon Technologies AG (“Infineon Technologies AG” or the “Company” and, together with its consolidated subsidiaries, the “Group” or “Infineon”) with no par value, each representing a notional amount of the Company’s issued share capital of €2.00 (each, a “New Share” and together, the “New Shares”) and with full dividend entitlement for the fiscal year ending September 30, 2009 and to admission of up to 337,000,000 New Shares and 74,942,528 registered shares of Infineon Technologies AG with no par value, each representing a notional amount of the Company’s share capital of €2.00, from the conditional capital to service the conversion rights from the €195,600,000 7.5% guaranteed subordinated convertible note due 2014 (each, a “Conversion Share”, together, the “Conversion Shares”; together with the New Shares, the “Admission Shares”) to the regulated market segment (regulierter Markt) of the Frankfurt Stock Exchange and to the sub-segment of the regulated market segment with further post-admission obligations of the Frankfurt Stock Exchange (Prime Standard). The Admission Shares will rank pari passu in all respects with each other and with all other issued shares of Infineon Technologies AG (the “Existing Shares”).

The offering (the “Offering”) comprises: (i) a rights offering (the “Rights Offering”) in which the existing shareholders of the Company will receive rights to subscribe for New Shares (the “Subscription Rights”) at the Subscription Price (as defined below), by way of public offerings in the Federal Republic of Germany (“Germany”), The Grand Duchy of Luxembourg (“Luxembourg”) and the United States of America (“United States” or “U.S.”) and (ii) a private placement of any New Shares not subscribed for by the Company’s shareholders (the “Investment Shares”) that will under certain circumstances be offered to Admiral Participations (Luxembourg) S.à r.l. (the “Backstop Investor”) at the Subscription Price (the “Investment Share Placement”), but not more than (together with any Subscription Rights acquired by such Backstop Investor) such number of Investment Shares as would represent 30 percent minus one share in the Company’s share capital and voting rights post execution of the Offering, and subject to the Backstop Investor being able to establish a participation in the equity capital and voting rights in the Company of at least 15 percent post execution of the Offering, unless such requirement is waived by the Backstop Investor. See “The Offering — Backstop Arrangement.”

 

Subject to the terms and conditions set out in this Supplement No. 1 and in the Prospectus, holders of Existing Shares after close of business on July 17, 2009 (the “Record Date”) have been allotted one Subscription Right for each Existing Share held. The exercise of 9 Subscription Rights entitles the exercising holder to subscribe for 4 New Shares against payment of a subscription price of €2.15 per New Share (the “Subscription Price”). On July 14, 2009, the closing price of the Infineon Technologies AG shares was €2.90 per share on the Frankfurt Stock Exchange.

 

The Subscription Rights will not be traded on the regulated market of the Frankfurt Stock Exchange or any other German stock exchange. Holders of Subscription Rights held through the clearing facilities of Clearstream Banking AG (“Clearstream”) wishing to subscribe for New Shares must exercise their Subscription Rights during the period from July 20, 2009 through August 3, 2009 (the “Subscription Period”). Subscription Rights may be exercised only in integral multiples of the subscription ratio. Subscription Rights held through Clearstream and not validly exercised during the Subscription Period, including Subscription Rights in excess of the nearest integral multiple of the subscription ratio, will expire without compensation and become worthless.

 

Exercising the Subscription Rights or investing in the New Shares involves risks. For a discussion of material risks which the investors should consider before exercising their Subscription Rights or investing in the New Shares, see “Risk Factors” beginning
on page 48 of the Prospectus.

 

Subscription Price: €2.15 per New Share

 

Subject to the satisfaction of certain conditions set forth in the Underwriting Agreement (as defined below), the New Shares have been underwritten by an underwriting syndicate consisting of Credit Suisse Securities (Europe) Limited, Deutsche Bank Aktiengesellschaft, Merrill Lynch International and Citigroup Global Markets Limited (the “Joint Lead Managers”, and alternatively, together with the other members of such underwriting syndicate, the “Underwriters”).

 

The Existing Shares are listed on the Frankfurt Stock Exchange (where they are traded on the regulated market segment (regulierter Markt)) (Prime Standard) under the symbol “IFX”. Beginning on July 20, 2009, the Existing Shares are trading on the Frankfurt Stock Exchange “ex rights”. Applications have been made for listing of the Admission Shares on the regulated market segment of the Frankfurt Stock Exchange with simultaneous admission to the sub-segment of the regulated market segment with additional post-admission obligations (Prime Standard) of the Frankfurt Stock Exchange. The decision on admission of the Conversion Shares is anticipated for August 6, 2009. The decision on admission of the New Shares subscribed for under the Rights Offering is anticipated for August 6, 2009. The decision on admission of the New Shares under the Investment Share Placement is anticipated without undue delay following applicable regulatory clearances. Trading of the New Shares subscribed for under the Rights Offering is expected to commence on or about August 7, 2009 and, with respect to New Shares subscribed for under the Investment Share Placement, without undue delay following applicable regulatory clearances.

 

Application has been or will be made for the Subscription Rights and the New Shares to be accepted for clearance through Clearstream. The New Shares subscribed for under the Rights Offering are expected to be delivered through the facilities of Clearstream on or about August 7, 2009. Delivery of the New Shares subscribed for under the Investment Share Placement is expected without undue delay following applicable regulatory clearances.

 

[Portion Omitted]

 

This Supplement No. 1 constitutes a prospectus supplement for the purposes of Section 16(1) of the prospectus directive 2003/71/EC (the “Prospectus Directive”) and has been filed with and approved by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (the “BaFin”). The BaFin approved the Prospectus (as supplemented by this Supplement No. 1) after completing a review of the Prospectus (as supplemented by this Supplement No. 1) for completeness, including a review of the coherence and comprehensibility of the information provided. The approved Supplement No. 1 will be notified by the BaFin to the competent authorities in Luxembourg for passporting in accordance with Article 18 of the Prospectus Directive.

 

 

This Supplement No. 1 does not constitute an offer to sell or a solicitation of an offer to buy any security other than the Subscription Rights and the New Shares (the “Securities”) offered hereby, and does not constitute an offer to sell or a solicitation of an offer to buy any Securities offered hereby to any person in any jurisdiction in which it is unlawful to make any such offer or solicitation to such person. Neither the delivery of this Supplement No. 1 nor any sale made hereby shall under any circumstances imply that there has been no change in the affairs of Infineon Technologies AG or its subsidiaries or that the information contained herein is correct as of any date subsequent to the earlier of the date hereof and any earlier specified date with respect to such information.

 

The distribution of this Supplement No. 1 and the offer of the Securities may be restricted by law in certain jurisdictions. Infineon Technologies AG and the Underwriters require persons into whose possession this Supplement No. 1 comes to inform themselves of and observe all such restrictions. This Supplement No. 1 does not constitute an offer of, or an invitation to purchase, the Securities in any jurisdiction in which such offer or invitation would be unlawful. For a description of certain restrictions on the offer and sale of the Securities, see the notices below. Neither Infineon Technologies AG nor any of the Underwriters accept any legal responsibility for any violation by any person, whether or not a prospective investor in the Securities, of any such restrictions. Neither Infineon Technologies AG nor any of the Underwriters nor any of their respective representatives are making any representation to any offeree or purchaser of the Securities offered hereby regarding the legality of an investment by such offeree or purchaser under applicable legal investment or similar laws. Each investor should consult with its own advisors as to the legal, tax, business, financial and related aspects of the subscription and the purchase of the securities.

 

This Supplement No. 1 and the Prospectus have been prepared by Infineon Technologies AG in connection with the Offering solely for the purpose of enabling a prospective investor to consider the subscription or the purchase of the New Shares or the purchase of the Subscription Rights. Reproduction and distribution of this Supplement No. 1 or disclosure or use of the information contained herein for any purpose other than considering an investment in the Securities is prohibited. The information contained in this Supplement No. 1 has been provided by Infineon Technologies AG and other sources identified herein. No representation or warranty, express or implied, is made by any of the Underwriters as to the accuracy or completeness of the information set forth herein and nothing contained in this Supplement No. 1 is, or shall be relied upon as, a promise or representation, whether as to the past or the future. No person has been authorized to give any information or to make any representation not contained in this Supplement No. 1 or the Prospectus in connection with the Offering and, if given or made, any such information or representation should not be relied upon as having been authorized by Infineon Technologies AG or the Underwriters.

 

The Joint Lead Managers are acting for the Company and for no one else in connection with the Offering and will not regard any other person as the respective clients of each of the Joint Lead Managers in relation to the Offering and will not be responsible to anyone other than the Company for providing the protections afforded to the respective clients of each of the Joint Lead Managers nor for providing advice in relation to the Offering or any transaction or arrangement referred to in this Supplement No. 1 or the Prospectus. In making an investment decision, investors must rely on their own examination of Infineon Technologies AG and the terms of the Offering, including the merits and risks involved. Any decision to subscribe for or purchase New Shares or to purchase Subscription Rights should be based solely on this Supplement No. 1 and the Prospectus.

 

There shall be no stabilization in connection with the Offering.

 

Notice to investors in the European Economic Area

 

This Supplement No. 1 and the Prospectus have been prepared on the basis that all offers of New Shares (other than the offers in Germany and Luxembourg contemplated in this Supplement No. 1 and the Prospectus) will be made pursuant to an exemption under the Prospectus Directive, as implemented in member states of the European Economic Area (“EEA”), from the requirement to produce a prospectus for offers of shares. Accordingly, any person making or intending to make any offer within any such EEA member state of the New Shares should only do so in circumstances in which no obligation arises for Infineon Technologies AG or any of the Underwriters to produce a prospectus for such offer. Neither Infineon Technologies AG nor the Underwriters have authorized, nor do they authorize, the making of any offer of New Shares through any financial intermediary, other than offers made by the Underwriters which

constitute the final placement of the New Shares contemplated in this Supplement No. 1 and the Prospectus.

 

In relation to each EEA member state which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer of any New Shares may not be made in that Relevant Member State (other than the offers in Germany and Luxembourg contemplated in this Supplement No. 1 and the Prospectus), except that an offer in that Relevant Member State of any of the New Shares may be made at any time under the following exemptions from the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

1. to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

2. to any legal entity which has two or more of (A) an average of at least 250 employees during the last financial year; (B) a total balance sheet of more than €43,000,000 and (C) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

 

3. in any other circumstances falling within Article 3(2) of the Prospectus Directive,

 

provided that no such offer of the New Shares shall result in a requirement for the publication by Infineon Technologies AG or any Underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

This Supplement No. 1 and the Prospectus are directed at and for distribution in the United Kingdom only to (i) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons being together referred to as “relevant persons”). This Supplement No. 1 and the Prospectus are directed only at relevant persons. Any person who is not a relevant person should not act or rely on this Supplement No. 1 or the Prospectus or any of their contents. Any investment or investment activity to which this Supplement No. 1 or the Prospectus relates is available only to relevant persons and will be engaged in only with relevant persons.

 

Furthermore, the Underwriters have warranted that they

 

1. have only invited or will only invite participation in investment activities in connection with the Offering or the sale of the New Shares within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”) and have only initiated or will only initiate such investment activities to the extent that Section 21(1) of the FSMA does not apply to the Company; and

 

2. have complied and will comply with all applicable provisions of the FSMA with respect to all activities already undertaken by each of them or will undertake in the future in relation to the New Shares in, from, or otherwise involving the United Kingdom.

 

This Supplement No. 1 is part of the approved Prospectus dated July 16, 2009. The information contained in this Supplement No. 1 should be read in conjunction and together with the information in the Prospectus. The terms used in this Supplement No. 1 have the same meaning as those used in the Prospectus, unless otherwise specified.

The Company announces that the following change has occurred through July 29, 2009 with regard to the Prospectus dated July 16, 2009:

 

 

The Prospectus dated July 16, 2009 is, as a result of the above mentioned matter, to be supplemented as follows:

 

 

“The Company has published its quarterly report for the three and nine months ended June 30, 2009 on July 29, 2009. The Company has published on July 29, 2009 a supplement to the Prospectus dated July 16, 2009, to reflect the recent developments for the interim period up to and including June 30, 2009 in the Prospectus.”

 

[Portion Omitted]

 

 

“The unaudited condensed consolidated financial statements (prepared in accordance with IFRS) of Infineon Technologies AG as of and for the three and nine months ended June 30, 2009 (with comparative figures as of and for the three and nine months ended June 30, 2008);”

 

 

“The Company has published its quarterly report for the three and nine months ended June 30, 2009 on July 29, 2009. The Company has published on July 29, 2009 a supplement to the Prospectus to reflect the recent developments for the interim period up to and including June 30, 2009 in the Prospectus.”

 

 

“The following table shows Infineon’s capitalization (including financial debt) and net indebtedness as of June 30, 2009 and following completion of the Offering (assuming the successful placement of all of the New Shares at the Subscription Price).

 

 

Notes

 

 

 

“As the number of employees working for Infineon and any of Infineon’s domestic group companies in Germany has now fallen below 10,000, the Company has started such proceedings in July 2009 and expects them to be finalized by the time of the regular Annual General Meeting in early 2010.”

 

 

* — * — * — * — * — *

 

INFINEON TECHNOLOGIES AG

 

QUARTERLY REPORT

FOR THE THREE AND NINE MONTHS ENDED

JUNE 30, 2009

 

 

INDEX

 

i

 

This interim group management report should be read in conjunction with our condensed consolidated financial statements and other financial information included elsewhere in this report.

 

This interim group management report contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement.

 

The following were key developments in our business during the three and nine months ended June 30, 2009 and from the end of such period through the date of this quarterly report:

 

Financial Results

 

1

 

 

⁽¹⁾  We define Segment Result as operating income (loss) excluding asset impairments net of reversals, restructuring and other related closure costs, share-based compensation expense, acquisition-related amortization and gains (losses), gains (losses) on sales of assets, businesses, or interests in subsidiaries, and other income (expense), including litigation settlement costs. Gains (losses) on sales of assets, businesses, or interests in subsidiaries, include, among others, gains or losses that may be realized from potential sales of investments and activities.

 

 

During the 2008 fiscal year, we committed to a plan to dispose of Qimonda. As a consequence, the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheet as of September 30, 2008. The results of Qimonda are reported as discontinued operations in our condensed consolidated statements of operations for all periods presented. In the nine months ended June 30, 2008, loss from discontinued operations, net of income taxes, was €2,972 million, including Qimonda’s negative results of €1,385 million and an after tax write-down of €1,587 million in order to remeasure Qimonda to its estimated fair value less costs to sell as of June 30, 2008. During the first nine months of the 2009 fiscal year, loss from discontinued operations, net of income taxes, totaled €399 million. This amount primarily reflected the realization of accumulated currency translation effects totaling €188 million and provisions and allowances of €206 million, adjusted by €3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, in connection with Qimonda’s application to open insolvency proceedings. The realization of accumulated currency translation effects, which were previously recorded in equity, resulted mainly from Qimonda’s sale of its interest in Inotera Memories Inc. (“Inotera”) to Micron Technology, Inc. (“Micron”) in November 2008 as well as the deconsolidation of Qimonda in the second quarter of the 2009 fiscal year. In light of Qimonda’s insolvency proceedings, Infineon may face potential liabilities and allowances arising from the Qimonda business. The provisions and allowances recorded as of June 30, 2009 relate only to those matters which management believes are probable and can be estimated with reasonable accuracy at this time.

 

2

 

Corporate Activities

 

 

Measures Taken After June 30, 2009 to Improve our Financial Condition

 

1

 

We believe that the successful completion of the offering, resulting in gross proceeds of approximately €374 to €725 million, will strengthen our capital structure. In particular, assuming we are able to place all of the 337 million new shares, we plan to use approximately €570 million to repay the convertible subordinated notes due 2010 and the exchangeable subordinated notes due 2010, of which as of June 30, 2009, €570 million were outstanding.

 

Revenue by Segment

 

 

1

 

1

 

 

Revenue by Region

 

 

The regional distribution of revenues in the three and nine months ended June 30, 2009 changed compared to the three and nine months ended June 30, 2008, primarily reflecting changes in the revenues of the segments. The shift in the regional distribution from Germany, other Europe, and North America to Asia/Pacific resulted primarily from the significant revenue decreases of our Automotive segment, whose customers are based largely in Germany, other Europe and North America. Furthermore, increased revenues of our Wireless Solutions segment in Asia/Pacific during the three and nine months ended June 30, 2009, compared to the three and nine months ended June 30, 2008, contributed to the changes in the regional distribution of revenues.

 

Cost of Goods Sold and Gross Profit

 

 

Cost of goods sold decreased in the third quarter of the 2009 fiscal year by 9 percent, or €63 million, to €610 million, compared to €673 million in the third quarter of the 2008 fiscal year, and by 7 percent to €1,922 million in the nine months ended June 30, 2009, compared to €2,063 million in the nine months ended June 30, 2008. Our gross profit decreased from €356 million in the third quarter of the 2008 fiscal year to €235 million in the third quarter of the 2009 fiscal year, or as a percentage of revenues from 35 percent to 28 percent, respectively. As a percentage of revenues, gross profit increased in the Wireless Solutions segment and the Wireline Communications segment and decreased in the Automotive segment, the Industrial & Multimarket segment and the Chip Card & Security segment in the third quarter of the 2009 fiscal year compared to the same period of the previous fiscal year. As a percentage of revenue, our gross profit decreased from 35 percent in the nine months ended June 30, 2008 to 21 percent in the nine months

1

ended June 30, 2009. This deterioration primarily resulted from lower sales volumes and higher idle capacity cost throughout all segments.

 

Research and Development Expenses

 

 

Research and development expenses in the third quarter of the 2009 fiscal year decreased by 26 percent, or €44 million, to €125 million, compared to €169 million in the third quarter of the 2008 fiscal year, and by 24 percent to €396 million in the nine months ended June 30, 2009, compared to €520 million in the nine months ended June 30, 2008. This decrease resulted primarily from cost savings measures which were implemented under our IFX10+ cost-reduction program. Additionally, the reversal of bonus provisions and lower bonus and incentive expenses due to our current results contributed to the decrease in research and development expenses in the nine months ended June 30, 2009, compared to the same period of the previous fiscal year. As a percentage of revenues, research and development expenses in the nine months ended June 30, 2009, remained broadly unchanged at 16 percent compared to the nine months ended June 30, 2008, reflecting lower research and development expenses in line with lower revenues. In the three months ended June 30, 2009, research and development expenses as a percentage of revenue decreased slightly from 16 percent to 15 percent compared to the three months ended June 30, 2008, reflecting lower revenues and despite lower research and development expenses.

 

Research and development expenses decreased throughout all segments in the three and nine months ended June 30, 2009 compared to the three and nine months ended June 30, 2008, in particular in the Automotive segment and the Wireless Solutions segment, primarily as a result of implemented cost savings measures. As a percentage of revenues, research and development expenses decreased significantly in the Wireless Solutions segment, decreased slightly in the Wireline Communications segment and increased slightly in the Automotive segment, the Industrial & Multimarket segment and the Chip Card & Security segment in the nine months ended June 30, 2009. As a percentage of revenues, research and development expenses decreased significantly in the Wireless Solutions segment, decreased slightly in the Industrial & Multimarket segment, remained constant in the Chip Card & Security segment and increased slightly in the Wireline Communications segment and the Automotive segment in the three months ended June 30, 2009.

 

Selling, General and Administrative Expense

 

 

Selling, general and administrative expenses decreased by €37 million, or 26 percent, and by €85 million, or 20 percent, in the three and nine months ended June 30, 2009 compared to the three and nine months ended June 30, 2008, respectively. These decreases primarily reflected cost savings as a result of our IFX10+ cost-reduction program. Additionally, the reversal of bonus provisions and lower bonus and incentive expenses due to our current results contributed to the decrease of selling, general and administrative expenses in the nine months ended June 30, 2009, compared to the same period of the previous fiscal year. As a percentage of revenues, selling, general and administrative expenses decreased slightly from 14 percent in the third quarter of the 2008 fiscal year to 13 percent in the third quarter of the 2009 fiscal year, and increased slightly from 13 percent in the nine months ended June 30, 2008 to 14 percent in the nine months ended June 30, 2009, primarily as a result of lower revenues in relation to lower selling, general and administrative expenses in absolute terms.

7

Other Items Affecting Earnings

 

 

Other operating income for the three and nine months ended June 30, 2009 decreased compared to the three and nine months ended June 30, 2008, by €51 million and €81 million, respectively. Included in other operating income for the three and nine months ended June 30, 2008 was a gain before income taxes of €39 million from the sale of our HDD business to LSI and a gain before income taxes of €4 million from the sale of other tangible assets. In addition, other operating income for the nine months ended June 30, 2008 included a gain before income taxes from the sale of 40 percent of our interest in Infineon Technologies Bipolar GmbH & Co. KG (“Bipolar”) to Siemens AG of €32 million. Included in other operating income for the nine months ended June 30, 2009 were €10 million of payments received from the insolvency administrator of BenQ.

 

Other operating expense in the three months ended June 30, 2009 remained broadly unchanged compared to the three months ended June 30, 2008, and increased from €51 million in the nine months ended June 30, 2008 to €61 million in the nine months ended June 30, 2009. This increase primarily relates to a loss of €17 million, including post-closing adjustments in the third quarter of the 2009 fiscal year, from the sale of the business of our wholly-owned subsidiary Infineon Technologies SensoNor AS (“SensoNor”) in March 2009. This was to some extent offset by lower restructuring expenses, partly due to reversals, in the nine months ended June 30, 2009. Other operating expense in the nine months ended June 30, 2008 also included an amount of €14 million allocated to purchased in-process research and development from the acquisition of the mobility product business of LSI because there was no future economic benefit from its use or disposal.

 

Financial income increased by €13 million and €63 million in the three and nine months ended June 30, 2009, respectively, compared to the three and nine months ended June 30, 2008. These increases primarily resulted from the €13 million and €61 million gain realized in the three and nine months ended March 31, 2009, respectively, from the repurchase of notional amounts of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010. In addition, gains from the valuation of interest rate swaps contributed to the increase of financial income during the three and nine months ended June 30, 2009.

 

Financial expense decreased in the three and nine months ended June 30, 2009 by €6 million each compared to the three and nine months ended June 30, 2008, respectively. The decrease in the three-month period reflected broadly unchanged interest expense and a decrease in other financial expense. The decrease in the nine-month period reflected decreases in interest expense and other financial expense of €11 million and €7 million, respectively, mainly due to lower interest rates and lower indebtedness, which were offset by higher valuation charges and losses on sales of financial assets mainly in the first quarter of the 2009 fiscal year.

8

Income from investments accounted for using the equity method, net for the periods presented, consisted of our share in the net income of Bipolar.

 

Segment Result

 

 

 

Segment Result development for our operating segments was as follows:

 

1

 

1

 

The following table provides the reconciliation of the total Segment Result to our loss from continuing operations before income tax:

 

 

Loss from Discontinued Operations, Net of Income Taxes

 

The results of Qimonda presented in the condensed consolidated statements of operations as discontinued operations consist of the following components:

 

 

11

 

In the nine months ended June 30, 2008, loss from discontinued operations, net of income taxes, amounted to €2,972 million and included Qimonda’s net loss as well as an after tax write-down of €1,587 million in order to remeasure Qimonda to its estimated fair value less costs to sell as of June 30, 2008. During the nine months ended June 30, 2009, loss from discontinued operations, net of income taxes, totaled €399 million. This amount was primarily composed of the realization of accumulated currency translation effects totaling €188 million and provisions and allowances of €206 million resulting from Qimonda’s insolvency described above. The realization of accumulated currency translation effects, which were previously recorded in equity, resulted mainly from Qimonda’s sale of its interest in Inotera to Micron in November 2008 and the deconsolidation of Qimonda in the second quarter of the 2009 fiscal year. As a result of the insolvency proceedings of Qimonda, we may face potential liabilities and allowances in connection with the Qimonda business, as described further below. The operating losses of Qimonda through deconsolidation, exclusive of depreciation, amortization and impairment of long-lived assets, in the three months ended December 31, 2008 were offset by a €460 million partial reversal of the write-downs recorded in the 2008 fiscal year to reduce the net assets of Qimonda to fair value less costs to sell of zero. Such reversal was recorded due to the fact that Infineon had neither the obligation nor the intention to provide additional equity capital to fund the operating losses of Qimonda.

 

As a result of the commencement of insolvency proceedings by Qimonda, we are exposed to potential liabilities arising in connection with the Qimonda business. Such potential liabilities include, among others, pending antitrust and securities law claims, potential claims for repayment of governmental subsidies, employee-related contingencies and purported unfair dismissal claims by employees of Qimonda North America. For pending antitrust and securities law claims, we are the named defendant and therefore potentially liable to third parties. Qimonda is required to indemnify us, in whole or in part, for any claim (including any related expenses) arising in connection with these pending antitrust and securities law claims. As a result of Qimonda’s insolvency, it is very unlikely that Qimonda will be able to indemnify us for these losses. In addition, as a result of Qimonda’s insolvency, Qimonda may not be in compliance with certain requirements of governmental subsidies received prior to the carve-out of Qimonda from Infineon. Depending on the actions of the insolvency administrator, repayment of some of these subsidies could be sought from us. In addition, in our capacity as a former general partner of Qimonda Dresden GmbH & Co oHG (“Qimonda Dresden”), we may also be held liable for certain employee-related contingencies in connection with the insolvency of Qimonda Dresden and certain subsidies received by Qimonda Dresden. Furthermore, we are subject to a pending lawsuit in Delaware in which the plaintiffs are seeking to hold us liable for the payment of severance and other benefits allegedly due by Qimonda North America in connection with the termination of employment in connection with Qimonda’s insolvency. In addition, we may be subject to claims by the insolvency administrator under specific German insolvency laws for repayment of certain amounts received by us, as a Qimonda shareholder, for example, payments for intra-group services and supplies, during defined periods prior to the commencement of insolvency proceedings.

 

Furthermore, we may lose the right to use Qimonda’s intellectual property rights under the contribution agreement between us and Qimonda if and to the extent this agreement was successfully voided or otherwise challenged. The insolvency of Qimonda may also subject us to other claims arising in connection with the liabilities, contracts, offers, uncompleted transactions, continuing obligations, risks, encumbrances and other liabilities contributed to Qimonda in connection with the carve-out of the Qimonda business, as it is unlikely that Qimonda will be able to fulfill its obligation to indemnify us against any such liabilities due to its insolvency.

 

We recorded aggregate provisions and allowances of €206 million as of June 30, 2009, adjusted by €3 million based on a current assessment as of June 30, 2009 compared to March 31, 2009, relating to the amounts which management believes are probable and can be estimated with reasonable accuracy at that time. The recorded provisions are primarily reflected within “Current provisions”; the remainder is recorded within “Long-term provisions”. There can be no assurance that such provisions and allowances recorded will be sufficient to cover all liabilities that may ultimately be incurred in relation to these matters. Any disclosure of amounts with respect to specific potential liabilities arising in connection with Qimonda’s insolvency could seriously prejudice our position in these matters, and therefore no further information is provided in this regard. No reasonable estimated amount can be attributed at this time to those potential liabilities that may occur but which are currently not viewed to be probable.

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In preparing our financial statements for the current and subsequent quarters, we will review the provisions and allowances with respect to these and any new potential liabilities to determine whether any adjustments should be made.

 

Net Loss

 

For the three and nine months ended June 30, 2009, we had a net loss of €23 million and €685 million, respectively, a decrease of 94 percent and 76 percent compared to €379 million and €2,863 million in the three and nine months ended June 30, 2008, respectively. In the three and nine months ended June 30, 2008, net loss was significantly impacted by the results from discontinued operations, net of income tax, of negative €429 million and negative €2,972 million, respectively, primarily due to Qimonda’s net loss, which resulted from the deterioration in memory product prices and a weaker U.S. dollar, and consequently a significant decrease in Qimonda’s gross profit and the write-down of €145 million and €1,587 million to remeasure Qimonda to its estimated current fair value less costs to sell, compared to negative €3 million and negative €399 million in the three and nine months ended June 30, 2009. Furthermore, for the three and nine months ended June 30, 2009, we realized a loss from continuing operations of €20 million and €286 million, respectively, compared to income from continuing operations of €50 million and €109 million in the three and nine months ended June 30, 2008, respectively, a decrease of €70 million and €395 million, respectively. This decline primarily reflected the decrease in revenues and higher idle capacity cost, which was partly offset by decreases in research and development expenses and selling, general and administrative expenses.

 

Financial Condition

 

 

As of June 30, 2009, our current assets decreased by €2,600 million in comparison to September 30, 2008, which is primarily due to the decrease in assets held for disposal of €2,123 million as a result of the deconsolidation of Qimonda. The remaining decrease in current assets primarily related to a decrease of €303 million in trade and other receivables (€22 million in the three months ended June 30, 2009) and a decrease in inventories of €144 million (€22 million in the three months ended June 30, 2009). Trade and other receivables and inventories decreased as a result of lower revenues and successful working capital management. Furthermore, the receipt of €112 million from the German bank’s deposit protection fund in the second and third quarter of the 2009 fiscal year and allowances for doubtful accounts recorded on receivables against Qimonda following Qimonda’s application to commence insolvency proceedings contributed to the decrease in trade and other receivables.

 

Our gross cash position, consisting of cash and cash equivalents and available-for-sale financial assets, decreased slightly by €12 million to €871 million as of June 30, 2009, compared to €883 million as of September 30, 2008. The principal factors driving our gross cash position during the nine months ended June 30, 2009 were repurchases of notional amounts of €167 million and €78 million of our exchangeable

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subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively, for an aggregate of €164 million in cash including transaction costs of €3 million, scheduled debt repayments of €101 million, and €106 million of cash outflows in connection with our IFX10+ cost-reduction program. This was partly offset by the gross proceeds of €182 million from the issuance of new convertible subordinated notes due 2014 with a notional amount of €196 million. In addition, the receipt of €112 million from the German bank’s deposit protection fund and the contingent consideration of €13 million refunded from Texas Instruments Inc. due to the failure to achieve agreed revenue targets of the CPE business, which we acquired from Texas Instruments Inc. in the 2007 fiscal year, increased our gross cash position, which was partly offset by purchases of intangible assets and property, plant and equipment. With positive cash inflow from operating activities from continuing operations of €107 million, our gross cash position of €871 million as of June 30, 2009 was close to that of September 30, 2008 of €883 million.

 

Non-current assets decreased by €345 million as of June 30, 2009, compared to September 30, 2008. This decrease primarily resulted from a €299 million decrease in property, plant and equipment, net, mainly because capital expenditures during the nine months ended June 30, 2009 were lower than depreciation. Furthermore, the sale of the SensoNor business contributed to the decrease in property, plant and equipment. Additionally, goodwill and other intangible assets decreased by €20 million mainly due to the reduction of goodwill relating to the acquisition of the CPE business from Texas Instruments Inc. as a result of the refund of contingent consideration of €13 million. Other financial assets decreased by €19 million.

 

As of June 30, 2009, current liabilities decreased by €1,973 million compared to September 30, 2008, mainly due to the deconsolidation of Qimonda, resulting in a decrease of liabilities associated with assets classified as held for disposal of €2,123 million. Furthermore, we reclassified €487 million of our convertible subordinated notes due 2010 with notional amounts of €522 million from long-term debt into short-term debt and current maturities of long-term debt, as they mature in June 2010. Other changes in current liabilities related to a decrease in trade and other payables as of June 30, 2009 by €141 million compared to September 30, 2008, mainly resulting from lower trade accounts payables due to lower purchased services and lower capital expenditures. Also, other current liabilities decreased by €117 million, resulting from the decrease of employee-related liabilities, mainly due to payments of termination benefits from our IFX 10+ cost-reduction program and the reduction of liabilities for bonus payments.

 

Non-current liabilities decreased as of June 30, 2009, by €515 million compared to September 30, 2008, primarily due to the reclassification of €487 million of convertible subordinated notes due 2010 from long-term debt into short-term debt and current maturities of long-term debt. Furthermore, we repurchased notional amounts of €167 million and €78 million of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010, respectively, which decreased long-term debt accordingly. This decrease was partly offset by the issuance of new convertible subordinated notes due 2014 with a notional amount of €196 million, resulting in an increase of long-term debt by €143 million as of June 30, 2009, net of debt issuance cost, discount and the component recognized in equity as required by IFRS. Long-term provisions increased by €78 million, primarily for potential liabilities resulting from Qimonda’s insolvency.

 

Liquidity

 

 

Net cash provided by operating activities from continuing operations was €107 million for the nine months ended June 30, 2009, compared to €305 million for the nine months ended June 30, 2008, and reflected mainly the loss from continuing operations of €286 million, excluding non-cash charges for depreciation and amortization of €415 million, and €16 million resulting from the sale of the SensoNor

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business. Net cash provided by operating activities in the nine months ended June 30, 2009 included €10 million received from the German bank deposit protection fund, and was negatively impacted by changes in operating assets and liabilities of €19 million and interest paid of €46 million, and positively impacted by income taxes received of €15 million and interest received of €16 million.

 

Net cash provided by investing activities from continuing operations was €29 million for the nine months ended June 30, 2009, compared to €757 million of cash used in investing activities from continuing operations for the nine months ended June 30, 2008. This included €102 million principal amount received from the German bank deposit protection fund for cash deposits in the second and third quarters of the 2009 fiscal year and the refund of contingent consideration of €13 million from Texas Instruments Inc. due to the failure to achieve agreed revenue targets of the CPE business. Furthermore, net proceeds (sales less purchases) of €28 million from available-for-sale financial assets and the consideration of €4 million received from the sale of the SensoNor business contributed to cash provided by investing activities. We used €118 million for the purchases of property, plant and equipment, and intangible assets.

 

Net cash used in financing activities from continuing operations was €105 million for the nine months ended June 30, 2009, compared to €211 million for the nine months ended June 30, 2008. During the nine months ended June 30, 2009, we made principal repayments of long-term debt of €268 million, of which the majority related to the repurchase of our exchangeable subordinated notes due 2010 and our convertible subordinated notes due 2010 for an aggregate of €164 million in cash including transaction costs of €3 million. Additional debt repayments amounted to €101 million.

 

The net decrease in cash and cash equivalents from discontinued operations in the nine months ended June 30, 2009, consisted primarily of cash used in operating and financing activities of Qimonda in the aggregate amount of €408 million and €40 million, respectively. The net cash provided by investing activities from discontinued operations of €21 million consisted primarily of cash received by Qimonda in connection with the sale of Inotera to Micron in November 2008 for US$400 million (approximately €296 million), partially offset by the cash and cash equivalents totaling €286 million of Qimonda as of January 23, 2009, the date Qimonda filed an application to commence insolvency proceedings.

 

Free cash flow from continuing operations, representing cash flows from operating and investing activities from continuing operations, excluding purchases or sales of available-for-sale financial assets, was positive €108 million for the nine months ended June 30, 2009, an improvement from negative €206 million for the nine months ended June 30, 2008. Free cash flow during the first nine months of the 2008 fiscal year included higher cash used in investing activities from continuing operations, due to the acquisition of the mobility products business from LSI, the acquisition of Primarion Inc., and higher capital expenditures, which were only partly offset by higher cash provided from operating activities from continuing operations. Free cash flow for the three and nine months ended June 30, 2009 included cash inflow of €17 million and €112 million from the German bank’s deposit protection fund, respectively, and cash outflows for our IFX10+ cost-reduction program of €25 million and €106 million, respectively. Furthermore, capital expenditures for the three and nine months ended June 30, 2009 amounted to €27 million and €118 million, respectively, while depreciation and amortization for the three and nine months ended June 30, 2009 was €133 million and €415 million, respectively.

 

Since we hold a portion of our available monetary resources in the form of readily available-for-sale financial assets, and operate in a capital intensive industry, we report free cash flow to provide investors with a measure that can be used to evaluate changes in liquidity after taking capital expenditures into account. Free cash flow is not intended to represent the residual cash flow available for discretionary expenditures, since debt service requirements or other non-discretionary expenditures are not deducted.

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Free cash flow includes only amounts from continuing operations, and is determined as follows from the condensed consolidated statements of cash flows:

 

 

Our gross cash position as of June 30, 2009, representing cash and cash equivalents and available-for-sale financial assets, decreased slightly to €871 million from €883 million as of September 30, 2008, primarily reflecting the net cash provided by operating activities and used in financing activities from continuing operations. Our net debt position as of June 30, 2009, defined as gross cash position less short and long-term debt, was €151 million, an improvement of €136 million from €287 million as of September 30, 2008, mainly reflecting net cash provided by operating activities and the effect on our net debt position of the repurchase of exchangeable subordinated notes due 2010 and convertible subordinated notes due 2010, net of accretion, and of the issuance new convertible subordinated notes due 2014.

 

Since we hold a portion of our available monetary resources in the form of readily available-for-sale financial assets, which for IFRS purposes are not considered to be “cash”, we report our gross and net cash/(debt) positions to provide investors with an understanding of our overall liquidity. The gross and net cash/(debt) position is determined as follows from the condensed consolidated balance sheets, without adjustment to the IFRS amounts presented:

 

 

Our net cash/(debt) position is an important measure for us, in light of our outstanding convertible subordinated notes due 2010 in the notional amount of €522 million and our outstanding exchangeable subordinated notes due 2010 in the notional amount of €48 million maturing in 2010. We believe that we will continue to be able to fund our normal business operations out of cash flow from operations. However, in an effort to obtain sufficient funds to repay the convertible subordinated notes and exchangeable subordinated notes due in 2010 and to solidify our balance sheet structure, we commenced a rights offering on July 16, 2009 of up to 337 million new shares that we are offering to our shareholders for subscription. The Backstop Investor has agreed to subscribe, at the subscription price of €2.15, for up to approximately 326 million new shares, not subscribed for by existing shareholders, if the Backstop Investor receives at least a minimum allocation of 15 percent of the increased share capital (see note 1 of our condensed consolidated financial statements for the three and nine months ended June 30, 2009).

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Employees

 

The following table indicates the composition of our workforce by function and region at the dates shown:

 

 

During the nine months ended June 30, 2009, our workforce decreased in all functions and regions, primarily as a result of our IFX10+ cost-reduction program as well as a result of the sale of the SensoNor business.

 

Outlook

 

Industry Environment

 

In the second quarter of the 2009 calendar year, contractionary forces appeared to start to recede. Following a disappointing first calendar quarter, current economic data point to a return to modest growth at the global level. However, the recession is not over and the International Monetary Fund (“IMF”) still forecasts the recovery to be sluggish. Accordingly, the IMF expects global activity to contract by 2.6 percent in 2009 and to expand by 1.7 percent in 2010, according to its July 2009 report. The forecasted 2010 growth rate is 0.7 percentage points higher than envisaged in the IMF’s April 2009 World Economic Outlook.

 

For the global semiconductor market, monthly World Semiconductor Trade Statistics (WSTS) data indicate revenues (in U.S. dollar terms) to have improved in the second quarter of calendar year 2009 compared to the first quarter of calendar year 2009. Compared to the second quarter of the 2008 calendar year, global semiconductor market contraction was still in the double digits in the second quarter of the 2009 calendar year. For the 2009 calendar year, iSuppli Corporation currently projects a decline of 23 percent in worldwide semiconductor revenues. The latest forecasts of a range of reputable market research firms are between minus 12 percent (VLSI Research Inc.) and minus 23 percent (iSuppli Corporation). The projected 2010 growth rates from these organizations are in the range of plus 7 percent to plus 19 percent.

 

Outlook for the Fourth Quarter of the 2009 Fiscal Year and Update on Our Outlook for the 2009 Fiscal Year

 

Reflecting the pending sale of the Wireline Communications business, we will classify this business as discontinued operations in our consolidated financial statements for the fiscal quarter and fiscal year ending September 30, 2009.

 

We expect our group revenues to grow in the fourth quarter compared to the third quarter - on a comparable basis, excluding the Wireline Communications segment. We expect the revenue increase to be driven in particular by the segments Automotive and Industrial and Multimarket.

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We currently plan continued, but cautious increases in production levels in the fourth quarter of the 2009 fiscal year as we adapt capacity loadings to the improved demand. Together with the benefits of anticipated higher sales levels and continued tight cost control, we therefore expect Segment Result - on a comparable basis, excluding the Wireline Communications segment - to improve as well.

 

For the 2009 fiscal year, we now expect depreciation and amortization to exceed the previous forecast level of €500 million.

 

Risks and Opportunities

 

We are exposed to a number of risks as a result of the high volatility of the semiconductor business, its international orientation and its wide product range. Such risks include, but are not limited to, broader economic developments, including the duration and depth of the current economic downturn; trends in demand and prices for semiconductors generally and for our products in particular, as well as for the end-products, such as automobiles and consumer electronics, that incorporate our products; the success of our development efforts, both alone and with partners; the success of our efforts to introduce new production processes at our facilities; the actions of competitors; the availability of funds, including for the re-financing of our indebtedness; the outcome of antitrust investigations and litigation matters; the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, the outcome of Qimonda’s insolvency proceedings, including potential liabilities related to the Qimonda insolvency, including pending antitrust and related securities law claims, the potential repayment of governmental subsidies received, employee-related contingencies and other matters; as well as the other factors mentioned herein and those described in the prospectus relating to our pending rights offering (a form of which was approved by the German Federal Financial Supervisory Authority (BaFin) on July 16, 2009 and a form of which is contained in the registration statement on Form F-3 filed with the U.S. Securities and Exchange Commission on July 16, 2009) (the “Prospectus”).

 

To minimize the negative impact of these risks, we continuously optimize our company-wide risk and opportunity management system. For more detailed information on risks and opportunities and their potential effect on our business, financial condition or results of operations, please refer to the “Risk Factors” section of our Prospectus.

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Infineon Technologies AG and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the three months ended June 30, 2008 and 2009

(in millions, except for per share data)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

20

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

21

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

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