Controlling in highly competitive high-tech industries

Controlling in highly competitive high-tech industriesDominik Asam, CFO16 May 2017

Agenda

Characteristics of semiconductor industry

Introduction to Infineon

Controlling at Infineon

Lessons learned from implementation of R&D controlling

Forecasting in a capital-intensive and volatile business

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22017-05-16 Copyright © Infineon Technologies AG 2017. All rights reserved.

More with less: semiconductors are vital building blocks in various crucial areas of life

More energy with less resources

More performance with less energy

More mobility ‒ safe and with less CO2

More security at lower cost


› About 45% of the OECD Economic growth since 1985 comes from increased productivity; electronics is a key driver for this growth

› Up to 80% of innovation in automotive is enabled by semiconductors, even more when it comes to Hybrid and EV

The semiconductor industry has significant leverage on downstream innovation

Source: DECISION, ESIA, Future Horizons, IMF, WSTS 2010, AUDI, OECD Factbook 2013, Infineon

In

no

vatio

n

Pro

du

ctiv

ity

Automotive / Industrial /Medical / ...

WW: ~USD 30,000 bn

SemiconductorsWW: $298

bn

×5

x 20 -100

ElectronicsWW: $1,600 bn


Capital intensity is slightly declining but very high compared to other industries

33

61

39

2831

48 48

5761

43

26

54

67

59 58

66 6568

73

8083

7881

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

10

20

30

40

50

60

70

80

90

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017e

2018e

2019e

2020e

2021e

Capex to

sale

s ra

tioCapital spendin

g in b

illion U

SD

Capex Capex to Sales Ratio

Worldwide Semiconductor Capital Spending

Calendar years.Source: IC Insights, The McClean Report 2016, March 2016.


Wafer diameter is a key lever for costreduction but also drives scale of factories

Larger wafer diameters

Source: Intel, SEMI ISS 2013

450mm Transition

Wafer Transition

AreaIncrease

100mm 125mm

100mm 150mm

125mm 150mm

150mm 200mm

200mm 300mm

300mm 450mm

56%

125%

44%

78%

125%

125%

SEMI Industry Strategy Symposium (ISS) – January 15, 2013: Intel Corporation executives make first public presentation of 450mm silicon wafer patterned with 26nm features using nanoimprint lithography.


Shrink of feature size as another key lever for cost reduction hits economical limits

No cost/transistor crossover for first time at 28 20nm transition expected.

But system integration is still a driver.

Source: Lisa Su, AMD, ISSCC '13 Keynote

Moore’s Law - scaling for more than 20 generations: often assumed to be at the end but survived - now stalling!?

Scaling of Gate Length Cost per Transistor Scaling

Norm

alized C

ost/

Tra

nsis

tor

0.0

0.2

0.4

0.6

0.8

1.0

45nm

40nm

32nm

28nm

20nm

20FinFET

The end or next brakethrough

to come?


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Leadership in system understanding will fosterfuture growth

› Advanced Driver Assistance System (ADAS) - Infineon AURIX™ mC, the central processing unit responsible for all safety relevant decisions

› Sensors – pressure, magnetic andradar sensors for safety and comfortfeatures

› CO2 reduction – Infineon enablesenergy efficient and compact designsin all areas requiring electronics

#1 and technologyleader in Power

System leader in Automotive

Leader in Security Solutions

Competitive advantages Leading in system-crucial categories

Courtesy: BMW Group



› System leader with digitalization of

the control loop and functional

integration

› 300mm thin-wafer manufacturing for

power semiconductors

› Leader in next-generation power

semiconductor materials

GaN and SiC




Competitive advantages Broad product & technology portfolio



› Hardware based security for

– Compliance with security mechanismsdetermined on application level

– Secure & trusted environment for data storage and code execution

– Protection against manipulation, access and theft of secrets

› Machine-to-Machine communication asbackbone for reliable operation




Competitive advantages Mobile Communication & IoT Security


Infineon‘s revenue development (excl. IRF) outperformed total semi market

* Based on Infineon’s portfolio (excl. Other Operating Segments and Corporate & Eliminations) per end of FY16.

** If International Rectifier had been consolidated since 1 Oct 2014, Infineon would have recorded revenues of €6,059m in FY15.

Source: Infineon; WSTS (World Semiconductor Trade Statistics), November 2016

organic CAGR(99-16): ~+9%

CAGR(99-16): +5.1%

[EUR m]

1,2

00

1,6

81

2,0

45

1,8

21

1,9

95

2,2

89

2,3

66

2,7

01

2,9

06

2,9

16

2,1

28

3,1

03

3,7

80

3,7

74

3,8

15

4,3

03

5,1

00 (

excl. I

RF)

6,0

59 (

incl. I

RF**)

6,4

72

0

1500

3000

4500

6000

7500

1999 2001 2003 2005 2007 2009 2011 2013 2015 2016

Revenue Infineon* [lhs]

Semiconductor World Market (adjusted for the Infineon fiscal year ending Sep 30) [rhs]

126,8

95

296,3

83

300,000

200,000

100,000

295,9

96


Infineon increased relative market share in power and outperformed chip card market

Source: IHS Markit, October 2016 Source: IHS Markit, July 2016

* including SHHIC (in 2015, SHHIC was acquired by CEC Huada.)

Source: Strategy Analytics, April 2017

Automotive semiconductors

total market in 2016: $30.2bn

7.4%

7.8%

9.8%

10.7%

14.0%

STMicro

Texas

Instr.

Renesas

Infineon

NXP

Power discretes and modules


Smart Card ICs


10.4%

15.1%

16.2%

24.8%

30.5%

CEC

Huada*

STMicro

Samsung

Infineon

NXP

5.0%

5.7%

6.1%

6.3%

18.7%

Vishay

STMicro

Fairchild

Mitsubishi

Infineon


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Main controlling KPIs at Infineon

Segment Result Margin

FCF from continuing operations

Return on capital employed

Revenue growth

Segment ResultMargin

Revenue growth Gross Margin R&D-to-Sales

CapEx-to-Sales Gross Margin G&A-to-Sales S&M-to-Sales

Segment ResultMargin*

FCF from continuing operations

Return on capital employed

Management Board

Divisions

Operations Central Functions

Employees

*Segment result margin of respective Division or revenue-weighted average of all Divisions if employee works in Operations or Central Functions


Semiconductor industry characteristics

› Asset Intense Industry

› Long Production Lead Time

› Significant Demand Fluctuation

› Early in the Value Chain


Three major stakeholders in Infineon’s planning process

Four DivisionsRegions Operations

Global Production and Distribution Network

Capacity & Supply

Regional Account Teams

Uncapped Demand

P&L Responsibility

Consolidated Demand and Release


Stakeholders are aligned within one planning cycle

Planning Cycle

Demand Load Adjust & Release

Capacity

› Uncapped Demand Signal

› Price Planning

› Consolidated but still Uncapped Demand

› Flexibility Planning

› Stock and Contingency Planning

› Review of Resulting Load to Resources

› Invest Proposals

› Capacity Feedback

› Invest Decisions/Reservations

› Adjusted Plan for Demand, Load and Capacity


Demand Load Adjust & Release

Capacity

Multidimensional big picture within online planning cube for integrated decision making

Demand/Product View

› Volume, Price, Revenue

› Region, Currency

All Planning dimensions are available and aligned at all planning steps

Resource View

› (Allocated) Capacity

› Reserved Capacity

› Idle Capacity

Load View

› Load for Revenue

› Load for Stock

› Inventory


Adding Financial Key Parameters to Planning Cube translates it into a Financial Statement

Volume related inputs to Financial Forecast Statement

Financial Parameters

Sourced from Finance Systems

› Price per Piece

› Cost per Piece

› Cost per Idle Capacity Unit

› …

› Revenue

› Cost

› Margin

› Idle Cost

› Inventory Value

› …


Multidimensional picture for controlling landscape

SORT

WafertestSawing

DIE BANK ASSEMBLY

Sawing

Die BondingWire Bonding

MoldingTrim & Form

FAB

FurnaceImplantingDeposition

StepperEtching Wetting

Chiptest(Burn In)

TESTWafer stock DC

Up to 500 process

steps

Buffer /

StockBuffer /

Stock

Buffer /

Stock

Buffer /

Stock

Consi

Around 4 months cycle time

Production Site› Capacity› Utilization› Idle Cost› Necessary Invests

Production Network› Flexibility › Stock development

Customer Demand› Volume› New Products

Product › Currency› Regional Split› Price› Cost of Sales


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What projects do we invest our R&D money in and how

profitable are they?

The PPL lies at the core of our financial R&D project controlling


Purpose of a Product Plan - PPL

PPL predicts the contribution to financial targets with respect to profitability and growth potential

PPL is a financial tool to support systematic reviews during the lifecycle of a product

PPL serves visibility for assigned entrepreneurs to react fast on increasing market dynamics

A PPL is a joint commitment of…

–Sales & Marketing on future customer projects in terms of price, volume and product specifications

–Operations regarding future manufacturing cost

–R&D regarding project timeline, resource commitment and project cost development

–Finance


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https://www.google.de/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjw1a-lxJ7TAhUCiRoKHYgeBLkQjRwIBw&url=https://www.iconfinder.com/icons/915124/development_graph_growth_optimization_performance_productivity_icon&bvm=bv.152180690,d.d2s&psig=AFQjCNF0rQ2E8Yh_Vsed_JIpbG5NFXcX9g&ust=1492073239950704

https://www.google.de/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjS-aXZxZ7TAhWB7hoKHYc0DacQjRwIBw&url=https://www.iconfinder.com/search/?q%3Dreview&bvm=bv.152180690,d.d2s&psig=AFQjCNETrJrfFp11Xg9HijQ5uWKa0YIclQ&ust=1492073603723391

https://www.google.de/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjS-aXZxZ7TAhWB7hoKHYc0DacQjRwIBw&url=https://www.iconfinder.com/search/?q%3Dreview&bvm=bv.152180690,d.d2s&psig=AFQjCNETrJrfFp11Xg9HijQ5uWKa0YIclQ&ust=1492073603723391

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https://www.google.de/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjT6urayp7TAhUCPhQKHUftBrAQjRwIBw&url=https://igenapps.com/&bvm=bv.152180690,d.d2s&psig=AFQjCNFd4yZhSCSWF_q2GmOH112WOZmetQ&ust=1492074958266481

Replace excel by a system –the three key elements of ePPL 2.0

Data sources Calculation Tool Reporting

OCC BI Portal

ePPL 2.0 DB


KPI: PPL Execution

Measure for project planning accuracy

Measure for actual time-to-market

Product Segment A Product Segment B Product Segment C


FY17 FY18 FY19 FY20 FY21

Pre X3 / new products

X3-X9 Expedition

X3-X9 Mission

X3-X9 Autobahn

Legacy

Bluebook

MI: Strategic 5-year plan vs. R&D pipelinecoverage

How much revenue is planned with products which are currently under development(Milestone 3- Milestone 9) during 5-year planning timeframe, what is the risk profile(execution, time to market) of the plan

Measurement: Coverage of revenue with products currently under development

Plan

Project categories: 1) Expedition: Dynamic boundary conditions, high level of uncertainties. 2) Mission: Possible changes to boundary conditions, significant but manageable uncertainties. 3) Autobahn: Stable boundary conditions, low level of uncertainties.

*

*

*


KPI: Conversion rate of R&D into revenue

How does a project/product contribute to growth and profitability of a Division/Business Line/Product Line?

What is the conversion rate of an R&D investment into revenue, what is the profitabilitycompared to the segment targets / expectation?

Measurement 1: Conversion rate of 1€ project specific R&D into X€ cum. revenue

Measurement 2: Øproduct-cost-margin of product/project compared to targets in 5y-plan

Measurement 3: Planning stability between Milestone 3 and Milestone 9

M6

M3

M9

current

0

5

10

15

20

25

30

35

40

0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0

Growth

Profitability

Div / BL / PL specific

aggregation


Lessons learned during PPL roll out

› Ease of use and value add required to provide incentive for adoption “bottom up”

– Certain simplifications to be jointly agreed in the finance community to reduce the degree of complexity

– Data available in other systems needs to be automatically fed into the system to reduce workload

– User interface needs to be convenient and fast

› Tone from the top both by the technical and finance side required to support roll out “top down”

– Improved transparency in an area which is at the core of the decision power of the divisions not always welcome (potential fear of increased top down interference)

– It takes a considerable time before contents provide full benefit in terms of controlling


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VOLUME

VELO

CIT

Y

VARIETY

COMPLEXITYVARIABILITY

& INCONSISTENCY

The quantity of data that is generated today and has become available

The speed at which data is generated has increased vastly

The sheer variety/types of data that is available today has increased

&

? !

The inconsistency which can be shown by the data at times

The data is often unstructured and not linked, connected or correlated

Proliferation of data has the potential to change how we think of business strategy


Exploratory Data AnalysisA few of the key data points considered

New Orders Trend Analysis (Quarterly)

New Orders Trend Analysis (Weekly)

Order cancellations Trend

Analysis (Q & Wly)

HFM Adjustments Analysis S&D Notes Trend Analysis (Q’ly & Weekly)

Number of Days (Sales) Impact on Revenue

Revenue Composition Analysis

Revenue Trend Analysis (Yearly)

Revenue Trend Analysis (Quarterly & Weekly)

Quarter on quarter Trend Analysis

Credit Notes Trend Analysis (Q’ly & Weekly)

OBL & CU_FC Trend Analysis (Q’ly & W’ly)


Infineon Group revenue prediction model construct

Revenue (Order

Development)

Revenue (Order

Development)

Customer ForecastCustomer Forecast

Order BacklogOrder

Backlog

Revenue

Quantity

RevenueQuantity

Revenue Estimate

RevenuePredictionRevenue

Prediction

New Orders Received

Order Cancellations

HFM AdjustmentsOther Adjustments

Data Source: CEBIS

(Granularity: Weekly)

Variables for Adjustments

Revenue Run rate

Derived Variable

FRFC Forecast

Variable for Reference

IConsistent Data Integrity &

Quality checks and Profiling

IFX Group Prediction Model: Major FeaturesModel Construct

II

III

IVEmphasis on ’Complexity reduction’,

‘Mathematical validation’ &

‘Avoidance of over-fitting`

V

VICurrency Exchange

Month End RateRFC Rate

Variable / Feature selection and

extensive Exploratory data

Analysis

Quarterly & Mid-Quarter Iterations

with close feedback loops and

Regular model evolution

High levels of Prediction Accuracy

with Actionable Insights

Embedding the Outcome of the

Analytical Model in IT Solutions for

Business consumption


IFX Group Revenue Prediction ModelMulti-iterations with High Prediction Accuracy

Base Model Advance Model

Operatio-

nalization

(Advance

Model)

Next Level

Model with core variables:

Cash Flow, Order Backlog,

New Orders, Credit Notes &

Order Cancellation etc.

Iteration – I & II

Oct’15-Jan’16

Two distinct prediction models for

euro and non-euro ‘Revenue’

components; using Month-end

Exchange Rate & RFC Exchange Rate

End to End automation

and result integration

with CEBIS

In – Progress

Advance Algorithm and

Model Refresh

Iteration– III, IV, IVA, V

Apr’16-Jul’16-Oct’16

Iteration – VI, VIA

Jan’17Future Iterations..

Prediction Accuracy

Oct’15: 0.7%

Jan’16: 1.5%

to be updated after FY1617 Q2

Closure

Apr’16: 1.8 -2.6 %

Jul’16: 0.7 - 1%

Oct’16: 1.3 – 2.4%

Next Level


Thank you for your attention


Controlling in highly competitive high-tech industries

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