German chipmaker Infineon Technologies AG said on Tuesday that a slump in demand had led to an inventory pile-up that would only plateau this summer, keeping pressure on profit margins.

Infineon, which makes high-performance power chips used in everything from cars to server farms and smartphones, has been forced by a China-led slowdown to lower its revenue guidance twice already this year.

While declaring an industry boom over, CEO Reinhard Ploss stood by his view that sales would rise 5 percent to 8 billion euros ($8.96 billion) in the year to Sept. 30, as Infineon reported flat sequential sales in the second quarter and said margins had held up better than expected.

Ploss said he expected inventories to peak in the summer. “But at the end of the year, we still assume a high level of inventories compared to our target inventory level,” he told analysts on a conference call.

Automotive accounts for more than two-fifths of Infineon’s top line and here, weakness in China - the world’s largest car market - continued through the three months to March even if the pace of its contraction slowed.

Infineon is basing its forecasts for fiscal 2019 on an expected low- to mid-single-digit percentage decline in unit car production.

Semiconductor companies have scaled back their expectations of a rebound in demand, leaving market valuations looking stretched after a steep rally in technology stocks this year.

Infineon, whose shares declined 0.6 percent after Tuesday’s results, are still ahead by 16 percent in the current year to date.

By: DocMemory
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