Driving decarbonization and digitalization for a better future – how Infineon is setting course to move into new dimensions

The world is facing pressing crises: The terrible war in Ukraine; the devastating earthquake in Turkey and in Syria;?growing geopolitical tensions; high energy prices and inflationary pressures; plus the immense challenges posed by climate change. Some crises are closely related and fuel each other. Many people are very worried about the future. These worries are well-founded. The challenges are huge.

And yet there are bright spots even in these times. No generation before us has had so much knowledge. Never before have our technological possibilities been as great as they are today. Using technology as an enabler in solving the climate crisis. Leveraging the great potential of digitalization. Innovations enabling growth and prosperity for billions of people in harmony with nature and our planet.

We at Infineon see global challenges as a strong motivation to contribute to a better future. Together with our partners, we are driving decarbonization and digitalization forward. For a future worth living for our own and future generations. This is how we create more value in a sustainable manner.

At our Annual General Meeting, we highlighted how Infineon is shaping decarbonization and digitalization. In my speech to our shareholders, I also gave an overview of our strategic priorities and what we do to achieve our ambitious goals.?

Semiconductors are essential building blocks for a climate-neutral and digitalized world

Decarbonization is the crucial task of our time. We still emit far too much CO2. In 2021, CO2 emissions were 36.6 gigatons worldwide – more than ever before. Is it already too late to turn the tide? Do we want to fold our hands in our laps and leave a broken planet to our children and grandchildren? Of course not! We all have a duty as decision-makers, citizens, consumers – as human beings. As the father of two daughters, I don't want to stand on the sidelines and just watch. Infineon is a key player in tackling the climate crisis. Therefore, for me there is no better company at which to contribute to a more sustainable world as part of a great global team.

One thing is certain: We know what is causing global warming. We know its catastrophic consequences. And we have the technologies to limit it. Al Gore, the former U.S. Vice President and Nobel Peace Prize winner, said at the last climate conference in November:

"We are now in the early stages of a sustainability revolution, that has the magnitude of the industrial revolution and the speed of the digital revolution. If we invest in it, (...) we can save ourselves.”

I, too, am convinced that we can still make it. But only if we consistently use all the levers at our disposal:

• First, generating more green energy from renewable sources and creating storage capacities.
• Second, making the generation, transmission and consumption of energy much more efficient.
• And thirdly: Consistently electrifying areas of application that have so far been dominated by fossil fuels. For example, the car. Or the heating system at home – think of heat pumps!

Decarbonization and digitalization go hand in hand. Digital technologies are a key factor for a sustainable world. One example: In the EU, buildings account for 40 percent of energy consumption. The lion's share of this is for heating and cooling. This generates a lot of CO2. We can use digital technologies to control building technology more intelligently and thus significantly reduce energy consumption in the office and at home. Microelectronics makes it possible. Semiconductors are essential building blocks for a climate-neutral and digitalized world.

Chip demand in the important markets for electromobility, driver assistance systems, renewable energies, data centers and the Internet of Things will rise sharply in the coming years. Market researchers expect double-digit growth rates. Infineon is broadly positioned in all these key markets. We expect revenue growth in the double-digit percent range and a significant increase in profitability in the coming years.?

As a leading provider of semiconductor solutions for power systems and IoT, we are making the transformation to a better world possible

Why are we so confident about Infineon's development? The company is in an excellent position. Infineon is the clear No. 1 in the market for power semiconductors. And we are a pioneer in the development of what are called power systems.?

Power switches are at the heart of such power systems. They convert electrical voltages and currents and make them usable in various applications, for example, in converters for solar power systems or in motors. The brain of a power system is the microcontroller. A third essential organ consists of what are called analog/mixed-signal chips. They are installed between the microcontroller and the power switch and translate the digital world of the microcontroller into the analog world of the power switch. Modern power systems show their full performance through perfect interaction of the various semiconductor components, often brought to life by appropriate software and algorithms.

The advantages: Power systems reduce energy loss and lower CO2 emissions. This is good for the environment and saves money. This makes power systems indispensable for taking green energy and energy efficiency to the next level. Infineon is the leading semiconductor supplier for renewable energy generation. Around half of the world's solar and wind power capacity is equipped with our semiconductors.?

Wind and solar are now the cheapest ways to generate electricity in many regions of the world. A huge market! New wind and solar farms are being built at high speed almost everywhere. The global energy crisis is further boosting demand. The International Energy Agency expects the expansion of wind and solar power to proceed much faster than anticipated only a year ago. According to the forecast, more capacity will be added in the next five years than in the last twenty.

More and more of our power systems are being used in data centers as well. Digitalization is driving the demand for energy. More and more data is being collected, processed, stored, and connected. The major cloud providers are increasingly using artificial intelligence to make the data usable for various applications. More data, more computing power, more AI – consequently the number and value of semiconductors needed in data center servers is increasing significantly as well. Energy-efficient power stages are more in demand than ever to reduce power loss and cooling efforts in data centers. Green computing is an ideal application field for our researchers and developers.

Energy efficiency is also playing a growing role in consumer electronics. There are more and more smartphones and notebooks with more and more functions. This increases the need for fast and energy-efficient charging solutions. The EU recently decided that new mobile devices will soon have to be equipped with a universal USB-C port for charging via cable. One charger fitting everything – and less electronic waste in the drawer. This will further fuel the demand for such solutions. Infineon will benefit from this development as No. 1 in the market for charger and adapter system solutions.?

In electric vehicles, our power systems are used in several places: in the inverter, i.e. the heart of the electric drive train. In the vehicle’s onboard charger. And in the battery management system. We supply 17 of the 20 most successful electric vehicle brands and are thus driving the transition to clean and safe mobility. By the way, in the 2022 fiscal year we were the first company to break the one-billion-euro annual revenue mark with semiconductor solutions for electric vehicles.

The digital transformation is increasing demand for intuitive, secure and intelligent devices in all areas of life. The car is the best example, but there are many others. The Internet of Things simplifies the way we live, work, produce and consume. This is because it connects billions of devices, links huge amounts of data and enables their intelligent use. What used to require huge human effort and a multitude of machines can now be achieved by the smallest devices. They process information independently, make decisions and set chains of action in motion. This creates ever more and entirely new possibilities and benefits. Some examples:

• Smart vehicles and better traffic management in big cities are making the commute to work faster, cleaner and safer for millions of people.
• Smart robots are giving people a hand in factories and in the home.
• Smart health devices monitor physical activities and thus support an active, healthy lifestyle. These devices make it possible for many older people to live safely and independently in their own homes.
• In agriculture, machines use fertilizer in a much more targeted and metered manner and produce higher yields.

Every device in the Internet of Things needs powerful microelectronics. Semiconductors from Infineon bring them to life. Our sensors capture environmental information. Microcontrollers process this data and generate control signals. Power semiconductors convert the signals into actions. Our connectivity solutions link devices to each other and to the cloud. Our security solutions protect data transmission and ensure the integrity of devices and networks. In other words: We make the Internet of Things work. As a leading technology partner, we offer smart, energy-efficient and secure IoT solutions from a single source. And we have a deep understanding of our customers' applications. That's how we score points.?

We are implementing our strategy even more rigorously and we are developing Infineon further

Our key markets are developing dynamically. We want to make the best possible use of this momentum for Infineon. How? By focusing even more strongly on consistently implementing our proven strategy. We are strengthening our strengths, building new competencies, and investing. To this end, we have defined clear strategic guidelines and instruments. Here is an overview:

1) We are extending our lead in power systems and IoT. To achieve this, we build on our "From Product Thinking to System Understanding" approach – P2S for short. Derived from our application knowledge, we are translating what is technologically possible into marketable products that create the greatest possible benefit for our customers. Software is a component that will increasingly make the difference, since the interaction of hardware and software is the only way to optimize energy efficiency, performance, and the safety of our products at system level. We are increasingly hiring programmers and further expanding our software portfolio.?

2) We bring semiconductor innovations to our customers faster. Digitalization opens up many opportunities for us in this respect. We use digital interfaces to support our customers from initial contact to project implementation and beyond.

In addition, we invest consistently in technology leadership. Of particular importance to us are the compound semiconductors silicon carbide and gallium nitride. In many applications, the silicon chips commonly used now will remain the technically suitable and economically viable solution in the long term. But compound semiconductors complement and expand the possibilities of silicon-based solutions. They enable particularly powerful, fast-switching and compact system solutions with lower power consumption. We see growing demand for this, particularly in electric cars, charging stations and solar power systems.

We want to set the tone across the entire spectrum of power semiconductors – in silicon chips and in technologies based on silicon carbide and gallium nitride. That is why we are constantly expanding our portfolio for different application areas.

3) We want to generate sustainable profitable growth and are creating the conditions to do so. As the demand for semiconductors grows, so does the need for skilled workers. We need talented individuals to develop the next technology generations, products and software to remain competitive. We place a special focus on developing talent within the company and attracting the best young talent in the market to Infineon. We want to inspire young people to shape decarbonization and digitalization with us.

In order to broaden the basis for our accelerated profitable growth path, our ability to deliver is critical. It is another strategic focus. We are systematically expanding our manufacturing capacities in those areas where we have a sustainable differentiating factor. In doing so, we think big!

We are investing 5 billion euros in an additional plant in Dresden. This is the biggest single investment in the history of our company to date. These additional capacities will meet rising demand from our customers in the second half of the decade. We are also strengthening our position as a globally leading supplier of power systems.

4) We are prepared for short-term market downturns. In all growth, we maintain a balance. Our key markets are driven by different factors and have different business cycles. We monitor the leading indicators for our business constantly and very closely and we can act quickly and flexibly if demand weakens in submarkets. Infineon is able to stay on course even in rough seas.

5) We are pioneers in sustainability by conviction. This has long been a central component of our strategy. Today, our products and solutions already avoid 33 times more CO2 over the lifetime of our customers' applications than is generated in the production of the required semiconductors. We therefore create a significant net ecological benefit. With ever more efficient manufacturing, this benefit continues to increase. The new plant in Dresden will be one of the most resource-efficient power semiconductor factories in the world.

We want to further reduce our own carbon footprint. We are making good progress toward our goal of making Infineon carbon neutral by 2030. We completely converted the power supply of all North American sites to renewable sources of energy by the end of 2022. Our European sites have already been running on green power since the 2021 fiscal year.

6) We continue to develop our corporate culture. In addition to "what we do", "how we do it" is crucial. I have now been working for Infineon for over 28 years. In my various roles during my journey at Infineon, one thing above all has struck me: It is the people who make the difference! It is important to us to create a working environment in which employees feel comfortable and make their contribution to the company's success out of conviction. Our corporate culture was and is the basis of our business success.

Infineon has grown strongly in recent years. As a result, our business has also become more complex. That is why we are continuing to develop our corporate culture. After I assumed the position of CEO, I initiated the culture project "SPIRIT". It promotes three behaviors:

• First: We set ourselves ambitious targets
• Second: We take ownership based on clear responsibilities
• Third: We make timely decisions and implement them rigorously.

I am delighted with the great support for this approach. The spirit of optimism in the company is great. In addition, we can build on high levels of employee satisfaction. Our customers value us as a reliable partner. We have also received very positive feedback on "SPIRIT" from capital market representatives. After all, an even more value-oriented way of thinking and working gives us additional tailwind on our profitable growth course.?

Infineon is moving into new dimensions

The strategy is clear. The course is set. Infineon has started to move into new dimensions. We have the confidence to achieve even more ambitious targets in the future. In November, we significantly raised our long-term financial targets through the semiconductor cycle. We will be measured against these targets.

We are on a promising path. Infineon has completed a record 2022 fiscal year and has made a successful start to the new fiscal year. Nevertheless, the challenging business environment will place high demands on us in the coming quarters.

To achieve our goals, we consistently develop Infineon further. And with our solutions, we continue to develop the world. In this way, we create more value for all stakeholders: Customers, shareholders, employees, society and the environment. We make life easier, safer and greener. That is why we are successful.

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Note: This article is an excerpt from my speech at the Annual General Meeting 2023. You can access the full speech and a webcast recording on our website.