Infineon Technologies AG (IFX) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the conference call for analysts and investors of Infineon's 2026 Financial Third Quarter Results. Today's call will be hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations at the Infineon Technology. As a reminder, this call is being recorded. This conference call contains forward-looking statements or assessment about the business financial condition, performance and strategy of Infineon Group. These statements or assessments are based on assumptions and management expection restarting Upton currently available information and present estimates. They are subject to a multiple and uncertainties of risks, many of which are particularly or entirely beyond Infineon's control. in final actual business development, financial condition, performance and strategy may therefore differ materially from what is discussed in the conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update for forward-looking statements. At this time, I would like to turn the conference call over to Infineon. Please go ahead.

Many thanks, operator, and good morning, ladies and gentlemen. Thank you for joining our mid-summer earnings call covering our fiscal third quarter 2026. On Air today, you have our CEO, Jochen Hanebeck, our CFO, Sven Schneider, and our CMO, Andreas Urschitz. Following our established procedure, Jochen, Sven will provide an overview on the market situation and divisional performance. key financials and our outlook. After that, we will start our Q&A session. . The accompanying slide show for the call is available at infineon.com/slides and we will provide a PDF with Jochen and Sven's introductory remarks in the course of the call on our website, namely infineon.cominvestor. This is also your go-to spot for a recording of this conference call, including the aforementioned slides, a copy of our earnings press release as well as our investor presentation. And now Jochen, over to you. .

Thank you, Alexander, and good morning, everyone. At present, positive cyclical momentum and structural growth are converging into a bright picture and Infineon is generating value from it. The recovery continues to gain traction. The up cycle is fully on track. What initially started in selected segments is now becoming broad, supported by improving demand patterns, normalized inventory levels and increasing order activity across many end markets. The strongest dynamic continues to come from AI-related infrastructure. Investments in data centers continue to go up energy-efficient power delivery solutions are required to support our growing processing capabilities. Use cases for agentic and physical AI are emerging at a fast clip. Industrial markets are also showing improving dynamics, in particular related to power infrastructure. In automotive, we are seeing a clear pickup of customer order momentum. In this environment, we are combining a strong operational focus on the current up cycle with targeted investments in our broad set of future growth opportunities. The prime example for the later is the recent opening of our new smart power fab interest. The clean room space available there enables us to ramp the world's largest fab for cutting-edge power semiconductors and analog mixed signal technologies at just the right point in time. Furthermore, we closed the acquisition of the sensor portfolio from AMS OSRAM as planned within a very short time frame. Let us now turn to our third quarter performance. The third quarter of our 2026 fiscal year was the first 1 with over EUR 4 billion of revenue for 2.5 years with [ EUR 4.172 billion. ] We achieved an all-time high in quarterly revenues and came in a bit ahead of expectations even considering a minor positive currency effect. All our divisions contributed to 9.4% sequential growth on group level. Compared to the same Quarter 1 year earlier, our reported revenue grew by close to 13%. The segment result for the June quarter amount to EUR 797 million, corresponding to a segment margin of 19.1%, 200 basis points up from the quarter before, mainly driven by volume fall-through and positive mix effects and clearly in the upper part of the predicted high teens range. Our order backlog witnessed another material increase and stood close to EUR 30 billion at the end of June, a clear indication of recovery momentum getting even stronger. Now to our divisional review, beginning with automotive. The third quarter of our 2026 fiscal year, revenues increased by 6% quarter-over-quarter to EUR 1.932 million. Growth was driven mainly by microcontrollers and smart power components as well as our Ethernet products. All these are core building blocks of software-defined vehicles. The segment result increased by 8% sequentially to EUR 356 million, corresponding to a segment result margin of 18.4%. As a reminder, the refocusing of our business with high-voltage components for power -- for electric powertrains that we explained in our last earnings call is expected to burden segment result margin of ATV in this fiscal year by a low to mid-single-digit percentage reflected in our guidance. We continue to see strong order intake in automotive against the backdrop of a muted car market. In its latest update market researcher, Mobility Global carved out of -- out from S&P Global is forecasting around 91 million light vehicles to be produced in 2026. This is slightly above its previous estimate and broadly in line with the approximately 2% year-over-year decline we had assumed since the beginning of our fiscal year. The long-term trends driving automotive semiconductors demand remain firmly intact and continue to support content growth. Rising fuel costs are beginning to support xEV adoption in Europe, India and Southeast Asia. While the shift towards software-defined vehicles continues to accelerate globally. Alongside these structural growth drivers supply constraints in the Chinese automotive grade semiconductor market create opportunity for us. Furthermore, ongoing inventory replenishment is contributing to near time near-term demand recovery. We have secured a major design win for zone controller architecture with a software company or a leading global car manicure. The solution combines the latest generation, RX microcontrollers, power management ICs and profit, smart power switches. This demonstrates again the breadth of our system offering across compute connectivity and smart power management. We're also seeing further design win momentum in China for Xiaomi. We will support a cockpit and ADAS fusion unit incorporating 3 different microcontroller families. In another win with a leading Chinese car manufacturer, our silicon carbide will be used in the traction inverter. Finally, we further simplify the evaluation of our automotive microcontrollers for our customers. Together with Amazon Web Services, we have launched a cloud-based platform for virtual MCU evaluation. By removing the dependency on physical hardware, the platform can shorten evaluation cycles from several weeks to minutes. Lower evaluation costs significantly and support hundreds of concurrent users globally. The platform already includes our next-generation risk 5 architecture, enabling customers to gain hands-on experience with new microcontrollers much earlier than their development cycle and further accelerates innovation for software-defined vehicle. Let's now take a look at Green Industrial Power. GIP's revenues grew by 11% quarter-over-quarter to EUR 447 million, making the June quarter the second 1 in a row with double-digit growth, reflecting the recovery on industrial markets, all application areas developed positively, in particular power infrastructure and HVAC. The higher revenue, notwithstanding the segment result of GIP contracted slightly to EUR 44 million, equivalent to a segment result margin of 9.8% after 11.7% in the quarter before. The decline was due to temporary operational and inventory-related effects and hence, not indicative of underlying profitability as will be evidenced by the positive margin evolution in the running quarter. Power Infrastructure is seeing strong structural momentum. Investments in grid expansion, modernization continue to grow. Driving demand for energy storage systems, transmission and distribution gear and high-voltage solid-state devices. AI data center growth is fueling demand for uninterruptible power systems, general power supply as well as cooling. Semiconductors are poised to replace electromechanical parts in various use cases. For example, a semiconductor-based solid-state circuit breaker can protect electrical circuits from damage caused by short circuits or overloads by up to 1,000x faster than conventional systems. This capability is essential for direct current grids and offers a significant increase in system availability in industrial manufacturing and AI data centers. As part of our partnership with Siemens, we will supply 1.2 kilowatt silicon carbide power modules for use in circuit breakers to enhance the efficiency, power density and reliability of Siemens protection solution. Now to Power & Sensor Systems. On the back of unabated AI power strength, PSS recorded revenues of EUR 1.442 billion in the June quarter. 14% up sequentially and a staggering 34% more compared to the same quarter 1 year ago. The margin evolution of PSS shows a bright picture as well. The segment result increased to EUR 359 million, corresponding to a segment result margin of 24.9%. The further increase of 4.5 percentage points compared to the previous quarter is evidence of profitable growth and value creation, strongly driven by our leadership position in II Power Solutions. This leadership position is being recognized by industry researchers. In a recent report, covering AI data center, power semiconductors, Gartner identified Infineon as the company to beat. Portfolio breadth and system-level expertise in conjunction with manufacturing capacity are the defining capabilities for data center operators seeking to scale AI. Infineon offers a unique portfolio spanning the entire power delivery chain and manufacturers relevant technologies in-house. By seamlessly integrating wide bandgap materials, specifically silicon carbide for high efficiency, high-voltage grid to rec conversions and gallium nitride for ultra dense high-frequency intermediate power stages alongside silicon at the processor level energy losses are minimized at every single conversion step. Demand for our AI power solution continues to outstrip available supply. We are in a location. Successful execution of capacity ramps and conversions from other areas will help us to achieve more than EUR 1.6 billion of dedicated AI power revenues in the current fiscal year, ahead of the so far planned EUR 1.5 billion. In addition, our business with non-AI data center power solutions is amounting to around EUR 500 million annually, making Infineon clearly the leading force in the overall space. We are represented in almost all platforms across all relevant players in the industry. Enabling further steep growth in the coming years will be a function of ramping and deploying additional manufacturing capacities. Our new smart power fab [indiscernible], together with available clean room space at our other large front-end sites in Austria and Malaysia puts us in a unique position. To strategically secure access to critical power delivery solutions, several leading customers across the AI data center ecosystems have signed or are in negotiation on multiyear capacity reservation agreements with us. These agreements encompasses a total cumulative sales volume of a high single-digit billion euro amount over multiple years. These agreements also feature certain prepayments, thus further strengthening our customer relationships and sharing investment risks. We will revise our projection of EUR 2.5 billion plus AI data center revenues for our 2027 fiscal year upwards as part of the annual guidance to begin -- to be given in our November earnings call. We expect such update to be material. The next wave of AI growth are already taking shape. Higher-density power architectures for running the last frontier models as well as the emergence of agentic and physical AI. The growing inference and task coordination requirements of genetic AI provide a massive tailwind for us. Our undisputed leadership in power solutions for CPUs, combined with a highly differentiated best-fit product portfolio will represent another significant growth driver as early as next fiscal year. Accordingly, the aforementioned update of our revenue projection for 2027 will also include our power solutions for all different forms of data center configurations. Beyond the data center, our solutions bring physical AI to life. Enabling humanoid robots, collaborative machines and autonomous systems to perceive think and act safely and securely with expertise from all our divisions spanning microcontrollers, power systems, sensing, connectivity, functional safety and security. Infineon is the trusted partner across the full spectrum of physical AI platforms. This provides a good transition to complete the digital review with connected secure systems. CSS recorded revenues of EUR 350 million in our fiscal third quarter, a sequential growth of 10%. All product areas contributed to this positive development, in particular authentication and identification solutions. The segment result of CSS increased to EUR 34 million, corresponding to a segment result margin of 9.7%. We are continuously seeing a broader adoption of AI at the edge for industrial as well as consumer applications. To optimally address the expanding opportunity set we are establishing the Edge Systems or EDS division as part of the new organizational setup presented in our last earnings call. The ES segment is formed from today's CSS and the sensor and RF as well as the USB connectivity portfolio from PSS. The focus of ES will be on the interplay of sensors, microcontrollers, including software, connectivity and security to enable integrated system-level solutions at the edge. In this colleagues, I'm happy to report that we have closed the acquisition of the non-optical analog mixed signal sensor portfolio from AMS OSRAM at the beginning of July, just about 5 months after announcing it. The transaction is strengthening our position as a leader in sensors for automotive and industrial markets through a complementary portfolio and extending our product range in medical applications. The acquired business has a current annual revenue run rate of around EUR 230 million and will support Infineon's profitable growth. The transaction is accretive to adjusted earnings per share right upon closing with future synergies enabling substantial additional value creation. The acquired portfolio is a strong strategic fit to our ES division and now to spend for our key financial figures.

Thank you, Jochen, and good morning, everyone. In line with the revenue increase, our June quarter saw a corresponding margin expansion. The reported gross margin went up by 210 basis points from 38.7% to 40.8% and the adjusted gross margin stepped up from 41% to 42.8%, mainly driven by higher volumes and positive mix effects. Also, pricing measures put in place from April onwards had a first positive effect. Annual merit increases kicking in from the beginning of April as well as rising input costs for precious metals and logistics were dampening margin progression to some extent. Idle costs were roughly on the same level as 1 quarter before. Likewise, similar to the previous quarter, refocusing our high-voltage automotive drivetrain business had a negative impact of about 1 percentage point on group level. Research and development expenses increased quarter-over-quarter from EUR 612 million to EUR 674 million. Selling, general and administrative expenses went from EUR 379 million to EUR 433 million. Non-segment result charges for fiscal third quarter amounted to EUR 203 million after EUR 195 million before. The financial result amounted to minus EUR 63 million after minus EUR 68 million in the prior quarter. Income tax expense for the June quarter was EUR 112 million, equivalent to an effective tax rate of 21%. And Cash taxes amounted to EUR 220 million. Adjusting for PPA effects, the quarterly cash tax rate stood at 19%. Our investments in property, plant and equipment, other intangible assets and capitalized development costs amounted to EUR 514 million in the quarter on the report after EUR 541 million in the quarter before. Depreciation and amortization expenses, including acquisition-related nonsegment result effects, amounted to EUR 466 million. Free cash flow in the third quarter of our 2026 fiscal year improved significantly from minus EUR 63 million to plus EUR 599 million, to a large extent driven by the higher operating result. On the working capital side, inventory reach went down by 10 days from 175 to 165 days quarter-over-quarter bringing us closer to our target for the end of the fiscal year of around 150 days. As stated before, slightly elevated inventory levels are helping us capture growth in the current up cycle and being prepared in case of geopolitically induced turmoil. Now to our liquidity and leverage situation. During the June quarter, we made 2 scheduled debt repayments, redeeming a EUR 700 million bond and a [ USD 350 million ] private placement at maturity. The related cash outs were partially offset by the positive free cash flow. As a result, our gross cash position stood at around EUR 1.7 billion. Gross debt amounted to around EUR 6.8 billion as of 30th of June. Therewith, our gross leverage of 1.8x is already back below our maximum target level of 2x. The acquisition of the sensor portfolio from RMS OSRAM, which closed on July 1, has no impact on this figure as it had already been prefunded. The net debt position of around EUR 5.2 billion at the end of June corresponded to a net leverage of 1.4x. Our after-tax reported return on capital was trending up to 7.9% for the third quarter of our 2026 fiscal year. Before handing back to Jochen, a brief comment, -- as you know, we are operating in a new 3 divisional organizational structure with automotive, power systems and etch systems from July 1 onwards. That said, we will provide you with key financials for the known 4 division setup also for the September quarter, allowing you to model the full 2026 fiscal year in a consistent way. In our November earnings call, we will give our outlook for 2027 in the new setup and at the same time, provide adjusted historical data to you to enable relevant comparisons. Now back to Jochen, who will elaborate on our outlook.

Thank you, Sven. The market environment for our outlook is turning increasingly favorable. The up cycle is gaining momentum. The recovery is broadening. Inventories are largely destocked across markets and market is becoming a relevant factor for growth. Stronger customer bookings are leading to a further growing backlog and improving visibility. -- business indicators like cancellation rates, escalation calls or the preparedness to accept surcharges for expedite deliveries are speaking to underlying demand strength. Lead times are rising. And according to third-party service, customers expect them to rise further over the next months, a typical early up-cycle pattern as supply starts to tighten. Needless to say, the dynamic differs across applications. At this point, AI power and industrial infrastructure are appearing the strongest, followed by [indiscernible], whereas consumer is lagging. Generally speaking, though, our outlook is framed by high confidence, bearing further escalation of geopolitical conflicts. For the currently running September quarter, last of our 2026 fiscal year, we are in line with recent currency developments, adjusting the U.S. dollar euro exchange rate back to 1.15. We expect revenues of around EUR 4.7 billion, corresponding to well above seasonal growth of almost 13% quarter-over-quarter and 19% year-over-year. By segment, for ATV, a moderate revenue growth is predicted whereas for each of GIP PSS and CSS revenue should grow significantly. The Sensor business acquired from AMS OSRAM should contribute a mid-double-digit million euro figure in revenue in this quarter. We expect the final fiscal quarter segment result margin to come in around 23%, 4 percentage points up quarter-over-quarter. Besides the fall-through from higher volumes, we expect the positive evolution of prices in certain areas, notably AI and related product categories to have a positive impact offset partly by further rising input costs, which we'll address in customer negotiations. For the full 2026 fiscal year, we now expect revenues to come in at around EUR 16.3 billion, equivalent to an annual growth of around 11%. From a segment perspective, PSS is poised to grow materially faster than this group average driven by buying demand for AI power solutions as the outlook for some industrial markets linked to AI continue to improve. GIP is now expected to grow just below group average. ATV should see slight revenue growth, driven by its broad product portfolio and the broader adoption of software-defined vehicles despite material headwinds from the high-voltage drivetrain business. Lastly, for CSS, we expect revenues to remain stable year-over-year. Regarding profitability, we confirm our expectation for the full year adjusted gross margin to reach a low to mid-40s level and for the segment result margin to land at a level of around 20%. We therein idle costs are projected to amount to an annual level of around EUR 650 million. Now our forecast, we have not included potential indirect effects from further escalating Middle East conflict or any other lingering geopolitical tension. Our investments in the fiscal year continue to be expected to come to around EUR 2.7 billion. And for depreciation and amortization, we anticipate an unchanged level of EUR 2 billion including amortization of around EUR 400 million resulting from purchase price allocations, which will be recognized in our nonsegment results. Based on our favorable business outlook, we are upgrading our projection for the adjusted free cash flow. The figure which net of investments into major front-end buildings and M&A transaction is now expected to come in around -- at around EUR 1.85 billion after EUR 1.65 billion before, corresponding to around 11% of group revenues. For the reported free cash flow, we are changing our guidance now around EUR 1.25 billion to around EUR 900 million. This is an implicit upgrade as well given -- we are now, for the first time, considering the purchase price for the sensor portfolio acquired from AMS OSRAM of about EUR 570 million, the impact of which is partly offset by the improved underlying cash flow. Ladies and gentlemen, before going into Q&A, let me summarize. The upcycle is clearly gathering steam and end market strength is broadening. Structural growth drivers are proving to be very strong. AI momentum is unabated and Infineon is at the forefront of powering AI from grid to core. Our AI-related revenue will more than double this fiscal year and exceed EUR 1.6 billion in addition to the EUR 500 million of classic data center power. Our unrivaled portfolio, coupled with significant additional clean room space will propel growth, expect a material upgrade of our prediction for '27 in our November call. A significant portion of our future data center revenue is going to be covered by customers signing CRAs with us. Automotive is further improving, driven by structural content growth, share gains and inventory replenishment. Our third fiscal quarter came in fully in line with our guidance. Based on a bright business outlook, we expect a much better than seasonal Q4, 13% sequential growth to EUR 4.7 billion. The segment result margin expanding 400 basis points quarter-over-quarter, a strong finish of our 2026 fiscal year and a good point of departure for 2027. The opening of Dresden 4 and the closing of the acquisition of AMS OSRAM sensor portfolio are proof points of how we are actively positioning Infineon to capture profitable growth and create value.

Operator, please start the Q&A session. .

[Operator Instructions] And now we will take our first question. coming from Sandeep Deshpande from JPMorgan. .

I have 2 questions, if I may. Firstly, regarding your guidance on the margin in the fourth quarter, I mean when you had guided in the prior quarter -- prior quarter, the implicit margin was guided already for the fourth quarter. Has something changed from when you guided in the third quarter in terms of your cost structure or any other costs? And then secondly, can you quantify how this is playing through on the price increases are playing through on the margin into the fourth quarter? And I have a quick follow-up on the AI-related LTAs that you have signed. In terms of the AI-related LTAs, I mean, is there a particular target that the company has in terms of how much of the capacity that you are going to outlay over the next 3 years that you've talked about in the past will be signed up in terms of these LTAs?

Yes. Sandeep, thank you for your question. I take the first one, and then I give it to Jochen on AI. So on your question regarding the margin in Q4, implicit guidance, any change from Q3? The answer very easily is no. There is no material change. We had baked in a couple of positive effects from the price increases, but they are mainly contributing to next year. And we have also baked in into our forecast already the cost increases which we have seen with regard to the geopolitical situation around the Middle East. So no major change on that end.

The next question - Jochen...

Sorry. Sorry, I haven't answered the second part of Sandeep's question, my phone -- my microphone was muted. So coming to your question, Sandeep, we would target -- we would feel comfortable to target a high number, but we evaluate the discussions ongoing with the customers and -- but from our point of view, this is a win-win situation. For us, it's derisking. On the 1 hand, for the customer, it's security of supply. And very important, the prices for under the CRA are not fixed. It's a volume commitment, but not a price commitment. So prices will develop a long market price.

We take now the question from Johannes Schaller from Deutsche Bank. .

Just on the situation now with the CRAs and also specifically on AI. Could you comment a little bit on what you in Stage 2 with your processor customers. I mean there is a bit of a concern in the market that new players are coming in here. The space will become a bit more competitive -- maybe help us understand how confident you are on your market share outlook with the process of players and the revenue opportunity in euros also? And does new competition even matter given that the industry is so capacity constrained. And then as a second question, Jochen, you mentioned some supply constraints in the China auto semi space that could create some opportunities for you. I think that's quite different to, let's say, the market view out there, which is more that this phase is extremely competitive and there's a lot of supply. So maybe help us zoom in a little bit on that and give us some more color here.

Yes. Thank you, Johannes. If I may, I would like to ask which new processor companies do you have in mind? Do you are talking about ASICs ones? Or which ones are you talking about? .

No, sorry, new entrants on Stage 2 power supply. So competition...

From a competition point -- competitors of ours. .

Yes. Yes, exactly.

Got it. Yes. Competitor for others, I mean, obviously, made companies are seeing this big opportunity. and are trying to enter, but the hurdles are very high, right? It's about proven track record in terms of power stages. It's having the combination always with a power controller and right now again, they are trying -- but as we speak, we clearly see the typical incumbents in that market. So in the power stage 2, not really new competitors gaining significant business. . On the China auto side, I agree, it sounds at first counterintuitive. But what we do see right now, particularly in MOSFETs and analog parts, is that Chinese competitors cannot deliver because they are, to a good extent, linked up to foundries. And these foundries in China are shifting their supply also partially to AI. And they're also, again and again, quality missteps. So here, we are seeing a good opportunity to pick up more business. And of course, we will not do it only for a short run, but we want to have then a midterm commitment from customers.

So in terms of products, this is maybe let's call it also including some legacy applications, if you want to call that?

Well, it's MOSFET, so not the IGBT side. The IGBT side is still difficult, as I explained last time. It's MOSFET and analog parts and these analog power parts they go also into power distribution for software-defined vehicle. I wouldn't call it legacy, I would call it broad-based products that find multiple applications in the car, new ones and established applications. Verry broad.

The next question comes from Lee Simpson from Morgan Stanley. .

Great. Well done on the sales guide. Maybe if I just go back to a question on margins, if I could. I'm just trying to understand the 23% guide that you've given us for Q3 the moving parts are here because we do have a sense that there's some distant start-up costs to be absorbed there's probably underutilization. And really, I guess, we're trying to work out what the utilization rates could be? And how does this affect the run rate for that margin structure really importantly as we go into next year as well? And maybe my follow-up, if I could. Just want to understand the nature of the follow-on discussions around your LTAs, the new customers beyond those who have committed maybe the size and scale there. And equally, the size of prepayments that you're getting, is this $1 billion or $2 billion? Or is it the bigger number for the prepayments?

Okay. Lee, I take your question. It's not totally surprising. You asked a question about the margin in Q4. So let me help you here a bit. First of all, 1 thing you mentioned Module 4 ramp-up cost, no material inclusion in this year, that's next year. So the situation is as follows. If you look at the last quarter. It's a very dynamic growth environment we are in 4.2%. Now going to 4.7%. You also see it on the margin. We were in the high teens territory. Now we go to the mid-20s territory. So of course, in such a dynamic situation, you need to work with a set of assumptions. . And on the assumptions, I think you all know us pretty well. We tend to be a bit more on the conservative side of things in order not to under-deliver. So there are assumptions on growth. There are assumptions on the cost and price, as I just mentioned, there are, of course, assumptions on the balance we have talked about it in the last calls. -- about managing the inventories and loading the fabs in the best possible way in a situation where more and more products going into a location. So all that is included. And I mean, if you ask me, why is it only 23%, I would probably say that the 23% are TAT conservative and it could be 23% plus. But let's look at the quarter, how is it really coming in. There is a better fall-through than 50% included in the Q4. So let's see how much we will then really ship at the end of the quarter also revenue-wise and take it from there. And 1 last sentence, you are asking the question, not because you are so interested about Q4. You are asking the question, as you said, because you are very interested and hear your first news on '27. And maybe this is also part why we guide as we guide.

Good. And then I will take the opportunity on the CRA to make some broader statements because I guess others also have questions on that one. So first of all, for the CRAs, the target customers are AI processor makers as well as hardware providers for data centers, covering there for Stage 1 and Stage 2 products. We are currently in discussion or have finalized agreements with more than 10 customers. The essence of these agreements is that customers commit to of taking certain volumes over a period of several years. Penalty clauses ensure that customers have skin in the game. Key benefits for Infineon, obviously, customer commitments under derisk of AI capacities. The agreements are based on existing and already planned capacities. As such, they are firming up Infineon's projection of AI power growth. The CRAs are obviously not in the backlog. And again, prices are not fixed -- on the prepayments, I cannot comment on at this moment in time as we are still in negotiations with our customers. I hope that clarifies a couple of questions around the CRAs.

The next question comes from Didier Scemama from Bank of America.

I've got an additional question maybe on the CRA. First of all, I think it's really interesting that these developments are taking place a bit like we've seen in memory. So I just wanted to understand a couple of things from you, Jochen, if possible. What's the embedded assumption on pricing? I know that the pricing is sort of determined by the supply and demand in the future, but obviously, in your high single-digit billion you've got an assumption of pricing, should we assume flattish from here or down or up? I mean, that would be an interesting 1 for us to understand. . And then related to that, do you expect that high single-digit billion number to be revised higher in the coming quarters as you finalize your negotiation with other customers? .

So the first part, Andreas will take, and then I will answer the second. .

Yes, first and far most related to pricing and Infineon pricing overall. Already in our last earnings call, I talked about supply constraints in particular in our AI power business and visible impact on adjacent areas, leading to more favorable pricing environment. I then also said, we will adjust pricing to reflect market realities. Meanwhile, demand was outstripping and still continues to outstrip supply in several areas, no longer related to the entire AI power delivery chain only. But thus and walking the talk, we have informed our customers in these areas about the price increases is 2x. And the last time happened in July. We are seeing good traction for these measures overall as customers value delivery capabilities in today's situation, and the value we create with our products in the marketplace, a very, very decisive role. Full visibility of this in our P&L and in our margin, as Sven was alluding to However, we'll be there only from quarter 1 next fiscal year onwards. And I give it back to Jochen...

Thanks, Andreas. Didier on that question, let's say, -- the momentum is on our side with respect to your question on the high single-digit billion number. The momentum is on our side. I would not be surprised if that number is increasing, but we work now on those customers that have raised their hands and are interested. And then we will update you in the next quarter again. .

The next question comes from Joshua Buchalter from TD Cowen.

Congrats on the results. And I'll also use German efficiency and ask 2 questions at once. So I guess to start, can you speak to sort of how we should think about the linearity and maybe magnitude of addressing capacity coming online over the next few years. And was that 50% fall-through number specifically related to Dresden or should we think about all incremental revenue falling through at 50% moving forward? And then my second question, there's certainly been a lot of noise in both directions about 800-volt architectures in data center. Could you maybe speak to how either a slower or faster 800-volt adoption would change your AI content opportunities?

Josh, I take the first and the third, and follow through. I'll leave it to Sven. So Dresden as we said at the beginning, when we embarked on that project filling the fab would take 3 to 7 years. We are clearly now at the lower end of that range. So likely if the market demand is there, we can ramp double the speed as before, and that would take us below 3 years to complete the build-out with equipment. On the 800 volts, I mean I think it's known in the industry that 800 volts is nothing to pay around with. So there are some safety concerns. We do not see any material shift, but in case it comes, our bill of material, if I compare 800-volt C to 3 phase AC is incremental on the 800-volt DC side but not tremendously. So for us, it's not the biggest factor in our growth trajectory as we are very well in the -- on the PSU side. I think the question was whether the fall-through only applies to the Dreseden facility revenue altogether. And I think you always commented on overall numbers, not related to individual fabs. .

The next question comes from Jakob Bluestone from BNP Pariba.

I've got 2 questions as well. Firstly, just on the AI revenue guide. You've obviously put through a small hike for this year. And I just wanted to understand, is that from the early impacts of the price hikes starting to feed through and therefore, driving your guidance? Or are you actually already starting to see supply coming through more quickly than expected? And then just secondly, on your order book, you absurd a very strong backlog, EUR 30 billion at the end of the quarter, it was up EUR 5 billion Q-on-Q. Can you maybe just give us a little bit of color on how much of that relates to some of the inventory builds you mentioned? And how much would you sort of put more in the, I guess, more structural long-term cap.

Yes. Second question, I'm not quite sure whether I got it. But the first one, the 1.6 million, and again, we said above 1.6 billion. So it's now an operational task to squeeze out as much as possible in the quarter to serve the demand of our customers. So it's a mix of supply and pricing. But I would say for this quarter, it's more on supply side -- and again, let's see how the final number looks like, but we feel comfortable to overshoot or deliver more than the EUR 1.6 billion. And please always keep in mind you need to add this EUR 500 million to it. And the order backlog, I give it to Sven. .

Yes, Jakob, as far as I understand it, your question on the order backlog, you are asking how much of the order backlog increased is inventory build or more structural at customers. That's how I understood -- thank you for confirming. So the backlog increase is driven mainly by -- now again, I'm in the old divisional structure, but GIP, PSS and automotive did grow through these divisions, also following what Jochen has said in the intro think there's a really nice pickup in customer order entry on the GRP side. PSS, I don't think I need to comment AI and most products in allocation. And automotive, we said it in the intro, it's a combination of some market developments in China. -- some nice order momentum around the software-defined vehicles and some order replenishment, so it's a combination.