Infineon reports results for the third quarter of the 2008 fiscal year

Neubiberg, Germany – July 25, 2008 – Infineon Technologies AG (FSE/NYSE:IFX) today reported results for the third quarter of the 2008 fiscal year, ended June 30, 2008.

Infineon’s revenues in the third quarter of the 2008 fiscal year were Euro 1,029 million, down two percent sequentially and up two percent year-over-year. The sequential decline reflects a decrease of revenues in the Automotive, Industrial & Multimarket segment. Excluding effects from currency fluctuations, primarily between the U.S. dollar and the Euro, and acquisitions and divestitures, revenues increased one percent sequentially and six percent year-over-year.

Infineon EBIT was Euro 71 million in the third quarter, up from Euro 36 million in the prior quarter. Infineon EBIT in the third quarter included a net gain of Euro 41 million, mainly in connection with the sale of the Hard Disk Drive (HDD) business to LSI. Infineon EBIT in the third quarter also included Euro 7 million for the amortization of acquisition-related intangible assets related mainly to the business acquired from LSI. Infineon EBIT in the second quarter included net charges of Euro 8 million, and Euro 5 million in amortization of such acquired intangible assets. For additional detail on net gains and charges included in Infineon EBIT, please see the table on page 9 of this release.

Net income from continuing operations for the third quarter was Euro 45 million, resulting in basic and diluted earnings per share of Euro 0.06. For the second quarter, net income from continuing operations was Euro 19 million, and basic and diluted earnings per share were Euro 0.03.

The net loss from discontinued operations was Euro 637 million for the third quarter. This loss included Infineon’s share in Qimonda’s net loss, as well as charges of Euro 411 million from the write-down of Qimonda to its estimated fair value less costs to sell. Basic and diluted loss per share from discontinued operations was Euro 0.85.

For the third quarter, Infineon reported group net loss of Euro 592 million, and basic and diluted loss per share of Euro 0.79.

From March 31, 2008, the financial reports of Infineon focus on the ongoing operations of the company. As a result, the assets and liabilities of Qimonda have been reclassified as held for disposal in the condensed consolidated balance sheets, and the individual line items in the condensed consolidated statements of operations reflect the results of Infineon’s segments excluding Qimonda. The results of operations of Qimonda are reported in one line item titled “ Income (loss) from discontinued operations, net of tax”. In addition, earnings per share as well as the statements of cash flows differentiate between “continuing” and “discontinued” operations.

Infineon’s outlook for the fourth quarter of the 2008 fiscal year

For the fourth quarter of the 2008 fiscal year, Infineon expects revenues to increase by a mid single-digit percentage compared to the third quarter. However, the company notes that market risks in general are likely to rise and that the persistent weakness of the U.S. dollar against the Euro is adding to normal price declines in the company’s markets. The company anticipates Infineon EBIT, excluding net gains or charges, to remain stable or decline slightly. Infineon EBIT in the fourth quarter will include temporarily increased costs, as shipments of DRAM wafers out of Infineon’s 200-millimeter wafer facility in Dresden, Germany, to Qimonda came to an end in the third quarter. In connection with the company‘s IFX10+ cost-reduction program, the company expects to record significant net charges in the fourth quarter.

Infineon’s cost-reduction program IFX 10+

Addressing rising risks in the current market environment, adverse currency trends as well as below benchmark margins, Infineon has implemented its cost-reduction program “IFX10+” in the third quarter of the 2008 fiscal year. From the third quarter of the 2008 fiscal year to the fourth quarter of the 2009 fiscal year, assuming a continuation of current market conditions and an exchange rate of U.S. dollar 1.55 against the Euro, IFX10+ is expected to yield at least Euro 200 million of annualized savings.

To achieve those cost savings, measures have been defined in the following areas:

• Product portfolio management to eliminate unprofitable or insufficiently profitable product families and to increase efficiency in Research & Development (R&D) 
• Reduction of manufacturing costs and optimization of the value chain 
• Improved efficiency of processes and tasks in the fields of G&A, R&D and marketing & sales
• Re-organization of the company’s structure along its target markets. Effective October 1, 2008, Infineon will be organized into five divisions: Automotive,  Chipcard & Security, Industrial & Multimarket, Wireline Communications and Wireless Solutions.

Taking into account the levels of risk in the current market conditions, the adverse foreign exchange rate development and the requirements of the re-organization of the company, headcount reductions will be inevitable. Infineon must adapt its size to today’s market conditions. In the course of the implementation of these measures, it will be necessary to reduce headcount by a gross figure of approximately 3,000 employees. This figure refers to all sites, functions and levels across the company.

“Third quarter results illustrate that we are driving growth and margins in our core business. On a year-over-year comparison, both revenues and Infineon EBIT improved, despite a 21 cent weakening of the U.S. dollar against the Euro”, said Peter Bauer, CEO of Infineon Technologies AG. “As we seek to continue on this path despite adverse exchange rate trends and increasing risks in the overall economic environment, we have implemented our IFX10+ cost-reduction program and have accelerated all activities of cost reduction and margin improvement. Within five quarters, we expect to realize at least Euro 200 million in annualized savings that should pave the way for continued profitability and EBIT margin improvement.”

Additional details concerning the outlook can be found in the segments’ sections below.

Segments’ third quarter performance and outlook

Automotive, Industrial & Multimarket (AIM)

In the third quarter of the 2008 fiscal year, the Automotive, Industrial & Multimarket segment reported revenues of Euro 712 million, down 4 percent sequentially and 5 percent year-over-year. The sequential decline was mostly due to the impact of the weakening U.S dollar, the weak U.S. automotive business and the deconsolidation of the HDD business, effective April 25, 2008. Excluding the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and acquisitions and divestitures, segment revenues decreased one percent sequentially and rose five percent year-over-year. Segment EBIT was Euro 106 million compared to Euro 69 million in the second quarter. Included in the segment’s EBIT for the third quarter of the 2008 fiscal year was a net gain of Euro 43 million, primarily resulting from the sale of the HDD business to LSI. Net gains and charges included in the segment EBIT for the second quarter were negligible. In the third quarter, Infineon has acquired Primarion, a digital power company headquartered in California.

Results in the Automotive business decreased compared to the prior quarter as ongoing weakness in demand from U.S. car manufacturers could not be offset by continued solid demand in the European and Asian markets. In the Industrial & Multimarket business, revenues were relatively flat compared to the last quarter, despite a more moderate environment in the consumer, computing and telecom markets. Demand for high-power products remained strong. The results of the Security & ASICs business decreased compared to the second quarter, as anticipated, mostly due to the expected normalization in demand for chip card ICs as well as the deconsolidation of the HDD business following its sale to LSI.

Automotive, Industrial & Multimarket’s outlook for the fourth quarter of 2008 fiscal year

In the fourth quarter of the 2008 fiscal year, Infineon expects revenues of its Automotive, Industrial & Multimarket segment to increase by a mid single-digit percentage compared to the third quarter. The increase will be driven mostly by normal seasonality in the industrial & multimarket business. Segment EBIT margin is expected to be in the range of 9 to 10 percent, excluding net gains or charges.

Revenues in the segment’s Automotive business are expected to remain broadly unchanged compared to the third quarter despite continued weakness in the U.S. automotive market. Revenues in the Industrial & Multimarket business are anticipated to increase. Results in the Security & ASICs business are anticipated to increase slightly compared to the prior quarter, driven by the chip card IC business. The ASIC business is expected to remain flat sequentially.

Communication Solutions (COM)

In the third quarter of the 2008 fiscal year, revenues in the Communication Solutions segment were Euro 313 million, up 4 percent compared to the prior quarter and up 21 percent year-over-year. Excluding the effects of currency fluctuations, primarily between the U.S. dollar and the Euro, and the contributions from the mobile phone business acquired from LSI and the DSL CPE activities acquired from Texas Instruments, segment revenues increased eight percent sequentially and nine percent year-over-year. Segment EBIT for the third quarter was negative Euro 30 million, compared to negative Euro 29 million in the prior quarter. Despite the positive effect of the revenue increase, segment EBIT was held back by customization expenses relating to the ramp of new mobile phone platforms. Segment EBIT contained no significant net gains or charges in either quarter. Included in the segment EBIT for the third quarter was amortization of acquired intangible assets of Euro 7 million relating mainly to the mobile phone business acquired from LSI, compared to Euro 5 million for the second quarter.

In the wireless business, revenues increased compared to the second quarter, mainly due to the ramp-up of the HSDPA mobile phone platform. Results in the broadband business increased slightly, driven by the infrastructure business.

Communication Solutions’ outlook for the fourth quarter of the 2008 fiscal year

In the fourth quarter of the 2008 fiscal year, revenues in the Communication Solutions segment are expected to increase to a range of Euro 330 million to Euro 350 million. This increase reflects mainly the continued ramp-up of the company’s HSDPA mobile platform solutions. The broadband business is anticipated to remain broadly unchanged compared to the third quarter. Segment EBIT loss, excluding net gain or charges, is expected to improve, driven by the revenue increase.

Other Operating Segments / Corporate and Eliminations

EBIT in Other Operating Segments and Corporate and Eliminations in the third quarter did not include any significant net gains or charges. In the second quarter, EBIT in these segments included charges of Euro 8 million, mainly in connection with restructuring.

Other Operating Segments / Corporate and Elimination’s outlook for the fourth quarter of the 2008 fiscal year

In the fourth quarter, Infineon expects revenues in Other Operating Segments to decline compared to the third quarter as shipments of DRAM wafers out of Infineon’s 200-millimeter wafer facility in Dresden to Qimonda came to an end in the third quarter. EBIT excluding net gains or charges for Other Operating Segments and Corporate and Eliminations combined is anticipated to be approximately negative Euro 20 million. Included in the combined EBIT will be temporarily increased costs in connection with the 200-millimeter wafer facility in Dresden. In connection with the company‘s IFX10+ cost-reduction program, net charges are expected to be significant in the fourth quarter.

Qimonda

In preparation for the ultimate disposal of Qimonda AG, Infineon has reclassified the assets and liabilities of Qimonda as held for disposal in its condensed consolidated balance sheets beginning on March 31, 2008. With this decision, the individual line items in the condensed consolidated statements of operations on page 8 of this release reflect Infineon’s continuing operations without Qimonda. All results relating to Qimonda are reported in the line item “Income (loss) from discontinued operations, net of tax”.

For the third quarter, the net loss from discontinued operations was Euro 637 million. This loss included Infineon’s share in Qimonda’s net loss, as well as charges of Euro 411 million from the write-down of Qimonda to its estimated fair value less costs to sell. Basic and diluted loss per share from discontinued operations was Euro 0.85 for the third quarter. Infineon’s beneficial ownership interest in Qimonda as of June 30, 2008 was 77.5 percent.

Major business highlights of Infineon’s segments in the third quarter of the 2008 fiscal year can be found in this document after the financial tables.

All figures are preliminary and unaudited.

Analyst and press telephone conferences

Infineon Technologies AG will conduct a telephone conference (in English only) with analysts and investors on July 25, 2008, at 10:00 a.m. Central European Summer Time (CEST), 4:00 a.m. Eastern Daylight Time (U.S. EDT), to discuss operating performance during the third quarter of the 2008 fiscal year. In addition, the Infineon Management Board will host a telephone conference with the media at 11:30 a.m. (CEST), 5:30 a.m. (U.S. EDT). It can be followed in German and English over the Internet. Both conferences will be available live and for download on the Infineon web site at http://corporate.infineon.com.

IFX financial calendar (*preliminary date)

• Dec 03, 2008*: Earnings Release for the Fourth Quarter and Full 2008 Fiscal Year
• Feb 12, 2009*: Annual General Meeting of Shareholders

New in the IFX pod cast section at www.infineon.com/podcast  

• Fixed Mobile Convergence
• Exploring exposure: sophistication of the exposure process in the semiconductor industry

D I S C L A I M E R

This discussion includes forward-looking statements about our future business. These forward-looking statements include statements relating to future developments in the world semiconductor market, including the market for memory products, Infineon’s future growth, the benefits of research and development alliances and activities, our planned levels of future investment in the expansion and modernization of our production capacity, the introduction of new technology at our facilities, the continuing transitioning of our production processes to smaller structure sizes, cost savings related to such transitioning and other initiatives, our successful development of technology based on industry standards, our ability to offer commercially viable products based on our technology, our ability to achieve our cost savings and growth targets, and any potential disposal of our interest in Qimonda. These forward-looking statements are subject to a number of uncertainties, including trends in demand and prices for semiconductors generally and for our products in particular, the success of our development efforts, both alone and with our partners, the success of our efforts to introduce new production processes at our facilities and the actions of our competitors, the availability of funds for planned expansion efforts, the outcome of antitrust investigations and litigation matters, the success of any corporate activities we may undertake with respect to our interest in Qimonda, as well as the other factors mentioned herein and those described in the “Risk Factors” section of the annual report of Infineon on Form 20-F filed with the U.S. Securities and Exchange Commission on December 7, 2007. As a result, our actual results could differ materially from those contained in the forward-looking statements. Infineon does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.

Infineon Technologies AG, Neubiberg, Germany, offers semiconductor and system solutions addressing three central challenges to modern society: energy efficiency, communications, and security. In the 2007 fiscal year (ending September), the company reported sales of Euro 7.7 billion (including Qimonda sales of Euro 3.6 billion) with approximately 43,000 employees worldwide (including approximately 13,500 Qimonda employees). With a global presence, Infineon operates through its subsidiaries in the U.S. from Milpitas, CA, in the Asia-Pacific region from Singapore, and in Japan from Tokyo. Infineon is listed on the Frankfurt Stock Exchange and on the New York Stock Exchange (ticker symbol: IFX). Infineon currently holds a 77.5 percent equity interest in Qimonda AG, a leading supplier of DRAM memory products. Qimonda is separately listed on the New York Stock Exchange under the ticker symbol “QI”.