May 6, 2008

Stable business development in Q2, EPCOS reports positive half-year results

  • Sales: EUR 362 million; down 1 percent year on year; down 2 percent sequentially
  • EBIT: EUR 26 million (Q2 2007: EUR 28 million; Q1 2008: EUR 28 million)
  • Net income for the first half of fiscal 2008 up 22 percent year on year

1. Q2 2008


Demand was stable on the whole and in line with expectations in the second quarter of fiscal 2008 (January 1 through March 31, 2008). The slight sequential drop in sales is attributable primarily to seasonal effects.

Also as expected, earnings before interest and tax (EBIT) remained at the level of operative earnings in Q1 2008.


2. Sales


2.1. Comparison with Q1 2008

EUR millionQ1 2008± in %Q2 2008
Sales367-2362

Sales totaled EUR 362 million in Q2 2008, a sequential decline of 2 percent.


Weaker sales of products for mobile communication devices due to seasonal influences were the main reason for this decline. Conversely, sales increased to manufacturers of industrial electronics equipment in particular. In this market, the trend toward greater energy efficiency continues to fuel strong demand. Sales to distributors too have gained. Sales of products for automobile electronics and consumer electronics applications remained stable.

Regionally, sales in Germany posted a modest sequential gain, largely due to the positive sales trend to industrial electronics customers. Sales in the other regions declined slightly.

Sales by business segment

EUR millionQ1 2008± in %Q2 2008
Capacitors and Inductors134+6143
Ceramic Components130-2128
SAW Components103-1191

Driven by virtually all product groups, sales for the Capacitors and Inductors segment rose to EUR 143 million, an increase of 6 percent on the previous quarter.


Good sales of aluminum electrolytic capacitors for industrial electronics applications stood out, as did sales to distributors. EPCOS also sold more film capacitors to both of these industries served. Demand for inductors rose sequentially, especially from automotive electronics customers.


At EUR 128 million, sales for the Ceramic Components segment remained roughly stable.


In this segment the sales of thermistors and varistors (temperature- and voltage-dependent resistors) increased, as did also the sales of sensors and sensor systems for automotive and industrial electronics applications. The positive trend in sales of these products, however, was not enough to fully offset weaker demand for piezo actuators.


Sequentially, sales in the Surface Acoustic Wave (SAW) Components segment were down

11 percent to EUR 91 million.


The main reason is that the seasonal decline in demand in the mobile communications industry was more pronounced than usual.

2.2. Comparison with Q2 2007

EUR millionQ2 2007± in %Q2 2008
Sales365-1362

In Q2 2008, sales were 1 percent below the high figure posted for the same quarter a year ago. Year on year, the negative effect from currency translation totals about EUR 15 million. Adjusted for this effect, sales grew by a good 3 percent in the period under review.

The changes in sales to the individual industries served were in single-digit percentage range in all cases. Whereas EPCOS increased its sales of products for applications in industrial and automotive electronics, sales to customers in information and communication technology and consumer electronics declined, as did sales to distributors.


Regionally, the increase in sales to Europe without Germany roughly compensated for the decline in sales in Asia and the NAFTA region – in both cases mainly due to currency translation effects. In Germany, sales remained at the same level as the previous year.

Sales by business segment

EUR millionQ2 2007± in %Q2 2008
Capacitors and Inductors131+9143
Ceramic Components133-4128
SAW Components101-991

Year on year, sales for the Capacitors and Inductors segment rose 9 percent to EUR 143 million.


Almost all product groups contributed to this growth. An increase of more than 20 percent in sales of aluminum electrolytic capacitors stood out, as their demand was higher than a year ago primarily among manufacturers of household appliances and industrial electronics and among components distributors.


Overall, sales for the Ceramic Components segment were down 4 percent to EUR 128 million.


The growth in sales of sensors and sensor systems for automotive and industrial electronics applications was not sufficient to offset the decline in business with the other product groups in this segment.


Although unit sales rose by 6 percent, sales revenues for the SAW Components segment were down 9 percent year on year to EUR 91 million.


This segment is affected most strongly by currency translation effects relating to the weakness of the US dollar and the Japanese yen. The reason is that most customers for SAW products – primarily manufacturers of mobile communication devices and entertainment electronics equipment – operate in the US dollar and yen currency areas. Moreover, unfavorable exchange rates also put EPCOS under added price pressure. All in all, this resulted in an above-average year-on-year price erosion in the double-digit percentage range.

3. Earnings

3.1. EBIT by business segment

EUR millionQ2 2007Q1 2008Q2 2008
Capacitors and Inductors+5.3+9.9+10.0
Ceramic Components+10.4+7.2+10.1
SAW Components+12.0+11.3+5.6

The Capacitors and Inductors segment posted earnings before interest and tax (EBIT) of plus EUR 10.0 million in Q2 2008. The EBIT margin was 7 percent.


At Ceramic Components, EBIT rose sequentially to EUR 10.1 million and the EBIT margin to

8 percent.


Improved processes and ongoing portfolio adjustments at Ceramic Capacitors were largely responsible for this positive development.


The SAW Components segment saw EBIT decline to EUR 5.6 million and the EBIT margin to

6 percent.


The two main reasons for this decline in earnings were the lower sales volume due to seasonal influences and above-average price erosion. The latter was most pronounced for discrete SAW filters. To cut its costs still further, EPCOS is accelerating the ongoing relocation of production to Asia, and thus increasing its value-added in US dollar markets.


In addition, the earnings situation at SAW Components is affected by increased spending on research and development to grow the company’s competence in radio frequency (RF) technology.


EPCOS is expanding its portfolio of technologies and products to tap new growth markets. The most recent step in this context was the acquisition of the radio frequency micro-electromechanical systems (RF-MEMS) activities of NXP Semiconductors Netherlands B.V. (NXP) (see our press release dated April 28, 2008). In the future, RF-MEMS will help reduce the power consumption of mobile phones by up to 25 percent. With RF-MEMS technology EPCOS now opens up a new area of applications and increases the company’s share of value-added in mobile telephones. Moreover, MEMS technology also offers attractive growth opportunities outside the RF sector, for instance in microphones as well as pressure, acceleration and rotation-rate sensors. The new business opens up additional market potential to the company in the high triple-digit million-euro range.

By acquiring NXP’s RF-MEMS activities, EPCOS is accelerating the transformation from a manufacturer of primarily discrete components to a systems provider. Thus, EPCOS is laying the foundation to benefit even more strongly from the growth dynamics of the mobile communications market in the future, and to strengthen its position as the global market leader for SAW components.

3.2. Group earnings

EUR millionQ2 2007Q1 2008Q2 2008
EBIT+27.7+28.4+ 25.7
Net income+23.8+19.0+ 17.1
Earnings per share (in EUR, basic)+0.36+0.29+0.26

Group EBIT was EUR 26 million in Q2 2008, on a par with the operative level recorded in the preceding quarter.


Net income was EUR 17 million. Earnings per share were EUR 0.26.


A positive net cash flow of EUR 21 million was posted in the quarter under review.


Positive influences from net income, depreciation and a decrease in net working capital contributed to net cash of EUR 56 million provided by operating activities. Net cash of EUR 35 million was used in investing activities.

4. The first half of fiscal 2008

EUR millionFirst half of fiscal 2007± in %First half of fiscal 2008
Sales699+4729
EBIT+48.6+11+54.1
Net income+29.7+22+36.2
Earnings per share (EUR, basic) +0.45+22+0.55

In the first half of fiscal 2008 (October 1, 2007, through March 31, 2008), EPCOS increased its sales by 4 percent to EUR 729 million and improved its EBIT by 11 percent to plus EUR 54 million.


This positive result was achieved in spite of the strong euro and the resulting currency translation effects. EPCOS lost nearly EUR 30 million in sales (corresponding to 4 percentage points of growth) just from the direct translation of its sales in foreign currencies into the strong euro. The total effect of the translation of sales in foreign currencies and currency-related price erosion negatively impacts EBIT in the double-digit million euro range.


Net income rose to EUR 36 million and earnings per share increased to EUR 0.55, a gain of 22 percent in either case.

Net cash flow too increased to plus EUR 19 million in the six months under review (first half-year 2007: plus EUR 2 million).

5. Outlook


In the third quarter of fiscal 2008, EPCOS expects to see an improvement in sales to manufacturers of mobile communications devices and a sustained stable development in sales of products for industrial and automotive electronics. On the other hand, the weakening of the US dollar and the Japanese yen will likely cause an increase in negative currency effects. Sales and EBIT are therefore expected to remain at about the same level as in Q2 2008.


For fiscal 2008 as a whole, EPCOS still expects EBIT to improve to about EUR 110 million.

About EPCOS


EPCOS AG is a leading manufacturer of electronic components, modules and systems headquartered in Munich. With its broad portfolio EPCOS offers a comprehensive range of products from a single source and focuses on fast-growing and technologically demanding markets, in particular in the areas of information and communication technology, automotive electronics, industrial electronics and consumer electronics. The EPCOS Group has design and manufacturing locations and sales offices in Europe, Asia, and in North and South America.


Electronic components are found in every electrical and electronic product and are indispensable for their flawless operation. Products from EPCOS store electrical energy, filter frequencies, and protect against overvoltage and overcurrent.


In fiscal 2007 (October 1, 2006, to September 30, 2007), EPCOS posted sales of EUR 1.44 billion. At the end of the fiscal year, the company employed about 18,300 people worldwide.

N.B. All financial data has been compiled to IFRS and is not audited.


Live transmission of conference call


On May 6, 2008, the Management Board of EPCOS will inform analysts and investors of business performance in the second quarter of fiscal 2008 at a conference call starting at 12 noon, Central European Time, 6 a.m., US Eastern Standard Time. This conference can be followed live at the EPCOS corporate website (www.epcos.com/conferencecall). A transcript of the speeches will be available for downloading after the end of the conference call.


Further dates


Results for the third quarter of fiscal 2008 will be published on July 29, 2008.

This document may contain forward-looking statements with respect to EPCOS’ financial condition, results of operations, business, strategy and plans. In particular, statements using the words “expects”, “anticipates” and similar expressions, and statements with regard to management goals and objectives, expected or targeted revenue and expense data, or trends in results of operations or margins are forwardlooking in nature. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including changes in our customers’ industries, slower growth in significant markets, changes in our relationships with our principal shareholders, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, currency fluctuations, unforeseen environmental obligations, and general economic and business conditions. EPCOS does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.