"Business was better in the second quarter than expected. Three out of four segments increased revenue," Infineon's Chief Executive Peter Bauer said in a statement on Thursday.

Infineon - whose customers include Japanese carmaker Hyundai, software maker Microsoft and the U.S. Government Printing Office - said it now sees full fiscal-year sales declining by a low single-digit percentage.

It previously saw a mid single-digit percentage decline.

Operating profit excluding special items rose 2 percent in the January to March period compared with the previous quarter to 144 million euros ($189.4 million), exceeding analysts' average forecast of 131 million in a Reuters poll.

The semiconductor industry hit a slump last year as demand for consumer gadgets slowed in Europe and elsewhere due to economic uncertainties at a time when vendors had invested heavily in new production gear.

Israeli mobile chip designer Ceva Inc on Wednesday cut its 2012 earnings and revenues estimates due to weaker-than-expected sales at key customer Nokia.

Infineon said its decision in 2010 to sell its wireless chip unit to Intel was paying off as it reduced its exposure to the volatile mobile phone market.

Infineon said its automotive unit, which accounts for 43 percent of revenue, continued to perform well, with unit sales up 9 percent from the previous quarter to 425 million euros.

The company also raised its full-year outlook for its operating margin, now expected at a mid-teen percentage, up from a previous forecast of a low to mid-teens percentage.

Second-quarter operating margin came in at 14.6 percent.

Infineon shares were marked up 1.4 percent in early Frankfurt trading, while the German blue chip DAX index was indicated to open 0.5 percent higher.

Infineon shares have gained almost 30 percent this year, outperforming the sector, which has won 7 percent.

The stock trades at a 12-month forward price-to-earnings ratio of 15.1, about 43.7 percent below its 10-year median.

($1 = 0.7603 euros)

(Editing by Mark Potter)

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