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Due to the positive development of the market capitalization, the Siltronic share is rejoining the MDAX index today. After several months in the SDAX, the Siltronic AG share is once again represented in the second most important index of the German stock exchange. Additionally, Siltronic shares will remain part of the TecDAX.
Throughout the year, Siltronic’s share price was negatively impacted by the market weakness in the semiconductor industry, which led to its descent to the SDAX in June 2023. Since then, the share price has steadily recovered, and the company’s market capitalization has increased significantly.
Dr. Michael Heckmeier, CEO of Siltronic, commented on this development: “The re-inclusion of Siltronic in the MDAX reflects investors’ confidence in our future prospects and our continued growth. This underscores the robust share price performance of recent months.”
Siltronic’s inclusion in the MDAX is part of Deutsche Börse AG’s regular quarterly review. The decision is based on the market capitalization of the freely tradable shares, i.e. the free float market capitalization.
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The Executive Board of Siltronic AG expects a significant improvement in sales and EBITDA by 2028. Thus, the Group sales are expected to exceed EUR 2.2 billion by 2028 and the EBITDA margin to reach the high 30’s per-centage area. Based on the Group sales forecast for 2023, this corresponds to an increase in sales of more than 40 percent. The EBITDA margin will also improve significantly compared to the 28 to 30 percent forecast for 2023. The targets are based on stable overall price and exchange rate developments (EUR/USD: 1.10).
For the upcoming year 2024, Siltronic expects that at least the first half of the year will still be bur-dened by high inventories at chip manufacturers and their customers. On the earnings side, the start-up costs of the new production site in Singapore will have a negative impact on the company’s margin in 2024.
The confidence until 2028 is supported by the increasing relevance of global megatrends such as artificial intelligence, digitalization and electromobility. This will lead to a strong increase in demand for semiconductors and therefore also for wafers. For example, the wafer area required to manu-facture an AI-compatible server is up to eight times larger than that required for a conventional server. The wafer area required for electric vehicles is also 60 to 100 percent higher than for con-ventional combustion vehicles.
The increase in Group profitability will mainly be driven by the expected volume growth and higher cost efficiency, which will be significantly higher than the expected inflation-related cost increases.
Above-average growth in Siltronic’s focus activities
The company expects wafer demand to grow by an average of four to five percent per year until at least 2028 and a positive trend in all segments: Memory, Logic and Power. Growth is expected to be particularly strong for 300 mm wafers, especially in the leading edge area, as well as for wafers for Power applications. Siltronic should be able to benefit from these trends in particular thanks to its good market positions.
The company has made systematic preparations for the expected growth phase with high investments, especially for the construction of a new production fab for 300 mm wafers in Singapore (FabNext) and the improvement of the product mix in Freiberg, Saxony. At the beginning of November 2023, the first wafers were produced in Singapore – slightly earlier than planned. Production will be gradually ramped from the beginning of 2024. In view of the high level of automation and efficient cost structure, Siltronic is aiming for EBITDA margins of more than 50 percent for FabNext in the mid-term.
Siltronic is already characterized by a high level of resilience, which is reflected in its consistently solid margins even in difficult economic times. In addition to its high cost sensitivity, this is primarily due to its close customer relationships. The company has entered into long-term agreements with many of its customers, securing around two thirds of its sales.
“In view of the expected next growth phase driven by megatrends, we have defined medium-term targets for Siltronic up to 2028 against which we will be measured. Group sales are expected to increase to more than EUR 2.2 billion and the EBITDA margin to the high 30’s. Among other things, we will benefit from our new, highly efficient fab in Singapore, our technological leading position and our strength in the Power segment,” commented Dr. Michael Heckmeier, CEO of Siltronic AG, on the development.
Future use of capital focused on securing further growth opportunities, strengthening tech-nology leadership and reducing debt
Siltronic will make investments of around EUR 1.3 billion for the above-mentioned projects in 2023. However, as of September 30, 2023, the company maintains a robust financial position with an eq-uity ratio of 49 percent and holds in excess of EUR 500 million in cash and cash equivalents, along with financial assets.
This reflects a sound and secure financial and balance sheet structure. After reaching the peak of investment activity in 2023, expenditures are expected to noticeably decrease again by more than 50 percent in 2024 alone compared to the previous year. Siltronic will consist-ently invest the cash flows generated in the course of the planned targets in securing organic growth opportunities, expanding automation and digitalization, strengthening its leading technology position and further improving the quality of its balance sheet, including reducing debt.
This also includes a continued strong focus on research and development (R&D) in order to continue to utilize technology-driven competitive advantages in the future. In the medium term, between four and five percent of Group sales are to be invested in R&D activities.
“Despite the peak of our investments in 2023, we are in a very solid position with an equity ratio of almost 50 percent and a high liquidity reserve. From 2024, our capex will fall noticeably, but organic growth with the expansion of FabNext remains our top priority. In addition, we will use the expected cash flows from our growth plan until 2028 to strengthen our leading technology position and im-prove the quality of our balance sheet. This will create sustainable value for all our stakeholders,” adds Claudia Schmitt, CFO of Siltronic AG.
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Siltronic has updated its existing climate strategy and set ambitious targets to fulfill its role in the Paris Climate Agreement.
The company remains committed to reducing its direct (scope 1) and indirect greenhouse gas emissions from energy purchases (scope 2) to zero by 2045 at the latest. Despite continued growth and the associated significant increase in energy consumption, these greenhouse gas emissions are expected to be reduced by 42% by 2030 as compared to the 2021 base year.
With these targets, Siltronic is making its contribution to limiting global warming to a maximum of 1.5 degrees Celsius in accordance with the Paris Climate Agreement passed in 2015. For Siltronic, the 1.5-degree benchmark is the key reference point for the target years 2030 and 2045. The carbon intensity, measured by the CO2 emissions in relation to sales, is to be reduced by an average of at least 5 percent per year between 2021 and 2030.
“Increasing energy efficiency and thus reducing emissions has always been a core element of our corporate strategy. Our goal is to contribute as effectively as possible to the fight against climate change, and at the same time to support the global decarbonization through our products,” said Claudia Schmitt, CFO of Siltronic AG and responsible for the company’s sustainability activities.
Joining the RE100 underscores our commitment to renewable energy
To achieve the revised climate targets, Siltronic is committed to gradually increasing the use of renewable energy to 60 percent by 2030 and 100 percent by 2045. To reinforce its commitment to renewable energy, Siltronic joined the RE100 initiative in November 2023. RE100 is a global corporate initiative dedicated to the exclusive use of renewable energy. Through its membership, Siltronic aims to help eliminate one of the biggest obstacles to global decarbonization: the insufficient amount of green electricity available in many energy markets.
For Siltronic, this is particularly noticeable at its largest site in Singapore, where growth will be strongest in the coming years due to the gradual ramp of the new fab, which recently started test operations. Siltronic’s updated climate targets are conditional on the availability of renewable energy in Singapore to improve by 2030 and beyond. To this end, the company is in continuous dialog with decision-makers in Singapore.
Siltronic’s commitment to climate protection and the reduction of scope 3 emissions, meaning greenhouse gas emissions generated outside of Siltronic, also extends to the supply chain. The company will intensify its cooperation with suppliers in this regard in the future.
SBTi standards remain reference point, validation not pursued for now
In 2021, Siltronic defined targets in accordance with the Science Based Target Initiative (SBTi), which changed its criteria for the purchase of renewable energy in Q2 2023. Considering these revised requirements, the company feels compelled not to pursue the planned validation of the SBTi targets. At the same time, the SBTi criteria remain an important reference point for Siltronic.
The company continues to have its sustainability performance evaluated by independent third parties. To learn more about these and other sustainability practices, please visit https://www.siltronic.com/en/our-company/sustainability.html.
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Siltronic announced the production of the first wafers in its latest state-of-the-art 300 mm fab in Singapore. The production marks an important milestone in the strategic capacity expansion of Siltronic’s global production network.
“It fills me with immense pride to see the production of the first wafers from the line. This is a decisive milestone in the history of Siltronic. I am delighted to see that the test wafer production has started slightly ahead of schedule. I would therefore like to congratulate and thank all the employees and suppliers involved for their contributions. We look forward to supplying our customers with leading-edge wafers from this new state-of-the-art fab,” said Dr. Michael Heckmeier, CEO of Siltronic AG.
Despite many challenges, including the global pandemic and supply chain constraints, the construction of the new fab, which started in 2021, is on schedule and on budget. By the end of 2024, around 2 billion Euro will have been invested into this greenfield project. This will be followed by further investments on a smaller scale to further ramp the production.
The large-scale project covers an area of approximately 20 soccer fields. At peak construction times, more than 5,000 workers were on site for both construction activities and facilities installation. The fab is supported by approximately 5,500 piles which extend up to 60 meters into the ground. In total, 150,000 m³ of concrete and more than 35,000 tons of steel have been used.
In the mid-term, the new fab is expected to be highly cost efficient due to the high degree of automation and deployment of digitalization, coupled with its strategic proximity to the existing 200- and 300 mm fabs in Singapore, which will lead to economies of scale and synergies.
The new fab will serve both medium and long-term demand growth in the semiconductor market, which is driven by megatrends such as digitalization, artificial intelligence, and electromobility. As originally planned, the production ramp phase will commence from the beginning of next year.
“The trust and support of our customers has been a key factor for this investment. In the ramp phase, sales from the new fab have been secured to a high degree by long-term agreements. Customers have also contributed significantly to the initial financing of the fab through prepayments,” added Claudia Schmitt, CFO of Siltronic AG.
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This week, Siltronic welcomed high-ranking representatives from the Singapore Economic Development Board (EDB) to its Munich headquarters. The delegation, led by Chairman Mr. Png Cheong Boon, included five members of the EDB. This visit underscores the ongoing strong international collaboration with the EDB.
Over the years, Siltronic’s partnership with the EDB has been characterized by strong support and cooperation in many areas, such as workforce development, labor market support, infrastructure development, as well as investment support.
During the meeting, both parties reiterated their shared commitment to collaboration in these vital areas and engaged in discussions regarding strategies for decarbonization.
Siltronic’s latest state-of-the-art 300 mm fab is the largest investment ever made by a German company in Singapore. It showcases the commitment to strengthen and expand the positive relationships with our Singaporean partners.
Dr. Michael Heckmeier, CEO of Siltronic AG, expressed his pleasure to meet the EDB team in person. “The collaboration between Siltronic and the EDB over the years has created significant results. We are proud of these positive collaborative outcomes and look forward to the future.”
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As expected, the business performance of Siltronic AG in Q3 2023 was marked by weaker demand from the semiconductor industry. Quarterly sales were EUR 349.1 million, 13.5 percent lower than the previous quarter (Q2 2023: EUR 403.7 million).
Despite a noticeable decline in wafer volumes, sales prices continued to be stable. Thanks to this development, the EBITDA margin in the reporting quarter remained at a solid level of 28.4 percent and even reached 29.6 percent after nine months. As the Executive Board expects a slight improvement in Q4 compared to Q3, the annual outlook is confirmed and specified within the communicated range: Group sales for the financial year 2023 are expected to be between 15 and 17 percent below the previous year’s value (exchange rate EUR/USD 1.10), and the EBITDA margin is expected to reach a value between 28 and 30 percent.
Driven by the megatrends artificial intelligence, digitalization, and electromobility, Siltronic is preparing for the next growth phase. The company is well-prepared for this with the expansion of global production capacities in Singapore and investments to improve the product mix in Freiberg.
“Despite the expected decline in wafer demand, Siltronic achieved a solid EBITDA margin of 28.4 percent in Q3. Thanks to the continued stable sales prices for our wafers, we are confident in achieving a respectable EBITDA margin between 28 and 30 percent for the full year. To further support the expected growth in the semiconductor industry in the coming years, we are investing in our new fab in Singapore and are close to producing the first wafers,” commented Dr. Michael Heckmeier, CEO of Siltronic AG, on the development.
Business Development in Q3 2023
Siltronic generated sales of EUR 349.1 million in Q3 2023, down by 13.5 percent compared to the previous quarter (Q2 2023: EUR 403.7 million). After nine months, the company reported sales of EUR 1,157.2 million, down 13.2 percent year-on-year (Q1-Q3 2022: EUR 1,333.2 million). This development was due to the lower wafer area sold. Sales prices remained stable compared to the previous periods and FX changes also had no
significant impact.Cost of sales decreased by 9.7 percent in Q3 2023 compared to the previous quarter and decreased by 2.7 percent in the first nine months of 2023 compared to the period January to September 2022. The decline in sales was more pronounced than the reduction in cost of sales, both quarter-on-quarter and year-on-year. In the quarterly comparison, this is mainly due to increased depreciation.
In a year-on-year comparison, the most important reasons for the disproportionately low reduction in cost of sales are a reduced dilution of fixed costs, higher depreciation and cost increases in labor costs, raw materials and supplies. As a result, the gross profit fell by EUR 25.4 million compared to the previous quarter and by EUR 151.9 million compared to the previous year. The gross margin fell from 33.4 percent to 25.3 percent year-on-year. Q3 includes positive currency effects of EUR 9.9 million (Q2 2023: EUR 6.3 million), which are shown in the balance of other operating income and expenses.
EBITDA in Q3 was EUR 99.1 million and thus EUR 19.5 million below the previous quarter (Q2 2023: EUR 118.6 million). The EBITDA margin remained at a good level of 28.4 percent (Q2 2023: 29.4 percent). After nine months, Siltronic reported EBITDA of EUR 342.8 million (Q1-Q3 2022: EUR 503.5 million – comparable: EUR 453.5 million) and an EBITDA margin of 29.6 percent (Q1-Q3 2022: 37.8 percent – comparable: 34.0 percent). It should be noted that a one-off termination fee of EUR 50.0 million was received in Q1 2022 as a result of the failed tender offer by GlobalWafers.
Due to the lower EBITDA and higher depreciation and amortisation, EBIT amounted to EUR 46.4 million in Q3 (Q2 2023: EUR 70.3 million) and to EUR 194.5 million after the first nine months (Q1-Q3 2022: EUR 370.8 million). Net profit for the quarter was EUR 35.1 million (Q2 2023: EUR 61.4 million) and earnings per share were EUR 1.10 (Q2 2023: EUR 1.83). Net income for the period from January to September was EUR 169.0 million (Q1-Q3 2022: EUR 315.8 million) and earnings per share of EUR 5.13 after EUR 9.46 in the same period of the previous year.
Continued good balance sheet quality as a basis for financing investments
With an equity ratio of 49.3 percent as of September 30, 2023 (December 31, 2022: 51.0 percent), Siltronic continues to have a good balance sheet quality. In the first nine months of the financial year, EUR 51 million more customer prepayments were received than refunded. In addition, the last tranche of a loan to finance our investments was drawn in Q3, as planned.
“Our balance sheet reflects a favourable equilibrium, as about half of our capital is equity. The financing of our new fab in Singapore is based on a broad foundation. This consists of high customer prepayments, which were negotiated within the framework of the long-term agreements concluded. In addition, the financing is based on Siltronic’s sustainable and solid cash flows and the concluded debt financing,” adds Claudia Schmitt, CFO of Siltronic AG.
Cash and cash equivalents and financial investments fell by EUR 542.8 million to EUR 508.1 million in the first nine months of 2023. This was due to payments for capital expenditure including intangible assets of EUR 904.6 million for the construction of the new 300 mm fab in Singapore and the distribution of the dividend to the shareholders of Siltronic AG of EUR 90.0 million.
The cash outflows were offset by cash inflows in the same period of EUR 324.3 million from the cash flow from operating activities. Due to the high investments, the net cash flow, which does not take into account the inflows and outflows from prepayments, was negative at EUR -631.3 million, as expected. This primarily led to Siltronic reporting net financial debt of EUR -315.7 million at the end of September 2023.
Outlook 2023 confirmed and specified: Group sales expected to be 15 to 17 percent below the previous year and EBITDA margin between 28 and 30 percent
In view of the Q3 2023 development, which is in line with expectations, the Executive Board has confirmed the full-year guidance communicated in H1 2023 and confirmed it at the upper end of the range. Even though the end of the weaker demand due to inventory corrections by chip manufacturers and their customers is not expected in Q4 2023, sales in Q4 2023 are expected to be higher than in Q3.
Therefore, Siltronic continues to expect wafer volumes to decline by around 15 percent year-on-year in 2023. Sales prices are expected to remain stable. Accordingly, the full-year guidance has been concretised and group sales are now expected to be 15 to 17 percent (exchange rate EUR/USD: 1.10) below the previous year’s record level of EUR 1,805.0 million. We expect that the increased inventories will also have an impact into the year 2024.
The EBITDA margin in 2023 is also forecast to be significantly lower at 28 to 30 percent, but at the upper end of the range guided in July. In addition to the reduced sales volume, which at the same time leads to a lower dilution of fixed costs, higher costs of less than EUR 40 million due to inflation as well as the aforementioned one-time effect from the previous year contribute to the decline. The stronger euro year-on-year is weighing on the operating result, but Siltronic can expect a positive result from currency hedges in 2023, after a negative contribution in the previous year. The tax rate is expected to be around 15 percent in 2023.
As already communicated in H1 2023, capital expenditure including intangible assets is expected to be at a level of approximately EUR 1.3 billion (2022: EUR 1,074 million). In 2024, Capital expenditure including intangible assets is expected to decrease significantly by more than half. Depreciation is expected to be around EUR 200 million in the financial year.
Megatrends such as artificial intelligence, digitalisation and electromobility form the basis for the expected medium- to long-term growth spurt
Due to the rapidly increasing number of end applications based on megatrends such as artificial intelligence, digitalisation and electromobility, which will lead to a noticeable increase in wafer demand, Siltronic sees great growth potential in the medium and long term. The company is systematically preparing for this by investing heavily in its global production network. The main focus of expenditure is on building up new production capacities in Singapore (FabNext). Siltronic has also invested heavily in improving its product mix. For example, the extension of the crystal pulling hall in Freiberg was successfully inaugurated in September.
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Siltronic AG officially inaugurated the extension to its crystal pulling hall at the Freiberg site. The new production area provides space for the latest generation of crystal pulling systems, which are used to produce silicon monocrystals for wafer production under cleanroom conditions. In total, several hundred million euros were invested in the construction and around 60 jobs were created.
“This investment is a clear commitment to our Saxon location. In addition, the modernization helps us to maintain our position as one of the world’s technology leaders and it strengthens our position as the only major Western wafer manufacturer”, said Dr. Michael Heckmeier, CEO of Siltronic AG, at the opening. The Freiberg site in Saxony is one of four production sites of the group, which manufactures in Germany, Singapore and the USA.
With a usable area of 20,000 square meters, the extension building is almost as large as three soccer fields. Here, man-sized silicon monocrystals are produced in a process that takes five to seven days. The so-called ingots have a diameter of around 300 millimeters and weigh several hundred kilograms. In a complex process under cleanroom conditions, they are processed into wafers – extremely thin slices of silicon. Siltronic’s customers use the wafers to manufacture microchips, which can be found in everyday items such as tablets, smartphones and electric cars, as well as wind turbines and aircrafts. The semiconductor industry is receiving tailwind from the megatrends of artificial intelligence, digitization and electromobility.
Siltronic has invested more than one billion euros at the site since acquiring Freiberger Elektronikwerkstoffe GmbH in 1995. “With our investments, we believe we are well prepared for the future, to be at the forefront in a challenging market environment,” Heckmeier explained. Currently around 1,000 people are employed at the site in Freiberg, Saxony.
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