Siltronic AG

Thank you, operator, and welcome everybody to our Q1 results presentation. With me are Chris Von Plotho, our CEO; and Rainer Irle, our CFO.

Following our procedure, Chris will start with some remarks on current developments and group results, Rainer will then comment on the key financials and Chris will follow again with updating you on our guidance and current market developments. After the introduction, we will be happy to take your questions.

Please note that the presentation contains the usual Safe Harbor statement and applies throughout the call and the presentation. Today, we have published all documents relating to our Q1 2020 reporting.

They are available on our website. And I'll now turn the call over to Chris for opening remarks.

Good morning, ladies and gentlemen. Let's start with the topic which is on everybody's mind nowadays, the coronavirus.

We at Siltronic take this situation very seriously and have implemented preventive measures as health and safety of all our employees, customers, and partners are all our top priority since the outbreak, we suspended basically all business travels, restricted visitors on sites, and implemented measures to limit physical interaction like home office and clear physical separation of shifts in production in order to reduce the risk of a community spread. At the same time, we maintain efficient and secure interactions within our company and with our customers and partners like videoconferencing, Webex and other means.

We operate in compliance with recommendation from relevant authorities and proactively support our employees to prevent risk of contamination. We have a few justified suspected cases and even less confirmed COVID-19 cases, all of which showed mild symptoms.

There was no single case of an employee who had to be treated in hospitals. All the affected employees are already back to work.

As a result of the preventive measures taken by Siltronic, our production size has not had any disruptions or shutdowns so far. In Germany, special approvals are not needed and production is running smoothly.

Our Portland fab is exempt from the shelter-in-place order of the State of Oregon. Also our Singapore fab is allowed to continue to run the production as usual.

But we experienced some challenges in the recent weeks. First, the borders to Malaysia was closed.

At that time we catered for accommodation in Singapore for our workers from Malaysia, but after a few weeks some of them wanted to go back to their families. Luckily we were able to almost compensate in both cases reduced number of operators by employing more Singaporean locals.

Now you might have heard that Singapore is currently having a problem with corona spreading in dormitories for foreign workers. All our foreign workers in Singapore live in apartments or hotels and nobody is in a dormitory.

We also experience currently some delays in investment projects as our engineers are not able to travel in order to start up equipment, but we are able to mostly finish our capacity expansion projects. And we face some headwinds in freight costs.

Pre-corona, more than half of our airfreight was transported by passenger planes and the rest by cargo planes. Today, passenger traffic is down by 95% while airfreight is down too, but to a far lesser extent.

We have to find new routes and are facing premium freight costs. The good news is, we found solutions for all shipments of wafer between our size and all wafer shipments to our customers.

Customers are happy, but the costs are up. Siltronic actually started quite well into the year 2020.

Our Q1 sales are only slightly below Q4 last year and comparable to the third quarter of 2019. Logic is doing well with strong foundry business, strong further growth in inventory levels being okay.

Memory on the other hand is still a challenge independent of corona. DRAM inventories at customers are still elevated despite a slow decline we have seen in recent months.

In NAND, inventories are close to normal levels, but we did not see it coming down further in the recent months. Silicon demand for automotive is still okay in Q1, but with production shutdowns of car producers in Europe and some other parts of the world we expect a deteriorating environment ahead of us.

In Q1 300 millimeter EPI and 200 polished and 200 float zones were really strong. 200 EPI was improving, 300 polished was still weak, but stable.

Smaller diameters up to 150 was still weak even though the amount for SD [ph] grew a little bit. As expected ASP quarter-on-quarter came slightly down the development we already saw in Q3 and Q4 of last year.

However, let me emphasize again that we see more price pressure on smaller diameters for example 150 and below and currently we see the price declines are slowing down. Now, let's have a look at our key financials.

Q1 came in a little bit better than expected. Our sales were driven to €300 million, only 1.4% down compared to prior quarter.

This was driven by higher demand for wafer area which could nearly compensate declining ASPs. Our EBITDA came in at €84 million.

EBIT was down to €53 million. CapEx was €46 million after €96 million in Q4 of last year.

It mainly relates to our capacity expansion projects. Net cash flow increased to €41 million compared to €9 million in the last quarter of 2019.

Our net financial assets stood at €588 million at the end of March. Rainer will now explain in more detail our financial performance in Q1.

Yes, thank you, Chris and welcome, everybody. Business in Q1 was a bit stronger than expected.

As Chris pointed out, higher volumes could almost compensate the decline in ASP. Sales reached €300 million and was thus only 1.4% down quarter-on-quarter.

FX had basically no impact. Due to the higher sales volume, cost of sales increased quarter-on-quarter to €211 million.

However, cost of sales per wafer area was down as we saw some nice productivity improvements. Our gross profit in Q1 declined to €89 million.

Gross margin came down from 32% to 30% quarter-on-quarter. Our selling, R&D and admin expenses were €33 million were on a stable level compared to prior quarters.

Next slide shows our FX exposure and sensitivity. FX had no major impact quarter-on-quarter.

The negative implication from currency effects like hedging added up to a negative €3.4 million in Q1 compared to negative €4.2 million in Q4 of last year. Lower ASP quarter-on-quarter weighed on our profit.

Our EBITDA in Q1 came in at €84 million. The EBITDA margin went down quarter-on-quarter from 30% to 28%.

EBIT in Q1 came in at €53 million with a margin of 18% compared to 19% in Q4. The reason of that EBIT decline was softer than EBITDA decline was lower depreciation quarter-on-quarter because we had in Q4 a small impairment charge relating to unused equipment in smaller diameters.

In the remaining quarters of 2020 depreciation will go up a bit. Tax rate in Q1 was only 3% and exceptionally low.

You will remember in Q4 we released deferred tax assets which led to an additional tax expense of roughly €20. In Q1 we saw deferred tax income and some text relief relating to corona in the U.S.

in Q1. The sharp decline in income tax leads a net profit of €46 million in Q1.

Earnings per share came in at €1.32. Working capital went up in Q1 as expected.

Inventories were roughly stable quarter-on-quarter. Receivables were down by €7 million due to DSO down in Q1.

Trade liabilities were down by roughly €60 million due to lower CapEx levels. Looking at our balance sheet, equity was about €1 billion at the end of March.

Equity ratio improved to 53%. The increase compared to the end of 2019 is attributable to the profit minus the interest related change in pension obligations of €80 million, positive factor.

The pension provision in Germany was discounted at 1.92% as of March 2020 versus 1.24% as of December 2019. In the U.S.

the interest rate came slightly down from 2.88%. Net financial assets were basically stable at €588 million.

CapEx in Q1 was €46 million, most of it related to our 300 millimeter capacity expansion projects. Due to travel restrictions and travel bans some equipment put into operation as engineers were not able to oversee the start of operations.

We expect to see further restrictions on construction activities going forward particularly in Singapore. There will be shift of from H1 into H2.

The guidance stands at €200 million. Our operating cash flow in Q1 came in at €86 million falling €101 million in Q4.

We refunded €22 million of customer prepayments in Q1. Cash flow for CapEx came down from €88 million in Q4 to €66 million in Q1.

Net cash flow in Q1 was €51 million [ph] a strong first quarter as usual. And with that, I would like to hand over to Chris again.

Thank you, Rainer. Let's now have a look at the outlook and as we see it of today.

Currently our Q2 looks good. We did not see any significant reduction in customer demand.

However, we assume that inventories in the supply chain are going up. We assume that corona will have an impact on H2 and more important one than it did in H1.

If you consider the impact that the virus had in the past weeks and months with shops and restaurants being closed in many countries and production in several industries being on hold, it seems to be likely that we will see a negative impact of silicon demand in the second half of the year. PC and server business is currently quite strong with more home office equipment being needed and more gaming controls being sold.

But on the other hand, we see strong decline in automotive and industrial applications, as also smartphones and consumer electronics were on a decline. Some semi players have already revoked the guidance for 2020 due to the uncertainties related to corona.

As we saw in previous cycles, wafer players will be the last ones to see the effect with some weeks or even months of time lag. Our outlook for 2020 includes two scenarios.

It appears that the first half of the year might be more on the positive side while we have some limited visibility for the second half. On the positive side ASP decline is currently slowing down and we did hardly see any order consolidation from our customers.

On the negative side, we see the impact of corona on the end markets and consumer confidence and consequently our customers get more cautious in their own outlook for 2020. Siltronic has a strong balance sheet and a very solid financial position.

We believe our conservative attitude towards capital allocations is now very positive for our company in challenging times like these. Our goal is to generate good profitability also in times of a crisis, preserve financial flexibility and distribute sustainable cash dividend to our shareholders.

Due to the pandemic and the ban of large assemblies in Germany, we postponed our AGM which was originally scheduled for April 23. We take the advantage of a new regulation in Germany to hold a virtual AGM which will now take place on June 26.

The dividend proposal is unchanged at $3 per share and will result in a dividend payout of €90 million on or by 1st if the AGM approved it. With this, we close our presentation and are now available for questions.

Operator, please open the questions session.

Good morning. Thank you very much for taking my questions.

And I have three; one on the outlook, one on the ASP and one on CapEx if I may. So the first one on the outlook, you mentioned that Q2 is good and my question was what does it mean exactly good, I mean I'm just not quite sure how to interpret that?

Is it up quarter-on-quarter, flat quarter-on-quarter, slowed down, I'm not quite sure, so if you could quantify it would be very helpful?

Okay, justified question, but it is a challenging month. You know, when we look back in the past we never gave outlook by quarters.

This time, we changed the attitude a little bit without going too much into details, because when we were reading school stuff that everybody has on his screen we came to the conclusion that the expectations for Q2 are relatively poor. And this is not the case.

Therefore we said Q2 looks good.

Okay, so when you talk about expectations, I mean if we look at the consensus you've done there like 10% on the reporting numbers quarter-on-quarter, so I guess you should assume that 10 percentage too poor it means it is going to be much higher than that or I just need to understand the magnitude of its – I understand you don’t want to give precise guidance, but just to help us better forecast?

I think we said Q1 was good. Right?

Yes.

And we said Q2 will be good, so…

Okay.

So how are your conclusions.

Okay, okay. Thank you very much.

And the second one is on the pricing. So if we assume that Q3, Q4 like you say in your comments that you wish an impact of on the volume side because of the coronavirus and because of your customers revising down their production probably I just was wondering what do you expect the pricing trend will be if the volumes comes down significantly?

Well, like we said in our comments, prices went down in Q1 compared to the average of prior year, but also compared to Q2 quantity could basically compensate this effect and we saw and see a slowdown in price decline, as we do not have any clear visibility on the quantity level in H2 it is difficult to predict what would happen to prices. But in general, I think it is fair to say that price discipline is better than it was in previous cycles, you know like in 2011, 2012, and 2013.

And do you expect new LTA in H2? I mean how is the trend in your long term agreements and discussion with your customers?

I can imagine that H1 is a bit specific area, but are you talking about maybe the one that are running end of life soon, should we expect some new ones this year?

Well, maybe we will have some new ones towards the end of this year for the period after 2020, but actually we do not have any deep, any bigger discussion with customers on the LTAs.

Okay, and what you should discuss with them at what price would you like you to sign them at which price on the quarterly or higher than the quarterly?

You know we – we approach customers now for the third and fourth quarter and said we would like to go more on H2 situation, then on a Q3 situation because we want to have a little bit better visibility for the second half of the year and this is the process which is going on up to now. Most of the customers support that idea, but it's far too early to have a clear picture on H2.

Okay, that's fair. And the last one from me is on your CapEx.

So whatever the scenario, which is you know slightly down year-over-year revenues are significantly down because of the COVID in any scenarios you CapEx is the same. So I was wondering what would you need to adjust your CapEx down in this environment?

You know, most of the CapEx that we will spend in 2020 is related to projects that we started earlier. And of course you know, you can postpone stuff like that, but at the end of the day it will become much more expensive.

And I think we will – at the beginning, at the end of last year we thought that most – that more than 50% of the investment will be in the first half of the year, now we have some delays. I explained you know, our engineers can't travel, so bringing new equipment up to the production is a little bit more difficult.

So we will have some delays in the investment, but I think that will still happen in 2020. So it does not change the yearly picture.

It might change the quarterly picture.

Okay, that's very clear. Thank you very much.

Hi, good morning, Chris. Good morning Rainer.

Just one question on the gross margin side. So if I look at Q4 of 2018 as that was the peak quarter for the gross margin and revenues.

And basically what we have seen is that from Q4 20 18 to now this quarter Q1, we have seen a €90 million decline in revenues and about €90 million decline in gross profit. So I'm just trying to understand like clearly pricing has not come down a lot over the last few quarters, but we have seen all of the revenue declines flow through down to your gross profit line.

So can you help us understand where we are on the utilization level, fab utilization level, just trying to understand like how much of headwind is there in the numbers currently and how should we think about gross margins going into the second half if demand as you say could potentially weaken in Q3, Q4? Thank you.

Yes, I guess, Achal if you think about gross margin, I mean please remember first that the effect we had on electricity cost last year and secondly also the increasing depreciation which both weigh on the gross margins. As Chris pointed out, I mean pricing has come down over the last quarter, but we see the environment improving in a way that price declines soften.

Any color, and Rainer any color on the utilization levels?

Well, like we said 200 polished is strong, 200 float on is strong, 200 EPI is improving, smaller diameters are weak and then 300 millimeter EPI which means foundry business is strong and polished which goes into memory is weak, but stable.

Okay, thanks. And Rainer, one quick clarification on the tax rates, so obviously you had some benefit in Q1, I think your old comment was 10% tax rate for the full year broadly.

Should we still continue to model that kind of rate or do we expect 2020 to be below that level now given the benefits in Q1?

We didn’t change our guidance on the tax rate. It will be around 10%.

Okay, thank you.

Amit Harchandani from Citi. My first question is with regards to demand on the memory side.

You've talked about - I guess there is slightly more constructive tone on memory versus what we saw a quarter ago. Could you give us a sense for what is driving this incrementally better outlook?

Do you sense that your memory customers are trying to build up inventory levels to avoid any disruptions in the future? Is it more a function of data centers being so strong that customers think they would outweigh, say, weakness in other applications?

If you could give us a bit more feel for what you're discussing right now with your DRAM and NAND customers, and the level of visibility whatever you have if any with regards to volumes trending forward on the memory side?

Well, I think the additional server business is helping quite a bit on the memory side. We saw a decline in raw wafers at the customer's where we see it, it started sometimes last year, and the pace of reducing inventories went down, but we are not yet at the 30 days level.

So the inventory level where we see raw wafer inventory at memory players is still somewhere around 45 to 50 days, more 45 than 50. The concern that we have in general is not the inventory in raw wafers.

You know, this is something that we see. I'm more concerned about inventories, which are built up for the down the value chain, which means chips or even finished products or somewhere in between.

And this is something like always, you will remember our statements regarding the changes in environment between 2018 and 2019, this is something that we don't see and our customers do not talk to us about it.

Understood, understood. My second question is with regards to your comment on pricing discipline.

You talked about it being better than previous cycles. What would you attribute this to and could you maybe talk about this also in the context of the supply environment across the industry because clearly pricing is a function of demand as the less supply coming online?

Yes, that's a very good question. I think that when you look at the - my first five years in Siltronic between 2010 and 2015 basically nobody had experience in the industry with full load and the possibility to increase prices.

So all the players, the one a little bit more, the other one a little bit less, we're trying to gain market share with attractive prices for the customers. And at the end of the day, when you remember market share distribution did not change significantly between - within these five years.

So at the end of the day, the suppliers were driving down prices, but nobody gained market share. So this was really a lose situation for the wafer suppliers.

And you remember that the picture in the second half of 2016 changed. We announced price increases.

We started to implement then I think a little bit earlier than competitors did, but competitors fell out, and now we realized all together we realized how much better life can be with let's say more attractive prices for the suppliers. And yes, at the end of the day, you know, then we came back to a situation where utilization is not 100%, but below.

And people obviously you remember that in the last phases of underutilization driving down prices did not lead into higher utilization rates. So, I think it's somehow normal that people do not commit the same mistake for another time and I hope that it will stay like that.

Okay. And could you maybe comment on that in the context of supply situation in the industry right now?

Well, we believe, I know we can't prove it, but we believe that 300 millimeter installed capacity is somewhere 0.7 million to 6.8 million slices and I think monthly shipments are somewhere between 5.8 and 6.1. So this is what the utilization is, but this is like always, I mean, this is the average temperature of the hospital.

It does not indicate a lot because I would argue that utilization in 300 millimeter EPI is above 97% for the industry and consequently, the challenge is more on the polished type.

Got it. And my final question is with regards to your balance sheet, you have been very disciplined in terms of keeping a healthy balance sheet and now find yourself in a good position.

Do you plan to use this relative strong position as a way for you to potentially gain at the expense of competition? Are you planning to - you are thinking about leveraging your strong balance sheet to maybe drive accelerated investments and position yourself even stronger when the world emerges from the pandemic?

So any thoughts in terms of how you plan to strategically leverage your balance sheet would be appreciated?

Well, I think we had when you look at market share development, we didn't have a very good year 2019, maybe in the one or the other case we did react a little with the delay of one quarter in adjusting prices specifically on 200 millimeter. I think we learned our lessons.

We had into Q4, slight increase in market share and this continued to be the case also in Q1, but it's not significant. It's a little bit step-by-step.

Thank you. Thank you very much Chris.

Yes. Good morning gentlemen.

I have two questions if I may. One is related, and coming back a bit to your comments at the price declines of floating Q1.

I wanted to check if you can kind of elaborate a bit on the reasons behind it. It seems the question wasn't my - the basis for my question is that if you look at your current demand environment, I would simply argue that you're high up ASP price wafers are in every month, while the lower price demand or wafer and low demand is just a mix effect or are you really seeing some pricing power on let's say the EPI side of the word that you can even increase prices?

The second angle to the question would then be if you are ramping up new EPI capacities in the second half of the year, would that also mean a positive impact on ASP? And the second question is, you mentioned you significantly increasing shipping costs, if that's something you have to bear on your P&L or is it something you will share with your clients in the future?

Thank you.

Well, unfortunately we have to bear it. So for pricing - yes, of course, you know, when - it's not only by adding capacity, if the share within a given diameter of EPI goes up because EPI quantities grow more than the polished one, it always has a positive effect on ASP because the prices for polished are lower than the ones for EPI wafers, that's true for every diameter.

Yes, pricing. There was not a lot of discussions during Q1.

We always have the situation that we had a lot - quite a bit of negotiations in the latest part of the last year for starting the year. And typically, there were not a lot of discussions and most of the discussions ended with somehow close to flattish pricing, whatever the product was.

Okay. Thank you very much.

And you need to keep in mind that we always talked about the LTE share, which is somewhere slightly about 60%, but the LTE share of course is much more - it's bigger on larger diameters like 300 and significantly below 65% for smaller diameters.

Okay. Thank you very much.

Yes. Good morning.

Thank you. Are you - you mentioned likely demand drop in the second half.

What would be your best case when we could see wafer demand rebounding into 2021? And the second question is on China.

What is your current view when it comes to local wafer manufacturing and how the situation is or the competitive dynamics evolving in China? Thank you.

Well, thanks for your question. Let's start to answer the last one on Chinese competitors.

You know, and [indiscernible] went public. They have installed capacity obviously around 120K of 300 millimeter wafers.

The qualifications they have or they are trying to get is to a large extent with Chinese customers, and we know that 20 nanometers and 40 nanometers are still under development, which basically means obviously they have a capability for 28 if you are on the optimistic side. This installed capacity is less than 2% of the overall installed capacity.

So it does not have a significant influence.

Okay.

Now, while answering the last question that you had, I forgot the first one. I'm sorry.

Can you repeat it please?

Yes. When do you expect demand to recover, [indiscernible] likely drop in the second half?

You know, the challenge is that during February, the automotive industry was still very relatively positive about the current year. In the excellent environment, they talk about something like minus 15% to minus 18%.

I just read yesterday smartphone shipments likely to be around minus 15%. This is a significant impact, and we don't - we today don't know what effect that will have on the second half of the year.

So in the consequence, we do not have any clue when it will come back, because one thing for me is completely sure. If the coronavirus will be gone one day, but afterwards the world will be different.

It will not be like it was before. And therefore, it's very, very difficult to predict what will happen.

Because when you look at the consumers, there are many consumers they suffer financially from this crisis, and all the people will suffer financially from that crisis. They will not have the day where the car shops reopened or in Germany they are already reopened yesterday.

You know, there won't be a big run into the dealers in order to buy cars. You know, people are much more concerned about other things than getting a new car in the next environment.

So therefore, I hope you understand when it's even difficult to predict the possible decline in the second half of the year, it's even more difficult to predict when it will pick up again.

Yes, sure. Thank you.

And you know when you listen to German politics, you know, the German politics they say it will be a V shape. V shape means it goes down very quickly, and it goes up very quickly.

But you can also read about the automotive industry, the world association of cars, they say it will take five years to come back to the level of 2019. So where is the truth?

I'm honest. I don't know.

Okay. Thank you.

Going forward, so Q1 we have seen in SG&A and plus R&D, there was $2 million decline versus Q4. And I was wondering is that a sustainable level going forward to or for modeling purpose?

The Q4 number was little elevated. There was a small one-time thing in there.

So the key number is the right number.

Okay. And then the second one would be on the memory inventory topic you mentioned.

I mean, we have this question about the raw wafer inventory levels now for what is going on. I was just wondering, I mean, if, yes, maybe a possibility that your memory customers might consider higher in raw wafer inventories going forward for several reasons.

I mean, in other parts of the semiconductor ecosystem, we have much higher inventory levels. So the players are carrying higher inventory levels, plus all the discussion about trade for local supply, et cetera.

So might there be a rethinking in the industry that 30 days might be too low considering also the 2017, 2018 shortage in raw wafers?

Well, theoretically that's possible, but we didn't hear about that from our customers. You know, I think one thing is true, that inventory levels, which are beyond or above 60 days are still considered to be too high.

In the past people always saying around 30 is a good figure. Now we are 45, maybe a little bit higher.

I think it's still okay. But you're right.

You know, we saw some customers even saying that they want to increase the inventory level, but this was much more related to smaller diameters. And we tend to believe that the reason is that there is a significant supply share out of China for smaller diameters.

And I think specifically at the beginning of the corona crisis, people were concerned about wafers coming out of China, whether they will get them also in the future. So therefore we saw some additional demand on smaller diameter.

Okay. And then on the - some of your memory customers, so particularly [indiscernible] indicated in their March call, so that they are pulling forward some of the demand to build some strategic inventories like you mentioned to make sure that they have their sufficient raw wafers going forward.

Have you seen such comments from your customers or from your other memory customers as well or was that really specific to end of March peak of COVID, so to say and in uncertainty?

Not that I know.

Okay. And then final one on China, you mentioned in your statements that the Chinese company now going public.

If you look at smaller diameters one point, so 150 and partly 200 millimeter. So it looks like the China demand is 20%, 25% of this and if they address the Chinese local chip makers with their products, is there from strategic perspective thinking within your company to say, okay, maybe at a certain point 150 and smaller diameters would be not a strategic part of your business giving the growing competition from China?

Well, I think we already said internally that 150 millimeter and smaller will not live forever. You know, one day it will disappear out of the portfolio of Siltronic, but this is not today.

It's not the next year and it is probably not also over next year. We are working on these ideas.

Actually there is no need because we said as long as we make money we will continue to do so. And to a large extent, that depends on the customers.

If the customers decide for price reasons to buy only from China, then a Western company will not continue forever to produce smaller diameters.

Okay. Thank you.

Thank you very much. Fair enough.

This is for sure today, not a hot issue.

Okay, thank you.

Yes, hello. Good morning.

Stephane Houri from Oddo. I'll ask two questions if I may.

The first one is to have your view on your understanding on why you didn't feel any impact of the COVID-19 in Q1 and most likely in Q2? I understand that the late cyclical aspect of your business, but would you say that in this crisis, there is a different behavior from your customers and the customers from your customers are trying not to penny can and maintain their level of buying and activity thinking that there will - the COVID-19 story will be over soon and that the sequential [ph] growth will come back soon?

That is the first question?

Well, let's try to find an answer to the first part of your question where you were basically asking for the impact that COVID-19 had on Q1. I'm pretty sure that our Q1 would have stayed very, very similar to what we announced today even without the corona crisis.

Second quarter, I do believe that we will see more of a positive effect because, like I said before in some areas people are trying to build inventory more on smaller diameter than on larger diameter. But again, when the crisis – when the pandemic crisis is over, it will not be back to normal from one day to another.

I tell you, it's far too early to think about the day where everything will be end of last year.

Okay. And about the memory market or so seemed according to your experience, do you think that, there could be a recovery in the memory market even if other semiconductor markets are weaker because of the end demand that you're illustrating, meaning that memory is more a question of demand meeting offer and we know that the memory manufacturers have not really invested in capacity since 2018.

So is there a - in your views to the scenario where demand would meet offer and then prices will be balanced, which would be a good situation for you?

Well, I think when you look at the spot price development for NAND and DRAM chips for the first four months of this year, I think it was relatively positive. In the last 10 to 14 days went down a little bit, but before there was an increase on spot prices and I think this is always, should be a good indicator.

And when you read through what people are saying about the memory industry, memory industry is supposed to be also in the future the growth driver for semiconductor applications like it was in the past. You know, it's something like close to 40% of memory and this will not change significantly.

Okay. Many thanks for your answer.

Thank you.

Thank you. Thank you for taking my follow on questions.

Firstly if I may, just a clarification, did I hear your comment about impact in Singapore from further restrictions going forward, and if yes, do you anticipate that to weigh in on Q2 or the second half of the year?

Well, there is no reason to believe that the picture in Singapore will change for Siltronic.

Okay. Secondly, you talked about you know the world being very different when we exit the pandemic.

And in terms of supply in the wafer industry, there has been a view to obviously build a lot of capacity in one location because it helps with better overheads. I mean, my understanding is approximately 50% of your 300 millimeter output is linked to Singapore.

Do you think from a strategic perspective you need to rethink how you think about capacity expansion exiting the crisis and whether you need to diversify more in different locations when it comes to capacity expansion?

Well, I mean, that's a very good question. But, you know, look at TSMC.

TSMC is in Taiwan in basically one Science Park, and this is a high risk area for earthquakes. So, I think everybody will think about, let's say, is it good to put all the eggs in one basket?

Are we willing to spend more money in order to distribute the eggs on different baskets? Yes or no?

I don't think so because, we already have three locations for 300 millimeter, and I think that's good. And there is no guarantee that if you go to another location that next time another location might be as harder.

Okay.

Please keep in mind that every day now basically you have between 1000 and 1,200 new cases in Singapore, more than 95% of these new cases are coming from dormitories which are anyhow under quarantine.

Okay. And just finally, there is a lot of talk of legislation out there, licenses around semiconductor capital equipment, some talk about restrictions to Huawei, the whole talk about bifurcation of supply chain.

From your perspective, where you sit in the supply chain, have you seen any impact of legislation or do you anticipate yourself to be subject or exposed to any form of legislation as a part of a broader trade war backdrop?

Directly, not at all. Indirectly, maybe, I don't know what the future will be in this trade discussion between the U.S.

and China or other parts of the world. You know at the moment it's not subject number one because corona overrules everything.

But maybe this discussion will come back and this was a political issue and to predict politics is as difficult as predicting wafer demand.

Okay. Thank you, Chris.

Yes, thanks for taking my questions. You mentioned that your costs per wafer area was down quarter-over-quarter due to productivity improvements.

Can you quantify your targeted cost savings from productivity enhancements in the current year? That's the first question.

And then the second question, you continue to build up your capacity, what kind of underutilization charge do you see for the full-year?

Well, let me try to give an answer to the first question. We do not disclose in detail or productivity improvements, but if you assume that it is a good mid-single digit figure, you're not that wrong.

And for the financial impact on utilization, Rainer?

I mean it's kind of what we're doing now is we're just completing what we started. So it's really the very end.

It does not mean that there is an enormous additional amount of capacity. So utilization rates won’t change a lot going forward.

But how high do we see the underutilization charges for the current year?

But you know, I've said before, what is the - what do we believe is the installed capacity on 300 millimeter, what is reported by CME [ph] as shipments, you can do the math on your own. And Siltronic is relatively typical for the industry.

Okay, thank you.

Thanks. And thanks for taking in the other follow up.

Just a quick clarification please. You talked about memory inventories being around 45 to 50.

Can I clarify if that was the comment for total memory or just for DRAM, and if it is for total memory, can you break it down between the inventory you see for DRAM and NAND?

Well, the first one is easy to answer. The figure that I mentioned 45 to 50 days is for memory in total, and I cannot give you very much more detail, but let's put it that way.

The situation on DRAM is not as good as it is on NAND. So NAND is lower and DRAM is higher, but I am not capable to quantify it.

That's helpful Chris. Thank you for the clarification.

Thank you very much operator. So this concludes our Q&A session for today.

Before we conclude today’s call, please be advised that the replay of this conference call will be accessible within two hours from now on, on our website. Thank you for joining us today.

We hope everyone continues to stay healthy and safe, and we hope you will join us again on our Q2 results on July 30. Good bye and please have a good day.