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Edited Transcript of WAF.DE earnings conference call or presentation 25-Jul-19 8:00am GMT

Q2 2019 Siltronic AG Earnings Call

Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Siltronic AG earnings conference call or presentation Thursday, July 25, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph von Plotho

Siltronic AG - Chairman of Executive Board & CEO

* Petra Müller

Siltronic AG - Head of IR & Communications

* Rainer Irle

Siltronic AG - CFO, Labor Relations Director & Member of Executive Board

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Conference Call Participants

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* Amit B. Harchandani

Citigroup Inc, Research Division - VP and Analyst

* Francois-Xavier Bouvignies

UBS Investment Bank, Research Division - Technology Analyst

* Gustav Froberg

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Jürgen Wagner

MainFirst Bank AG, Research Division - Director

* Robert Duncan Cobban Sanders

Deutsche Bank AG, Research Division - Director

* Veysel Taze

Bankhaus Lampe KG, Research Division - Analyst

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Presentation

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Operator [1]

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Hello, everyone, and welcome to Siltronic's conference call. Please note that this call is being recorded and also streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation in this call implies your consent with this. At this time, I would like to turn the conference over to Petra Müller, Head of Investor Relations and Communications of Siltronic AG.

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Petra Müller, Siltronic AG - Head of IR & Communications [2]

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Thank you, operator. Welcome, everybody, to Siltronic's Q2 2019 Results Presentation. With me are Chris Von Plotho, our CEO; and Rainer Irle, our CFO. Both will comment on the market development and our financial performance and will be available for Q&A afterwards.

Please note that our presentation contains the usual safe harbor statement and applies throughout this call and presentation. Today, we have published all documents relating to our Q2 2019 reporting. They are available on our website. And now I turn over the call to Chris for opening remarks.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [3]

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Well, good morning, ladies and gentlemen. While Q1 2019 was already marked by a muted development, this continued in Q2, which was characterized by a further weakening of demand for wafers. The main reasons were the ongoing general global economic slowdown, geopolitical uncertainties and continued inventory corrections in the value chain of our customers. While these factors clearly impacted our business negatively, we benefited from a stronger U.S. dollar against the euro as well as a decline in costs for material and supplies and lower personnel costs compared to the first quarter of 2019. However, these favorable effects were not -- were able to only partially offset the impact from the weaker demand. Because of the decline in wafer area sold, sales in the second quarter 2019 came in at EUR 312 million after EUR 354 million in the first quarter. Consequently, our profitability also declined, and we achieved an EBITDA of EUR 100 million in the second quarter after EUR 127 million in Q1. The EBITDA margin fell from 36% to 32%.

CapEx in the second quarter of 2019 was EUR 105 million after EUR 73 million in Q1 and was related to investments in improving our capabilities, different automation projects as well as our new crystal-pulling hall in Singapore. Due to the high CapEx, net cash flow in Q2 2019 was EUR 0.4 million compared to EUR 81 million in the first quarter. Despite the dividend payment of EUR 150 million to our shareholders in May 2019, our net financial assets still stood at EUR 592 million at the end of June 2019.

Having shown some key financial figures, now let's have a look a little bit at the market development. The market environment in Q2 continued to show a high level of uncertainty and weakness. The macroeconomic slowdown and geopolitical uncertainties stretched out. Along with the still-unresolved trade issues between the United States and China, we saw a threat by Japan against South Korea by adding some semiconductor materials to the Entity List.

Inventory correction in the supply chain of our customers take longer than initially expected, and all wafer inventories continue to increase slowly. In the second quarter of 2019, the silicon wafer market was down 2.2% to 6.4 billion square centimeters compared to the previous quarter.

Looking at wafer demand, the downward trend that we already observed in Q1 continued in Q2. Demand for smaller wafers with diameter up to 150 millimeters declined strongly. In 200-millimeter, we saw a somewhat mixed picture in demand with special products being still at A-OK level.

With regard to 300-millimeter, wafer demand was slightly down as customer inventories remained high and customers shifted volumes under the signed LTAs. But the decline was more moderate than what we saw in 200 millimeter and smaller diameters. With this first overview, I would like to hand over to Rainer for a detailed presentation of our financials.

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Rainer Irle, Siltronic AG - CFO, Labor Relations Director & Member of Executive Board [4]

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Okay. Thank you, Chris, and welcome, everybody. Good morning.

Business in Q2 continued to be impacted by weakening demand also, to some degree, by a shift in product mix. However, at the same time, we benefited from the favorable development of the U.S. dollar against the euro, which helped to partially offset the effect of the weakening demand and the change in the product mix. Due to less wafer area sold, sales in Q2 reached EUR 312 million and was, thus, down by about 12% compared to Q1.

In H1 this year, sales were EUR 666 million compared to EUR 689 million in the first half of last year, representing a 3.3% decline. Our ASP in the first half of this year was up compared to the first half of last year.

Cost of sales decreased by 5% quarter-on-quarter from EUR 210 million to EUR 199 million. Thereby, lower costs for raw materials and supplies as well as personnel in Q2 compared to Q1 were partially offset by higher depreciation. In H1, this year, cost of sales were EUR 409 million compared to EUR 412 million in the first half of last year.

Our gross profit in Q2 declined to EUR 112 million from EUR 145 million in Q1. The gross margin came down from 41% to 36%. The respective gross profit and gross margin for H1 came in at EUR 257 million and 39% compared to EUR 277 million and 40% in the first half of last year.

Lower costs for materials and lower cost for supplies were largely offset by higher energy costs. Negative effects from currency hedging added up to EUR 50 million. However, they were substantially lower in Q2 compared to Q1.

Just to be clear, the main reason for the margin decline were the high fixed costs and higher electricity unit costs. Euro prices were still firm. You can assume, as you know, 50% of our costs to be fixed. In electricity, costs decreasing the margin by about 3%. And with those 2 numbers, it should be easy to understand the cost development.

Looking at the next slide, you can see that 65% of our sales are generated in U.S. dollars while 65% of our costs originate in Europe. The rule of thumb is, for this year, that $0.01 in the dollar change would be EUR 8 million more or less in revenue and roughly EUR 6.5 million more or less in EBITDA unhedged. A (sic) [1 JPY] change in the yen, either direction, will be EUR 2.5 million in revenue and roughly EUR 2 million in profit.

On the right side, you can see the effects of our hedging measures. As I told you before, we have reduced our hedging ratio further because of the large interest gap between the euro and the U.S. dollar. For H2 2019, we bought significantly less forwards than H1.

Lower wafer area sold and higher electricity unit cost weighed on our profit. Our EBITDA in Q2 came in at EUR 100 million after EUR 127 million in Q1. The EBITDA margin went down quarter-on-quarter from 36% to 32%. Lower cost of goods sold and lower negative effects from currency hedging in Q2 compared to Q1, however, softened the decline.

In H1, EBITDA was EUR 227 million, with a margin of 34% compared to EUR 268 million and a margin of 39% in the first half of last year. In addition to slow business, EBIT was also burdened by slightly higher depreciation and higher energy cost. Thus, EBIT in Q2 came in at EUR 75 million compared to EUR 103 million in Q1. The EBIT margin went down from 29% to 24% now. EBIT for H1 came in at EUR 178 million, with a margin of 27% compared to EUR 221 million and 32% in the first half of last year.

Net profit attributable to our shareholders reached EUR 59 million in Q2, and the earnings per share came in at EUR 1.98 per share. Q1 net profit was EUR 80 million and earnings per share of EUR 2.68. The tax rate came down to 9%.

We kept our low-cost sites in Singapore, in 200- and 300-millimeter at a high loading while reducing the loading in Germany and in the U.S. This is good for costs, but it has also an impact on the tax rate. The improved tax rate is due to the fact that profitability declined overproportionately at group units located in countries with above-average tax rates.

Looking at the half year results, we generated for our shareholders a net profit at -- of EUR 140 million (sic) [EUR 156 million] and earnings per share of EUR 4.66 per share after EUR 170 million and EPS of EUR 5.66 in the first half of last year.

Our general dividend policy is unchanged and provides for a payout ratio of approximately 40%. Therefore, we increased the dividend for the year 2018 to EUR 5 per share, totaling EUR 150 million, which were paid out in May after the AGM.

Working capital has come down further in Q2 but increased in relation to our sales. Inventories were basically stable while demand was down. Trade receivables were down by EUR 26 million, and trade liabilities were down by roughly EUR 7 million.

Looking at our balance sheet. Our equity decreased to EUR 804 million at the end of June. Equity ratios stood at 43%. The drop compared to the end of 2018 is due to the profit the half -- first half year minus the dividend payment of EUR 150 million and minus the interest-related change in pension obligations of EUR 129 million.

The impact of interest rates on the evaluation of pension provisions was really material. The pension provision in Germany was discounted at 1.29% as of June compared to 1.98% as of December last year. And also in the U.S., the interest rates fell from 4.08% to 3.37%. Despite the dividend payment of EUR 150 million, net financial assets decreased by only EUR 99 million. And we're still high at EUR 592 million.

Our pension reserves were up in H1 by EUR 141 million. Out of that, EUR 129 million are due simply to lower interest rates, meaning pension liability is up, equity's down. As I said before, we had to use a 1.29% discount rate to calculate the pension provision in Germany. Together with the U.S. portion, this adds up to a DBO of EUR 1.15 billion, against which we have assets of EUR 646 million. So pension provision is EUR 503 million.

In the second column, the page that I showed before, we used a 3% rate. In using the 3%, a hypothetical number, DBO would be down to EUR 850 million, assets unchanged. And consequently, the pension provision would be EUR 200 million -- slightly above EUR 200 million. And that's, in our view, a more reasonable number. And why do we believe that? The German government requests pension funds to do an asset/liability study, and this asset/liability study says that there's a probability that we will achieve at least a 3% return with a probability of 90% in the next 20 years, and that is because the pension funds has actually quite good assets, which are many times, accounted for not as value but as original cost.

In the test, real estate both in Munich many years ago also in other places, and it also has bonds with long durations that they're usually accounted for at cost. So there's a lot of hidden reserves, high-quality assets. And this is why we believe that 3% is a better number. Unfortunately, we can't use that in accounting.

Net cash flow. Our operating cash flow in Q2 came in at EUR 79 million following the EUR 131 million in Q1. We returned -- customer prepayments were EUR 16 million. And in the last quarter, it was EUR 17 million. We have not received any additional customer prepayments in the first half of the year.

Net cash flow in the second quarter was basically 0 after EUR 81 million in Q1. The decline is related to significantly higher CapEx in Q2. Net cash flow in Q2 included also a payment of EUR 40 million from insurance companies as compensation for us taking over our long-term environmental obligations. The EUR 40 million though were mostly offset by the success sharing that we usually pay in Q2 of the year to our employees. Net cash flow totaled EUR 81 million in the first half of the year compared to EUR 180 million in the first half of last year.

And with that, I would like to hand over to Chris again.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [5]

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Well, thank you, Rainer. The frequently asked question relates to our expansion plans in light of the current demand situation. Let me repeat: We will execute our investments as planned. Therefore, CapEx in 2019 will be EUR 350 million. We are investing in capabilities to cope with new design rules. This includes new pullers and metrology equipment. We started bringing in the first pullers to the new crystal hall in Singapore. We will finish our extensions according to the plan. Next year, CapEx will come down significantly.

In view of the economic and geopolitical uncertainties as well as the current demand situation, we expect sales in Q3 to further decrease. However, we confirm our outlook given on June 17 this year. The EBITDA margin should come in between 30% and 35%. EBIT is expected to be significantly lower than in previous year.

Net cash flow will be clearly positive but approximately EUR 180 million lower than the one in 2018. It will rise again significantly in 2020.

For 2019, sales are expected to be around 10% to 15% below the previous year's level. We now expect a tax rate of 10% to 15% for 2019. The tax rate will be lower than originally expected as profitability declines, especially in group units located in countries with above-average tax rates.

Altogether, we are not satisfied with the business development in the first half of 2019. Despite the current market weakness, we are convinced that the underlying mega-trends such as digitalization, electro mobility, big data and artificial intelligence are intact and will lead to stronger demand for wafers again in the future. However, we cannot currently determine with certainty when this will happen.

With this, we close our presentation and are now available for your questions. Operator, please open the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question we received is from Francois Bouvignies from UBS.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [2]

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Can you hear me?

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Operator [3]

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Yes, we can hear you.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [4]

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The first question I had was on the -- your average selling price. So if we look at your previous releases, you were always mentioning the pricing for 2019 to be slightly up versus 2018. And we don't see anything -- don't see these comments in your release. And so I was just wondering why you removed it or if there is any change with regard to the ASP you forecast for this year.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [5]

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Well, I think we confirmed the outlook that we gave. We didn't mention that prices will be up compared to 2018. But we confirmed, in general, our outlook. And this includes pricing guidance, which was given on June 17. So there is no change.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [6]

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Okay. So there is no change...

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [7]

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There is no change. No change.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [8]

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Okay. Great. Well, I just wanted to confirm that. The other question I had is Shin-Etsu reported, of course, results yesterday. And they had a comment on their pricing for next year especially on their LTAs, and they said that the 2020 LTAs will be higher than 2019 in terms of ASPs. So I just wanted to check with you if you were thinking about the same kind of trajectory for your ASP, LTAs next year. And how should we think about that?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [9]

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Well, first of all, you know what Shin-Etsu published yesterday. They had a great second quarter. So we can congratulate Shin-Etsu to their performance. But in detail, we will not comment on figures and opinions that they presented during the Q2 activities.

For the time being, we know that -- you know that we have some exposure to quarterly contracts and therefore -- not only for 2020, but also for Q4 pricing, we can't give any guidance. It's simply driven by uncertainty. But we said ASP in '18 will be up compared to -- in '19 will be up compared to '18 in -- on a euro basis. But we also said that for smaller diameters and 200-millimeter, prices are under pressure and -- so prices during '18 went up. And obviously, for 200 and smaller diameters, we went down in 2019. So you can deduct from that, at least for the smaller diameters, an outlook for next year. But by how much? We don't know yet.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [10]

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Okay. And when you say the ASP, in euros? And the ASP, in dollars as well? Higher than '18 in dollars? Or just in euros?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [11]

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Well, we said in euro.

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Francois-Xavier Bouvignies, UBS Investment Bank, Research Division - Technology Analyst [12]

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In euros. Okay. And with regard to LTAs, I mean how is this looking for the percentage of LTAs for next year? Because obviously, this year is a big return, very -- LTA is really helping you and because it's a high percentage of your deliveries. So I was just wondering if you had a bit more color on the LTAs outlook exposure for next year, if it's going to be materially lower than this year maybe or similar in terms of percentage of shipments, just to have a color on that.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [13]

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Well, you know I think it's very simple. The LTAs, which did run this year and continue to run for next year, there won't be any changes. But like always, not all the contracts which were in place in 2019 will be in play -- will continue to be in place in 2020. So there are some contracts which are supposed to be renegotiated, and you know that the environment is probably not in our favor.

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Operator [14]

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The next question we received is from Amit Harchandani from Citigroup.

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Amit B. Harchandani, Citigroup Inc, Research Division - VP and Analyst [15]

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Amit Harchandani from Citi. My first question is with regards to the uncertainty and the lack of visibility that you referred to, and there's been a lot of macro moving data points out there. But could you give us at least a sense whether you think where you are today versus where you were maybe a month or 2 ago? Your visibility has improved? And if so, has that come more from the memory side or from some of the other applications that you serve? And then I have a couple of other questions.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [16]

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Well, Amit, I fully understand that you asked that question. But typically, we are not very open to give details on a quarterly level, a part of the final figures regarding the quarter, and now you know. Compare -- the outlook, how we see the market today compared to 4 weeks ago, I think it's not important to answer that question.

And when you look at the environment, you read probably more about our industry than I do. The outlook is still not excellent. Maybe in the last 4 weeks, there were some slightly better news in the market than we did see in the first quarter and in the second quarter. But to translate that into the turnaround, which is clearly ahead of us, would be overoptimistic.

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Amit B. Harchandani, Citigroup Inc, Research Division - VP and Analyst [17]

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Understood, Chris. Secondly, if I may, with regards to supply in the industry and uncompetitive dynamics, could you give us the sense for whether they are broadly the same versus what you have seen in the past 6 months? Any changes? Because we do see ad hoc news flow with some competitors trying to be aggressive in a bid to raise their utilization levels. Is there anything in the competitive landscape that you have seen different over the past quarter?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [18]

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Well, I think in 2017 and '18, everybody was disciplined on adding capacity and also on pricing. We don't really know what competitors are doing with pricing. But let's assume that everything that we get from our customers regarding pricing behavior of our competitors, we clearly see that there are some proposals to customers that we'd not appreciate. Let's put it that way.

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Operator [19]

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The next question we received is from Gustav Froberg from Berenberg.

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Gustav Froberg, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [20]

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I just have two, if I may. I'll start with one and then follow up with the other after. I just wanted to ask how we should think about the difference between your sales growth and then the growth in the shipment volumes that is reported by semi. I know when I asked this previously, you said that there's not really a one-to-one correlation. But now it's been sort of 2 quarters where the shipment drops, reported from semi, globally have been a bit lower than what you're reporting on the sales side, in particular, when you're saying that ASPs, they've gone up as well. So I was wondering if you could just help us understand the dynamics a little bit better there.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [21]

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Yes. Well, thank you for your question. You are perfectly right. When you look at the decrease reported by semi in area and you compare it with our sales performance, they are not one -- there's not a huge overlap. Difference is coming maybe from things that we call our product mix and also customer mix, which has an influence. On the other hand, I think it's fair to say that we probably -- in the first half of this year compared to the first half of last year or even in the second half of last year, we lost a little bit of share.

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Gustav Froberg, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [22]

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All right. Fine. Yes. Then as a follow-up and touching a little bit on this product mix effect as well, you said that -- the ASP, you expect, takes into account the product mix and that due to this product mix, you can -- you'll have a higher ASP than before now. Could you maybe help us understand how the product mix plays in here? And is it correct to interpret this as a decline in wafer prices but that on average, due to the product effects, your ASP has increased?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [23]

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Well, we have positive effects of mix changes and we have negative from -- so let's start with the positive one. When you look at 300-millimeter, the market development, overall, there is more pressure on quantities for polished wafers, which means memory application than logic and foundry, which is typically epi. Epi has a higher ASP than polished wafers. So if, let's say, epi wafers go down by 10% in volume and polished wafers go down by 20%, it has a positive effect on ASP for 300-millimeter.

For 200-millimeter, we see the same effect but the other way around. In 200-millimeter, completely in contradiction to 300-millimeter, we have many customers. They have in-house epi capabilities. And consequently, when the epi utilization overall goes down, they purchase less epi wafers and continue to buy the substrates in order to do in-house epi. So epi quantities on 200-millimeter are more under pressure than the polished one.

On the other side, on 200-millimeter, we have the positive effects the share of those on -- which is also higher ASPs going up. So you have basically a mixed picture. But overall, I would say that we have a slightly downward trend on -- due to mix changes.

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Operator [24]

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The next question received is from Veysel Taze from Bankhaus Lampe.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [25]

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The first one would be just to have your idea on this trade dispute between Japan and South Korea. There was some news that wafers could be also a topic. How would you read that strategically for you?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [26]

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Well, that's a very interesting question. But I would argue that what the Japanese government decided to implement is not in favor of the Japanese producers first of all, because they are Japanese; second, because not of all of that -- not all the quantities, but I would say more than 90% of 300 millimeters is produced in Japan and not outside of Japan.

Today, I think there is no direct threat on wafers from the Japanese government. But on the other hand, if you look at the Koreans, how will the Korean feel about that? Shin-Etsu and Sumco together are more than 50% of the market, and I do not believe that the 2 Japanese suppliers are completely underrepresented at the big Korean players. So if there is any influence for non-Japanese wafer producers, it could be positive. But this is a theoretical discussion. We do not have any signs up to now that this will have an impact on our business with the Korean players.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [27]

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Sure. Sure. And then a second one, I'm a little bit surprised that you mentioned, the LTA or some of your competitors getting more aggressive on the pricing. There was also -- I think it was Shin-Etsu yesterday saying that they will slow down their brownfield activities in the sense that they will add or utilize the capacities. They mentioned -- on top, you have a lot of news flows -- flow from memory players right now on ASPs, that's stabilizing. So I was just a little bit surprised to see this comment that industry might use the discipline.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [28]

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Well, I think the discipline on capital expenditure in order to create additional capacity is still there because we did not see any, let's say, stupid announcement of adding significant capacity. I think everybody is -- since the shots have started in late '16, it's working on using existing brownfield capacities, put equipment in, in order to raise the output. On the other hand, we all know that this available shale capacity one day will come to an end and I do believe -- we always said it's maybe 7 million slices, the shared capacity. I think with the latest developments in '18 and '19, we might adjust that figure to 7.2 million slices. Maybe it's even 7.3 million slides, but it's not a major difference. And consequently, the day will come where the next shortage is very close to us, not today but the day will come.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [29]

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Just 2 very quick ones, if I may. The one would be, what is the raw wafer inventory level at your customers? Any update there? And the second, on your CapEx plans for 2020, you mentioned that several times, it will go down substantially. But any more color around that, what "substantially" means would be really very helpful.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [30]

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Okay. I will postpone a detailed answer to your second question to our initial call that we will do in January preliminaries for 2019, and I will give you the reason. We don't have a budget yet for next year, and we are not even preparing a budget. The budget approval will typically take place in the Supervisory Board meeting, which is, I think end of November. And before, we don't know; and therefore, won't disclose. But "significantly" is significantly. And if you ask me, is EUR 5 million less significantly? My answer is, no, it's not. So unfortunately, it's not possible.

While I'm answering with the second question, I forgot the first one...

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Petra Müller, Siltronic AG - Head of IR & Communications [31]

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Inventories...

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [32]

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Yes, please.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [33]

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Yes, inventories. Yes, right. So you remember that we said that we see -- at some players in the market, we see inventory levels at most of them. We don't see it -- we had players where -- in the environment of memory, inventories were down to 3 to 5 days towards the end of last year. Beginning of this year or end of last year, beginning of this year, they started to raise. We have -- we continue to see a raise in inventory in raw wafers. But we always said targeted level is somewhere between 30 and 60 days, and we are still in that ballpark.

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Operator [34]

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The next question we receive is from Jürgen Wagner from MainFirst Bank.

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Jürgen Wagner, MainFirst Bank AG, Research Division - Director [35]

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Yes, coming back to this 2020 CapEx. Actually, you indicated that at some point, brownfield would be absorbed. So what would be needed for you to raise 2020 CapEx at some point next year, assuming macro normalizes again? And then the follow-up would be, what minimum cash level do you need for operations?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [36]

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I really don't get your question because 2020, we do not plan any significant additional expenditures. So if you think greenfield, we don't think greenfield, not for 2020 and not for '21. But we know that one day, we have to make a decision for greenfield. But with the utilization that we have today and, let's say, the uncertainties in the environment, I think it's -- it will be incautious to think about that today.

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Jürgen Wagner, MainFirst Bank AG, Research Division - Director [37]

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No, the question was more like -- I mean, last time when prices were much lower, you said we need prepayments and we need long-term agreements to invest in additional capacity, and now prices are much higher. Do you still see this as a prerequisite from your customers?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [38]

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Well, that's still something that I would like to see. But try to put yourself into this position of the CEO of Siltronic. In the past, we told our Supervisory Board, yes, we want to have LTAs. And this is basically -- somehow a safety and the guarantee when we do greenfield. And now we realize that some of these LTAs are postponed in quantity. So the argument for LTAs that LTAs justify a greenfield invest -- so anyhow, a significant invest. It's somehow reduced, but we will still continue to fight for long-term obligations from customers when we add capacity. Rainer (inaudible)

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Rainer Irle, Siltronic AG - CFO, Labor Relations Director & Member of Executive Board [39]

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(inaudible) on the cash level. I mean the cash -- net cash is hovering around EUR 600 million without a massive change in the next quarters I guess. You know that a bit more than EUR 200 million of that is owned by customers in the form of prepayment. So actually on that, it's a little less than EUR 400 million -- that is more than we need for operating reasons. I think we -- after the IPO, we said that the EUR 200 million would be a good number.

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Operator [40]

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The next question we received is from Rob Sanders from Deutsche Bank.

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Robert Duncan Cobban Sanders, Deutsche Bank AG, Research Division - Director [41]

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Yes. Just on the LTA. You mentioned that LTA dynamic there. Do you recognize that on the way up, as this market tightened in 2017, '18, that you were a bit more aggressive on price relative to your peers? And if that is the case, does that mean then that customers will reduce your allocation first rather than your Asian peers just because the gap between contract and, what I guess is whatever you want to call it spot pricing, whatever you want to call it, is higher? And therefore, the current share loss that we're seeing is likely to be sustained? And I have an -- a follow-up.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [42]

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Well, I do not believe that the share loss that we saw will be sustained. On the other hand, you know we have to differentiate between LTA and non-LTA. LTA pricing is not under pressure. I do not remember any case where there was a discussion with customers on existing LTAs to look at pricing. But of course, it's somehow different when you look at quarterly contracts.

On 200-millimeter and smaller diameters, we know or we are close to be convinced that competitors have a higher share of LTAs. And if then demand goes down, regardless what the price is for the customer, it's much more easier to reduce quantities where they have a quarterly contract than with LTAs. I think this is -- for 200 and smaller diameters, the major contributor in losing share than our competitors had more LTAs.

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Robert Duncan Cobban Sanders, Deutsche Bank AG, Research Division - Director [43]

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Got it. And GlobalWafers is commenting that customers are encountering warehousing problems for wafers as part of the reason they're pushing back on -- customers are pushing back on volume. Do you recognize that, that is becoming an issue? And would you be willing to hold volume on consignment for customers?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [44]

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We are open to every discussion with customers, but consignment is something which is not our favorite in general.

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Robert Duncan Cobban Sanders, Deutsche Bank AG, Research Division - Director [45]

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Okay. Great. And there's the last question which is the -- on the CapEx of EUR 350 million. I'm still a little bit puzzled why that hasn't been reduced. Half of the spend last year was for wafer expansion of 70k. Can you at least say how much of the EUR 350 million is for wafer expansion rather than automation for cost reduction or maintenance?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [46]

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That's a very good question. You can answer that question with yes or no, and I choose no.

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Operator [47]

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We received a follow-up question of Veysel Taze from Bankhaus Lampe.

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Veysel Taze, Bankhaus Lampe KG, Research Division - Analyst [48]

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Just for clarification, I mean, back in June when you had the profit warning, you said that Q3 should see another sequential decline in revenues. I guess that's still your view, right?

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Rainer Irle, Siltronic AG - CFO, Labor Relations Director & Member of Executive Board [49]

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Yes.

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Operator [50]

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(Operator Instructions) As there are no further questions, I hand back to the speakers. Sorry. We've got a follow-up question from Amit Harchandani from Citigroup.

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Amit B. Harchandani, Citigroup Inc, Research Division - VP and Analyst [51]

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I just a follow-up, if I may. There clearly seems to be a lot of talk about the weakness in the automotive and the industrial end markets, and you also referred to 200-millimeter utilization. Could you -- are you in a position to comment if those utilizations are going down and seen going down further into Q4, I guess, in terms of the guidance that you have for the full year? What I'm trying to gauge is if -- you've kept the overall guidance intact, but in terms of the mix across 300 and 200, has anything improved or deteriorated vis-à-vis what you told just in June or even when you began the year?

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [52]

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Well, the picture basically that we have for the rest of the year whether it's Q3 or Q4 did not change in the last 4 weeks. We can't have changes every week. And people are discussing, when you read through the news regarding the semiconductor industry, are talking about did we already reach the bottom? But I think we are -- either we reach the bottom or we are relatively close to the bottom, but that's difficult to say because we had before the question regarding raw wafer inventory at our customers. There, we have a certain picture. But the big challenge was the crisis, the quantity crisis basically started with inventories in the value chains of our customers. And there, we don't have any idea where we stand today.

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Operator [53]

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(Operator Instructions) Now there are no further questions, I hand back to the speakers.

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Petra Müller, Siltronic AG - Head of IR & Communications [54]

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Okay. So thank you all for participating in our Q2 call. New earnings -- next earnings call will be on October 24 with our Q3 results. We wish you all a pleasant day, and goodbye.

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Christoph von Plotho, Siltronic AG - Chairman of Executive Board & CEO [55]

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Goodbye.

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Operator [56]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.