Accelerating Digitalization And EV Trends Will Boost Premium Wafer Demand

Key Takeaways

• Long-term agreements and advanced fab capacity give Siltronic strong earnings resilience, pricing power, and share in high-growth semiconductor sectors like AI and advanced memory.
  
• Strategic focus on premium wafers, innovation, and exiting low-margin products supports sustained revenue growth and structurally higher margins across market cycles.
  
• Ongoing market weakness, global trade risks, high inventories, heavy investment burdens, and pricing pressures all threaten Siltronic's revenue growth, profitability, and financial stability.

Catalysts

Develops, produces, markets, and sells hyperpure silicon wafers for the semiconductor industry in Germany, rest of Europe, the United States, Taiwan, Mainland China, South Korea, rest of Asia, and internationally.

• Analyst consensus expects capacity expansion from the Singapore fab to meet rising demand, but this may significantly understate the upside: upon ramp-up, Siltronic's state-of-the-art fab and long-term LTAs running to at least 2028 will allow it to disproportionately capture future AI, memory and advanced node silicon demand, pointing to structurally higher revenue and gross margin growth than currently modeled.
  
• Analysts broadly recognize LTAs supporting earnings stability but may not fully appreciate the resilience in Siltronic's revenue and pricing power; with no major LTA expiries through at least 2028, continued LTA renewals at favorable terms and strategic customer relationships sharply reduce downside risk to both earnings and margins through multiple cycles.
  
• The accelerating proliferation of electric vehicles, 5G/6G infrastructure, and industrial IoT will massively expand the addressable market for advanced silicon wafers, uniquely positioning Siltronic's premium 300mm and specialty wafer lines to deliver long-duration, compounding revenue and earnings growth in these high-value segments.
  
• As industry inventory levels in advanced logic and memory normalize-driven by ongoing AI and edge demand-Siltronic is set for a multi-year volume ramp as underinvestment during cyclical downturns sharpens the subsequent recovery in both pricing and shipment volumes, directly benefiting top-line growth and operating leverage.
  
• Management's strategic exit from low-margin smaller diameter wafers and continued investment in R&D and process technology reinforce Siltronic's ability to maintain pricing power, enhance product differentiation, and drive structurally higher net margins as end-user applications continue migrating toward more complex and value-added solutions.

Siltronic Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Siltronic compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Siltronic's revenue will grow by 8.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.8% today to 4.5% in 3 years time.
• The bullish analysts expect earnings to reach €82.5 million (and earnings per share of €2.46) by about July 2028, up from €39.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.5x on those 2028 earnings, down from 31.8x today. This future PE is greater than the current PE for the GB Semiconductor industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.93%, as per the Simply Wall St company report.

Siltronic Future Earnings Per Share Growth

Risks

• Prolonged softness in the wafer market, coupled with persistent negative product mix and price effects-especially in non-long-term agreement and smaller diameter wafers-suggests ongoing revenue and gross margin pressures for Siltronic, with declining sales already evident in Q1 2025.
  
• Heightened geopolitical tensions and new U.S. tariffs, alongside possible retaliatory measures and resulting uncertainties, risk disrupting global demand, supply chains, and customer relationships, which could directly impact Siltronic's international sales and market share over the long term.
  
• Elevated customer inventory levels and ongoing postponements or shifts in orders indicate that the recovery in wafer demand could be delayed or weaker than expected, which would hold back both revenue growth and earnings stability.
  
• Significant capital expenditure for the new fab in Singapore has already caused negative net cash flow and rising net financial debt, creating risk that cost overruns, delays, or underutilization could depress operational efficiency, increase depreciation, and further weaken net margins.
  
• Currency headwinds from the euro-U.S. dollar exchange rate are significantly eroding Siltronic's topline and EBITDA, while additional sector-wide trends-like commoditization, oversupply, and potential industry vertical integration-could compress average selling prices and further reduce both revenue and profitability.

Valuation

• The assumed bullish price target for Siltronic is €63.11, which represents two standard deviations above the consensus price target of €45.28. This valuation is based on what can be assumed as the expectations of Siltronic's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €64.0, and the most bearish reporting a price target of just €35.35.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €1.8 billion, earnings will come to €82.5 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 9.9%.
• Given the current share price of €42.14, the bullish analyst price target of €63.11 is 33.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.