EV Trends And SiC Capacity Expansion Will Open Future Markets

Key Takeaways

• Electrification trends and new capacity expansions are driving record automotive and industrial revenues, with increased operating leverage and rising margins.
  
• Proprietary technology and high barriers to entry strengthen pricing power, customer loyalty, and position X-FAB for superior market share and profitability.
  
• Rising order uncertainty, looming overcapacity, price competition, legacy technology focus, and customer concentration all threaten revenue stability, margin growth, and long-term competitiveness.

Catalysts

Develops, produces, and sells analog/mixed-signal IC, micro-electro-mechanical systems, and silicon carbide products for automotive, medical, industrial, communication, and consumer sectors in the Europe, the United States, Asia, and internationally.

• Strong ongoing growth in EV-related automotive and industrial applications is driving record-high core market revenues for X-FAB, supported by electrification trends in transportation and sustained demand for analog/mixed-signal chips; this supports higher and more consistent revenues.
  
• Robust expansion of silicon carbide (SiC) manufacturing, with wafer production in the first half of 2025 exceeding all of 2024, is capturing emerging demand from data center power management (linked to sustainability and energy transition themes) and positioning the company for future growth in both revenue and gross margin as these trends accelerate.
  
• Recently completed capacity expansion in Malaysia and group-wide increases in manufacturing capability allow X-FAB to fulfill surging end-market demand, realize operating leverage, and support margin expansion as volumes scale.
  
• Increasing order intake and prototype project wins in industrial and medical microsystems suggest rising customer engagement and expanded market share, which is likely to translate into higher forward revenues and improved net margins.
  
• Proprietary process technology development (e.g., BCD-on-SOI, SiC) and high barriers to entry in specialty foundry segments underpin higher ASPs, enhanced customer stickiness, and the potential for above-industry-average net margins as volumes and utilization rise.

X-FAB Silicon Foundries Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming X-FAB Silicon Foundries's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $68.1 million (and earnings per share of $0.49) by about May 2029, up from $30.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $116.1 million in earnings, and the most bearish expecting $25.8 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.1x on those 2029 earnings, down from 32.0x today. This future PE is lower than the current PE for the GB Semiconductor industry at 61.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.3%, as per the Simply Wall St company report.

Risks

• Increasing customer order uncertainty and reduced demand visibility, with orders being placed at short notice due to geopolitical uncertainties, could make it difficult to forecast revenues and may lead to lower utilization rates if demand suddenly weakens, impacting both revenue stability and margins.
  
• Growing capacity expansion-especially with significant capex committed to new clean rooms and fabs-may result in future overcapacity if industry growth slows or orders soften, which could cause margin compression and lower future earnings due to higher fixed costs.
  
• Intensifying competition from Asian foundries, with mentions of large Asian foundries facing significant utilization declines and order decreases, could indicate global price pressure or market share risk, threatening X-FAB's revenue growth and customer retention in core markets.
  
• The company's strong reliance on legacy nodes (180nm, 150mm CMOS) and consigned wafer production in silicon carbide may limit long-term participation in higher-margin, more advanced technology markets, constraining future revenue and margin expansion as industry demand skews toward leading-edge nodes.
  
• Customer concentration risk is highlighted by the reliance on large accounts like Melexis-who are actively pursuing local foundry partners in China-and by late-stage contract-driven booms in segments like industrial and silicon carbide, both of which increase vulnerability to sector-specific downturns and could depress revenues and earnings if key contracts are lost or delayed.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €5.06 for X-FAB Silicon Foundries based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €6.05, and the most bearish reporting a price target of just €4.28.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $1.0 billion, earnings will come to $68.1 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 12.3%.
• Given the current share price of €6.29, the analyst price target of €5.06 is 24.4% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
• 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.