Please note that management comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today's press release and presentation. All documents relating to our Q2 2025 reporting are available on our website. I now turn the call over to Michael for his remarks.
Thank you, Verena, and a warm welcome also from my side. Let's start with the key messages of today's call. Wafer demand remains subdued, continuing the soft trend we've observed over recent quarters. Despite this, we achieved our targets for H1 this year and delivered solid results in Q2 2025. Regarding the tariff situation, even though things seem to be clearing up lately, we have to analyze this in detail, including implications for our sector and our business. So far, our overall end market assumption from the beginning of the year is unchanged. The most significant headwind for us is the weakening US dollar against the Euro. This is why we've aligned our full year 2025 sales guidance based on these FX. Our new FX assumption for the second half of 2025 is a EUR/USD rate of 1.15 compared to our previous assumption of 1.08.
Consequently, we now anticipate that full year sales will be in the mid single digit range below 2024 levels. Before we look at the details of our performance in the second quarter, I'd like to take a moment to recap the progress we've made in H1 2025. Key highlight was the successful completion of important prime wafer qualifications on new fab, paving the way for depreciation to begin in August. At the same time, our cost and cash initiatives are progressing well, further emphasizing our commitment to operational discipline. Last but not least, we remain fully on track to complete the phase-out of the small diameters business in just a few days by the end of July 2025. This marks the successful conclusion of a highly professional and well-executed transition process, thanks to the outstanding collaboration and commitment of everybody involved.
Let me give you a broad overview of our development in the second quarter, and Claudia will provide a detailed financial overview shortly. Quarter on quarter, our sales declined by 5%. This development was in line with our expectations. While we saw an increase in wafer areas sold, this was not sufficient to fully offset the negative impact driven by FX effects and, to a lesser extent, by price effects. Despite the decline in sales, we achieved an improvement in our profitability in Q2. EBITDA reached EUR 86 million in Q2, up from EUR 78 million in Q1. Consequently, the EBITDA margin increased to 26.3% compared to 22.6% in Q1. This positive development was largely driven by non-operating effects, which Claudia will explain shortly. CapEx came in at EUR 126 million, primarily related to our new fab in Singapore.
Consequently, and as anticipated, the net cash flow continued to be negative at EUR 83 million. On a positive note, our market share among the major competitors remained stable in the first half of 2025, underscoring our resilience in a challenging environment that continues to affect all wafer manufacturers. Let's move to the financials. Claudia, please.
Thank you, Michael. A warm welcome from my side as well. I'm pleased to walk you through our performance over the past quarter and highlight key developments. As Michael mentioned, sales in Q2 developed in line with expectations, totaling EUR 329 million, a 5% decline compared to the previous quarter. While the wafer area sold increased, this was more than offset by headwinds from the US dollar and, to a smaller extent, pricing. The product mix remained largely unchanged compared to Q1. On a positive note, EBITDA rose to EUR 86 million in Q2, marking an EUR 8 million increase quarter- over- quarter. In addition to positive contributions from fixed cost dilution, this development was supported by two main factors. First, Q1 typically includes seasonal effects such as vacation accruals that are more pronounced at the beginning of the year. Second, Q2 benefited from what I would categorize as non-operating effects.
On the one hand, we adjusted the valuation of our spare parts following the phase-out of small diameters. On the other hand, compared to previous quarters, a somewhat higher amount was capitalized for innovation projects that have now entered the development phase. Importantly, our overall R&D spending remains unchanged even under the current cost discipline as we continue to invest in our future with higher EBITDA. Despite lower sales, our EBITDA margin improved significantly, reaching 26.3% in Q2, up from 22.6% in Q1. In the comparison of first half 2025 versus 2024, FX effects had only a limited impact on the top line performance. However, we observed noticeable effects within the P&L lines, other operating income and expenses where FX-related impacts are recorded. In H1 last year, we benefited from positive hedging results, resulting in a net gain of EUR 5 million.
In contrast, H1 this year showed a net expense of nearly EUR 6 million in these line items. While Q1 was negatively affected by hedging losses, Q2 brought a new dynamic with hedging gains driven by the sharp weakening of the US dollar. However, these gains were more than offset by valuation effects on recorded receivables at the reporting date. To put this into perspective, within just one quarter the US dollar weakened significantly against the euro, moving from 1.08 at the end of March to 1.17 at the end of June, compared to 1.04 at the end of last year, as depreciation remained almost unchanged quarter- over- quarter. The positive development in EBITDA also translated into a higher EBIT of EUR 24 million, an increase of EUR 9 million compared to Q1.
Looking ahead to Q3, we expect depreciation to rise significantly starting in August as our new fab in Singapore will begin to be depreciated. Turning to the financial result, a slight decline was offset by lower tax expenses. Taking all these factors into account, Q2 net income came in at EUR 15 million. Let's now turn to the key developments on our balance sheet. At the end of June, total assets amounted to EUR 4.9 billion, slightly below the EUR 5.0 billion reported at the end of March. CapEx in Q2 totaled EUR 126 million, once again clearly exceeding depreciation of EUR 63 million. However, FX valuation effects related to our Singapore entities had a counterbalancing impact, resulting in a slight decline in fixed assets. Inventory saw a slight increase, mainly due to lower write-downs on spare parts. Trade receivables declined partly as a result of FX valuation effects at the reporting date.
In contrast, other receivables increased, reflecting positive market values of our FX hedging positions. Operating cash flow fell short of covering our payments for CapEx, leading to a decline in cash and securities to EUR 535 million. Our equity ratio remained stable at a healthy level of 43% as communicated in Q1. We drew EUR 53 million of our syndicated loan in Q2, which is reflected in financial liabilities. The increase was partially offset by FX valuation effects related to our Singapore dollar loan at the end of June. Trade payables, primarily those related to investment activities, decreased as planned from EUR 280 million at the year end 2024 to EUR 233 million by the end of June. Alongside the refund of prepayments and FX valuation effects, this contributed to a noticeable reduction in liabilities and prepayments. CapEx in the first half of 2025 totaled EUR 222 million.
Given our full year CapEx guidance of EUR 350 million- EUR 400 million, investment activities will be lower in the second half of the year. Our strategic focus remains unchanged, the ramp of our new fab in Singapore and the necessary steady state CapEx level to support our operations. Looking beyond 2025, we still expect some incoming equipment from the initial ordering for our new fab. However, new equipment orders will only be placed if we see clear positive market trends. We continue to provide updates on the structure of our financial liabilities as illustrated on the left-hand side of this slide. As of today, our total loan drawdowns amount to EUR 1.42 billion. This includes EUR 53 million from our syndicated loan, newly accessed in the second quarter. Our revolving credit facility of EUR 127 million remains entirely undrawn and fully available to us.
On the right, you will find the corresponding maturity profile as previously communicated. Real payments will start in 2025, beginning with a modest tranche of EUR 65 million in the fourth quarter. Our balance sheet also reflects short-term prepayments of EUR 42 million, which will be reimbursed within the next 12 months. Overall, our liquidity position remains robust with EUR 535 million in cash and securities, excluding the undrawn revolving credit line, which further strengthens our financial flexibility. Turning now to net financial debt as shown in the bridge, Siltronic closed the year 2024 with net financial debt of EUR 734 million. In the first half of 2025, we generated an operating cash flow of EUR 80 million, negatively impacted by working capital effects, prepayment refunds, and rising interest payments. As anticipated, CapEx payments in the first half totaled EUR 250 million, exceeding the investment by around EUR 30 million.
Consequently, net financial debt increased to EUR 903 million by the end of June. Looking ahead, we expect net cash flow to improve significantly in the second half compared to the H1 level, mainly driven by positive working capital effects and an improved cash flow from investing activities. With that, I'll hand it back over to Michael.
Thank you, Claudia. Coming to the market outlook, even though the situation around the U.S. tariffs begins to clear up, it remains volatile. This makes it difficult to assess the broader impact on global GDP growth and demand for wafers in end markets. Nevertheless, we would like to share our current view on the end markets. Looking at individual end markets, the smartphone market has softened slightly. Meanwhile, PCs have shown a notable uptick compared to our March assumption, driven by a stronger than expected Microsoft Windows 11 impact. Server demand remains robust, fueled by the continued AI momentum. The automotive segment has seen a slight decline, partly due to lower sales of electric vehicles. Overall, our March assumption is still valid and the end markets are expected to grow approximately 7% this year. The majority of this growth comes from content and only a smaller share from unit growth.
However, elevated inventory levels continue to weigh on this positive end market picture, resulting in a significantly lower volume impact for the wafer industry. Our internal market assessment indicates that there was no meaningful inventory digestion in the first quarter as most of Q2 data for customers are not yet available. Inventory levels across key segments remain elevated, continuing to weigh on wafer demand. Memory inventories are still elevated. Power inventories have reached record levels, further limiting short-term demand and prices. In contrast, logic inventories look the best. Q2 did little to improve market visibility as elevated inventories still postpone our demand recovery. As you all know, we have so far been calculating with an FX rate of EUR/USD 1.08 in our guidance. However, due to recent developments in the FX market, we've adjusted this rate to 1.15 for H2 25 and updated our guidance accordingly.
It's therefore worth taking a closer look at this. As you can see on the left side, in 2025 we have a US dollar exposure of more than 80% of our top line. While the majority of our EBITDA costs are euro based, this makes us sensitive to exchange rate fluctuations. Let me explain our updated US dollar sensitivity based on our 2025 exposure and the revised exchange rate of EUR 1.15 for H2. A change of $1.00, including the highly correlated Singapore dollar, would impact our full year sales by approximately EUR 10 million and our EBITDA by around EUR 6 million before hedging. Our hedging strategy remains unchanged. We hedge up to 18 months ahead based on expected foreign exchange net exposure. In closing today's presentation, we would like to share our refined guidance for 2025.
Although we are more than confident in the mid and long term growth of the silicon wafer market, we expect elevated customer inventory levels and related volume shifts to continue influencing the next quarters. Furthermore, there is a clear uncertainty in the market from U.S. tariffs going forward and the continuous change in regulations. We maintain our full year 2025 guidance based on a constant exchange rate of EUR/USD 1.08. However, as explained before, we have updated our expectations for the second half of the year using a revised exchange rate of EUR/USD 1.15. With this new assumption, we now expect 2025 sales to be in the mid single-digit % range below 2024. Previously, we had anticipated sales to be roughly in the region of last year. For Q3 2025, we expect sales to come in below the second quarter.
This is primarily due to intra-year shifts in delivery volumes with a significant portion now scheduled for Q4. Our EBITDA margin forecast remains unchanged at 21%- 25%. We further refined our depreciation outlook. Depreciation is now expected to range between EUR 340 million- EUR 400 million. This adjustment reflects improved visibility and the impact of a weaker Singapore dollar. Our guidance for CapEx, EBIT, and net cash flow remains unchanged. With this, we conclude our Q2 2025 results presentation and Claudia and I are happy to take your questions. Thank you very much for your attention. Elaine, please open the Q&A session.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Please state your name and organization before asking a question. The first question comes from Amelia Banks from Bank of America . Please go ahead.
Hi, thank you for taking my question. I was wondering if I could just ask a question on your margin. Is it possible if you could quantify the decrease in cost of sales from the write-down of the spare parts? Thank you.
Hi, this is Claudia. Just to give you a ballpark number, let's say mid single digit amount in Q2, which impacted our EBITDA positively.
Is that quarterly?
That's a one-time effect.
Okay.
Okay, thank you.
We will take our next question from Daniel JC from AT Group. Please go ahead.
Hello, good morning.
I have two questions. The first one being you're mentioning that you continue to have a stable market share among your main competitors. However, relative to your peers, your dynamics are slightly slower. Now on customer and product mix, how is then your share stable right now? In addition to that, we see China now accelerating in 300 mm. Sure, it's not leading edge yet, but still, do you see any pressure there? If you look at the overall share, is it then decreasing? My second one would be on guidance. Basically, you lowered it on FX reasons with a sequential deterioration in 3Q. Could you elaborate? What gives you the confidence in the 4Q order as it was already pushed out twice and now end markets continue to be sluggish and customer inventory is high. Thank you.
Thank you, Daniel.
Couple of questions. Let me take the market share question first. Market share, of course, is an average of all the different customers. Indeed, we have some negative mix effect, which means there are effects that certain customers buy less in certain, let's say, segments. On the other side, this is opposed by market share gains at other customers. In the overall average consideration, and that's what we're talking about, we can say our share is stable. With regards to the China question, we do not see very specific or very accelerating China dynamics. When you study, let's say, the wording around this of our peers, there are also, let's say, more optimistic and more pessimistic statements. We would see ourselves in the middle of this range. China is, on the one side, a very important market for us.
China competition is the most serious the smaller the wafer diameter is. We see 200 mm, I would say, as a mixed bag. There are still very attractive segment swaths where we can play our technology leading position, and in 300 mm, particularly in the higher specs, and you mentioned leading edge, there's still a huge technical gap between the Chinese players and the three major players that are able to serve leading edge. With regards to your guidance question and the patterns each fall, these are particular and individual customer postponements of volumes. We have allocated those volumes now to Q4, and I can say we have reasonable confidence that the customers will execute, and we are in a way positive that this will happen as predicted in our guidance. Thank you.
We will now move to our next question from Constantin Hesse from Jefferies . Please go ahead.
Thank you very much for taking my question. Also from me, if we could talk a little bit about Michael, the outlook overall, I mean, clearly this bottom has just been dragging on and on and on and it just feels like it's almost never ending. Inventories, if I look at the SUMCO charts, are still extremely high, both in logic. I mean, logic obviously a little bit better, but memory of course, pretty bad. Power getting only worse. What I'm trying to figure out now is I think even if we want to be conservative on the top line and the P&L going into 2026, how should we think about CapEx in 2026?
Now, I think you did say during the call that you will not invest in additional equipment unless you see a sustainable improvement in markets, which I guess implies that CapEx will obviously come down next year. I think your maintenance CapEx is currently running at about EUR 200 million. Is there any CapEx that you already have committed, expansion CapEx beyond maintenance CapEx, that you already have committed that you have to spend in 2026? I mean, it would be just pretty good to have if we could have a clearer picture of how we should think about investments in 2026 because clearly your balance sheet is levering quite significantly. It would be good to have a bit.
Of a picture there.
Thanks.
Thank you. Constantin. The outlook, I mean, you're absolutely right. This inventory situation is hanging on for quite a while. We see the good progress in logic, memory. I mean the overall picture isn't good. Still, individual customers are on the right track on memory. There's a huge variety of different statements from different customers and power indeed from all what we see is further creeping up, and this might be related to the very, let's say, poor overall automotive sentiment and industrial environment. On the other side, we have this end market growth of 7%. I mean it's very difficult to predict, but it should be and will be hopefully a question of time until those 7% are making its way through this inventory, the supply chain, and also eventually landing at the wafer industry.
It's a way to go, and it's very difficult to predict how long this will still need. I mean your 2026 question is a bit difficult one. Today we don't guide, we don't guide any 2026 numbers. However, maybe around your specific CapEx point, let me emphasize a couple of things. We communicated the steady state CapEx of around EUR 200 million, but we also said it's an average number. Also, there could be years below, there could be years above, so that's maybe something you might want to have in mind. Indeed, there is, let's say, a certain CapEx hangover still from our fab in Singapore that will trail into 2026. Overall, we would see CapEx coming down, and we will specify this more concretely when we come closer to 2026 and the related guidance timeframe.
That's very, very helpful. Thanks, Michael. On the next question, if I may, I think part of the depreciation adjustment was driven by an improved knowledge of equipment activation. I'm just wondering, does this at all change that old or the legacy outlook that you used to have on depreciation of EUR 500 million+ a year once Singapore is being fully depreciated? Just to have a rough idea.
Yeah, you're absolutely right. With the progress of investment projects, you gain a better visibility on the timeline, and we had to do the adjustment due to FX. We stick to our communication that depreciation will be above EUR 500 million, not this year. Definitely not, because we have the guidance out. Once FabN ext is in full depreciation, going forward we will see the EUR 500 million+ in depreciation.
Okay, this is great, thanks. Lastly, on the long-term agreements, I think Michael, last year, I think in Q1 you said there are no major long-term agreements expiring either this year or next year. If you could just confirm that. Second of all, is there any reason to believe that the bargaining power of Siltronic, SUMCO, Shin-Etsu may be at a place where if you do have to renegotiate these long-term agreements, say in two, three years, given the current market conditions, could you potentially experience significant pricing pressure here or is there an understanding between the semi players and the wafer manufacturers?
I don't want to sound naive here, but would there be an understanding that they do understand how much money you just invested into these plants and there will be some kind of an accord that pricing would probably be under pressure but it wouldn't be a huge amount. I'm just trying to get an idea of the potential negotiation dynamics of yourself and your customers given the current market environment.
Yeah, thanks, Constantin. First of all, let me confirm, indeed no major LTA is expiring this year or 2026, and the major LTAs which we concluded in the framework of our new plant in Singapore have a very long duration. We talk numbers like 2028 or even 2030 there. There's a very, let's say, overall robust situation. Parts around the LTAs, further LTAs, we also concluded smaller ones, and there are here and there segments that are still, you know, very significant in demand, and that is also reflected in pricing on the other side. Of course, we will not conclude major LTAs in this current market environment for sure. Customers have a rather strategic perspective on this, and some talk about, you know, LTAs of a couple of years for certain products even in the current environment. It's really kind of portfolio.
You have to imagine, you know, one small one can go away, another one is coming in, but the major ones are fixed for a long time period. With regards to pricing, I can also confirm that all the LTAs are adhered to as in contract price, and the price effect we were describing is happening outside LTAs, and that is around one third of our business.
Great, thank you so much.
We will now take our next question from Harry Blaiklock from UBS . Please go ahead.
Good morning. Thanks for taking my questions. My first one is just around, I guess, why you think inventories are taking so long to come down. In particular, with Asian manufacturers having a higher portion of LTAs than you do, quite significantly higher, do you think you might be suffering because they continue to deliver contracted volumes despite higher inventories? To follow up on that, if you and competitors continue delivering LTAs, how can we expect inventories to come down, especially when they haven't budged, even when you've been saying that and demand is kind of greater than what you've been shipping and what wafer demand is.
Yeah. Why is this hanging on for so long? Time is indeed, in a way, the key question. I think it's still the situation that the chip manufacturing is, in a way, bifocal. There are a small number of companies that are centered around AI chip developments and they're doing extremely well. You can study their quarterly, monthly numbers, which are going up significantly. However, when we analyze this in more detail, we see that this is primarily value driven. They are, with technical developments, in position to charge much more for their chips than there used to be for previous generations. At the same time, the amount of wafer area sitting underneath these chips is not growing significantly or only moderately. We have this decoupling of volume and value growth at certain customers.
Of course, you have others, particularly those in the power segment, whose business is not, let's say, devaluing, pretty, pretty aggressive. That means their volume, demand, and their wafer area situation is still tuned down for quite a bit. This, in a way, totals to the overall picture. We're describing healthy or reasonable end market demand of around 7% but not landing yet. Vastly, I mean some parts are progressing as we talked about logic, but vastly in its totality, not landing at the wafer industry. Your question was whether Asian peers are insisting on LTAs or whatever. Everybody tries to insist on LTAs as much as possible. I think the clear evidence that this is affecting everybody to the same extent is our market share statement. We are stable, so there is no indication that we are doing significantly better or worse than our peers.
It's really an industry-wide phenomenon and affects all of the wafer manufacturers.
Got it. Thank you, Michael. On the ramp of FabNe xt, I know you said it kind of depends on market conditions, but based on your current view of that and how the market will develop into 2026, can you give some color around how much capacity you think will be added in Singapore this year and next?
We talked about the issue around capacity, it was 100,000 per month by end of last year. Now that is further built up. We are reluctant, you know, to talk about very specific numbers in relation also to equipment, et cetera. That would be highly competitive information. Yes, this will be further ramped but we will be also very careful with the ordering of new tools as we explained and that we will only trigger once we have the indication that markets are really ticking upwards again. For the time being we work with what we have. We have certain hangover of CapEx which means there are still some effects trending CapEx wise into next year as we said already. There will be a decision point when we have market, let's say clearance indications to further bring capacity into, into this fitbar.
Detailed numbers is not what we want to communicate for competitive reasons.
Got it, thank you. Just a quick one on Q3, are you able to give a bit more quantification on kind of below the level?
Is it slightly below the level?
Mid to low single digits? Significantly below the level of Q2? Any color would be helpful.
I mean you can do a lot of maths, right? You have a full year guidance, half year, it's over. We gave some indication where Q3 will sit and that Q4 should be further elevated. Giving more details would be very difficult as we have those quarterly phasings and quarterly closing effects typically letting in a few millions left or right in the end of the quarter. Therefore, I think all you can do is to do the calculations which should be then already pretty precise.
Got it, no worries. One last quick one just on, I'm not sure whether you just phrased in the past, but in terms of the debt that you have, any covenants that we should be aware of?
You are asking for our covenants, right? Yes, we have covenants in place, but we haven't communicated so far any contract details, and we will stick to that. We won't disclose any details here.
All right, thank you both.
We will now take our next question from Florian Treisch. Please go ahead.
Yes, good morning all. Just a quick follow up on my end. It is mainly around phasing Q3, Q4. You mentioned that end of July the smaller diameter part will go out of the equation. Can you maybe quantify the impact in Q3, Q4 and in general, you have pitched a story that the next or the quarter after the next quarter will be better. You mentioned you have a decent confidence that the shifts from Q3 are going into Q4. Is there something different in the structure of it compared to the last couple of quarters or the same crystal ball you like to mention in the quarterly calls?
Thank you.
Thank you, Florian. I think very good question. Number one, small diameters will be closed as scheduled by end of this month. The revenue effect from that is very small, for totally it was mid single digit % of total revenue. Now let's have in mind this year it's only seven months, so it's really small. We will not see any significant effect from this in the second half. The crystal ball is still there and let's say the overall view on the future is still foggy. I think we explained that in great detail. Nevertheless, the particular phasing between Q2, Q3, and Q4 this year is something different as it's the result of individual customer discussions and allocations with different customers and in contents with different customers to the different quarters according to their demand need.
Therefore, there's I think a different level of confidence of our quarterly phasing, our quarterly statements we made for this year. The overall situation is still a bit loud and I think I would really like to differentiate those two in terms of how large our trust and confidence is.
Great, thank you very much.
We will now take our next question from Martin Jungfleisch from BNP Paribas . Please go ahead.
Yeah, hi, good morning. I just have two questions. The first one is on the pricing impact that you've seen in the second half. I mean, the guidance implies now relatively flat sales development in the second half. Is it right to assume that the smart diameter wind down, which has seen price pressure, and also the ramp of FabNe xt volumes that typically or should carry higher prices, should be just at least flat pricing development in the second half? That's the first question.
Overall, we don't, you know, give quarterly or half year pricing statements or comments. The effects you were mentioning like a small diameter and ramping of the fab should not affect the pricing at all because the pricing is more a market thing where we clearly can confirm that around two thirds of our business are in LTA's where the prices are up as contracted, and the other one third, which is maybe a bit more small diameter and 200 mm, is more under price, let's say, discussions, which leads then to our overall price situation as described. We do not see, you know, a very particular quarterly pricing effect, and it should not be affected by the SD business closure, neither nor the Singapore.
Okay, thank you. Just to follow up on this cost stuff that you had in the second quarter, you mentioned the single mid single digit number from the write-downs. You also had a positive effect from capitalized R&D, negative effect from the revaluation of receivable. Can you just disclose what total number in the cost base was considered one-off and what we can extrapolate into the third quarter? Just on hedging, would you expect to realize hedging gains now in the second half at current FX rates?
Yes, we disclosed, we just disclosed the rough amount of the valuation effect. It's single digit. Regarding R&D, you should have a picture. If you look at our P&L, the development quarter- over- quarter in R&D cost, that gives you an idea. This will also translate into the next quarter. R&D cost will stay on roughly that level because we will continue to capitalize those activities that we started right now to capitalize.
Let me emphasize this is not affecting our R&D activities in our operative R&D works. We didn't cut there at all. The activities on the ground working on R&D and tech development are unchanged.
Okay, thank you.
Regarding hedging, in total we had a positive hedging result in Q2, but it was counterbalanced by those valuation effects. Nevertheless, for Q3 we have some beneficial, let's say, hedging positions in place for the second half of the year. There is a strong movement always in the US dollar, so you can't really make a mark on valuation effects. Given that the US dollar would stay at 1.151 like it's today, we should have a positive effect from hedging in the second half of the year.
Sounds good.
Thanks very much.
I would like to add something which you haven't mentioned but which is important for the second half of the year, and this is rent cost as we start to depreciate FabNext in August. There's also an effect in rent costs. We will see them in the P&L from August on. Until now, we capitalize them under CapEx.
Can you just remind us how much it roughly is in the second half?
Yeah, we don't disclose a number here. On a full year basis, the effect is not so big, but on a quarterly or half year basis you will definitely see it.
Okay, thank you very much.
We will take our next question from Jimmy Huang from JPMorgan Chase & Co. Please go ahead.
Hi Dr. Heckmeier. Thanks for taking my questions. First, I would like to ask about how you think about potential impact of Chinese competition within the China market and in international markets. We see that five Chinese silicon wafer suppliers have reported their 12 in revenue was around $100 million in 2021. It has increased to about $1.1 billion in 2024 only for 12 in silicon wafers. I still would like to ask about your views on potential Chinese competition for international suppliers.
Thank you.
Yeah, thank you very much. I mean China's competition is definitely on the ground and they're progressing and developing. We see their capability strongest the smaller the diameter is and in 300 mm as you highlighted, starting with some low spec, some test wafer activities. We do not see a lot of activities outside China and here we think geopolitics could even be contained locally. As you know, the tariff discussion is hot between China and the U.S. and some other countries on the other side. We also have, let's say, good business in China. A lot of customers appreciate our quality, our technology, and our, let's say, technical support and capability there. Yes, there are Chinese dynamics and Chinese progress.
I think it's a very long time to go until they would be in a situation to deliver premium products, particularly such as leading edge or high bandwidth memory or something like that.
Thank you so much for that. Second, I would like to ask about the leading edge logic silicon wafer because previously people think there are three major suppliers including you and Japanese companies. We heard that another international silicon supplier from Taiwan is also relatively confident about their progress within the leading edge logic, i.e., foundry in U.S. fab. How do you think about potential, like more competition from this international supplier in the leading edge market? Thank you.
Thank you very much. I must note and cannot comment on individual competitors. However, when you talk about the new fab in the U.S., of course we have to take in mind that quantifying a new fab, and we experienced ourselves in the last couple of years, I can say it's a very, let's say, long and difficult process with customers. You might remember when we had the first wafer out ceremony in late 2023, and now we're starting depreciation here in August this year with being fully qualified with prime products at our customers. If we had no leading edge experience, it would have taken even much longer time. Therefore, yes, everybody's ambitious to go into that leading edge segment and provide premium products.
However, we know there's a clear entry barrier, and it's a, let's say, long and very difficult path to go there, and customers feel quite happy with three volume suppliers of leading edge. There's not a very aggressive need for another one.
Yeah, understood. Thank you so much. I'll be back to the queue. Thank you.
As a reminder, if you would like to ask a question, please press Star one on your telephone keypad now. We will now take our next question from Robert Sanders from Deutsche Bank . Please go ahead.
Hi, I just was hoping to ask about the FabNext scale that will give you accretion on the EBITDA margin level. Is there like a 100,000 or 200,000 level where you think that could, that ramp could start to be accretive rather.
Than dilutive at the EBITDA margin level.
Second question would be about what cash flow burn you expect in 2025. Lastly, if you could just, although you're not willing to disclose covenants, I think it would definitely benefit investors to understand if you're at least close to breaching covenants. If you could just confirm that you're not actually close to breaching covenants.
Thank you.
Thank you. Rob and I take your first question about the new fab and then Claudia will talk about the other elements of your questions. I mean the good news is now FabNext is qualified in nature products and with that we have for the first time the opportunity to ramp volumes to balance volumes between our global fabs footprint. That means we can actively steer now volume developments in the fab and we will do that to, let's say, an optimum manner. On the one side there's an interest to load the fab, let's say as quickly as possible to come into the volume area where it becomes margin accretive, which will take some time. The target here is unchangedly to deliver those EBITDA margins north of 50% out of that fab which only will happen with what we called a significant loading as you might remember.
That's the clear path going there. On the other side, we must not underutilize our existing footprint in Germany to avoid too heavy idle cost. It's the ongoing task of our global operations team to steer this mix in an optimal manner. For sure FabNext will see volume increase. Now because the way is clearly paved with the prime qualifications we've done, particularly achieved in the last couple of months where we now say the fab is ready. That's also the reason why it's depreciated starting in August. For the other elements of your questions I hand over to Claudia.
Okay Rob, I'll start with the cash burn. Yeah, our guidance for net cash flow this year is significantly negative, but still better compared to previous year. I can only add that yes, we had a cash burn in H1, and let me put it like that, that was the majority of our cash burn this year. We will see definitely an improvement of net cash flow in the second half of the year, mainly driven by, as I mentioned, positive working capital effects and an improved cash flow from investing activities. We will drive down our investing activities in the second half of the year. Regarding the questions on financial covenants, I can only underline that as of today we expect to stay within the financial covenant. Unfortunately, no more details on that.
Thanks a lot.
Please state your name and organization before asking your question. We will now take our next question. Please go ahead.
I hope you can hear me. Few questions. The first one on the inventories, I mean I'm not sure if I got that correct. So your inventory analysis is basically based on customer inventories from the first quarter, is that correct? Then related to this, particularly in the memory business, where do you see the crossover for the inventories where customers should start to see higher order activity or start with higher order activity? I mean we have seen Micron, SK hynix, where inventory days in Q2 came down much stronger. Related to this also is in memory, maybe your customer mix is rather a headwind than really the overall demand.
Thank you very much for your questions. Indeed, as you mentioned, the Q2 picture is not fully on the table yet. A couple of our statements are really, you could say, outdated or let's say based on Q1 data where we have the full picture of the inventory for all the three segments: logic, memory, and power. You're right and I said it already. Within memory, there are some differences between different customers, some reported a bit, let's say, progressing data. On the other side, the question might imply do we have negative exposure or customer mix, which I can deny clearly because it's again coming back to the overall market share. We have the very reliable data from this independent SEMI organization. If that was a significant influence, we would see market share differences, which we don't see.
I would say all the wafer manufacturers are exposed to different customers and as everybody said, every customer of course with different market shares. On average, those major players are affected similarly by this inventory picture. It's nobody really better off than the others.
Got it.
On the customer push out, you mentioned from Q3 to Q4. In previous calls you mentioned that customers are pushing volumes to the second half of 2025. In this call you mentioned especially this one customer. Is that really related to this customer, or is the big picture still a lot of customers are pushing out volumes, sticking to the LTAs but pushing out the volumes? Are you willing to share what type of customer or which end market this shortcoming mainly?
Thank you very much for this request. What we see as the quarterly pattern of volume and of our sales development is the total of a couple of individual customer discussions and conclusions. Some of them wanted to have more in Q2, others wanted to have more in Q4, et cetera. It's really a pattern of many customers. We are not in a situation to disclose individual customer patterns or individual segments there. What we see is now the consolidated picture. As you know, we have a couple of niche customers and some of them were also demanding specific allocations.
The final one, if I may, on the smaller diameters, the question was asked previously and you mentioned impact is, yeah, small. I understand that on the full year basis. However, if the smaller diameter is 5% of the sales, which basically means from last year sales, it's roughly EUR 70 million headwind. That would be probably 10% or 11% of your second half sales. I think it would be helpful if you could give a little bit of color around how this is going to shape out between Q3 and Q4.
The phase-out is ongoing already for more than one year. We were in that business already on kind of phase-out level. When we say the overall market share is stable, you could conclude, and that's definitely true, that some other segments did overcompensate the decline in SD. I would not, and we don't see any particular further effects in the second half. It's all been worked into our guidance already.
Okay, Got it, thank you.
At this time I would like to turn the conference back over to Verena Stütze, Head of Investor Relations and Communications at Siltronic.
Thank you, Elaine. This concludes our Q&A session. Thank you for joining us today. We will release our Q3 2025 figures on October 28. On this slide, you can also see our next IR event. Thank you. Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.