Hello everyone and welcome to Siltronic's conference call on its Q1 2020 results. Please note that this call is being recorded and streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation on 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.
Thank you, Operator, and welcome everybody to our Q1 results presentation. With me are as usual Chris von Plotho, our CEO, and Rainer Irle, our CFO. Following our procedure, Chris will start with some remarks on current developments and quick results. Rainer will then comment on the key financials, and Chris will follow again with updating you on our guidance and current market developments. After the introduction, we will be happy to take your questions. Please note that the presentation contains the usual stakeholder statement and applies throughout the call and the presentation. Today, we have published all documents relating to our Q1 2020 reporting. They are available on our website, and I now turn the call over to Chris for opening remarks.
Good morning, ladies and gentlemen. Let's start with the topic which is on everybody's mind nowadays: the coronavirus. We at Siltronic take the situation very seriously and have implemented preventive measures as health and safety of our employees, customers, and partners are our top priority. Since the outbreak, we suspended basically all business travel, restricted visitors on site, and implemented measures to limit physical interaction like home office and clear physical separation of shifts in production in order to reduce the risk of a community spread. At the same time, we maintain efficient and secure interactions within our company and with our customers and partners like video conferencing, WebEx, and other means. We operate in compliance with recommendations of relevant authorities and proactively support our employees to prevent risk of contamination. We have a few justified suspected cases and even less confirmed COVID-19 cases, all of which showed mild symptoms.
There was no single case of an employee who had to be treated in hospital. All of the affected employees are already back to work. As a result of the preventive measures taken by Siltronic, our production sites have not had any disruptions or shutdowns so far. In Germany, special approvals are not needed, and production is running smoothly. Our Portland Fab is exempt from the shelter-in-place order of the state of Oregon. Also, our Singapore Fab is allowed to continue to run the production as usual, but we experienced some challenges in recent weeks. First, the border to Malaysia was closed. At that time, we catered for accommodation in Singapore for our workers from Malaysia. But after a few weeks, some of them wanted to go back to their families. Luckily, we were able to almost compensate in both cases a reduced number of operators by employing more Singaporean locals.
Now, you might have heard that Singapore is currently having a problem with corona spreading in dormitories for foreign workers. All our foreign workers in Singapore live in apartments or hotels, and nobody is in a dormitory. We also experience currently some delays in investment projects as our engineers are not able to travel in order to start up equipment, but we are able to mostly finish our capacity expansion projects, and we face some headwinds in freight costs. Pre-corona, more than half of our air freight was transported by passenger planes and the rest by cargo planes. Today, passenger traffic is down by 95%, while air freight is down too, but to a far lesser extent. We had to find new routes and are facing premium freight costs.
The good news is we found solutions for all shipments of WIP between our sites and all wafer shipments to our customers. Customers are happy, but the costs are up. Siltronic actually started quite well into the year 2020. Our Q1 sales are only slightly below Q4 last year and comparable to the third quarter of 2019. Logic is doing well with strong foundry business, strong server growth, and inventory levels being okay. Memory, on the other hand, is still a challenge independent of corona. DRAM inventories at customers are still elevated despite the slow decline we have seen in recent months. In the end, inventories are close to normal levels, but we did not see it coming down further in the recent months.
Silicon demand for automotive is still okay in Q1, but with production shutdowns of car producers in Europe and some other parts of the world, we expect a deteriorating environment ahead of us. In Q1, 300 millimeter Epi and 200 polished and 200 Float Zone were really strong. 200 Epi was improving. 300 polished was still weak but stable. Smaller diameters up to 150 were still weak, even though demand for FZ grew a little bit. As expected, ASP quarter on quarter came slightly down in development we already saw in Q3 and Q4 of last year. However, let me emphasize again that we see more price pressure on smaller diameters, for example, 150 and below, and currently, we see that price declines are slowing down. Now, let's have a look at our key financials. Q1 came in a little bit better than expected.
Our sales were driven to EUR 300 million, only 1.4% down compared to prior quarter. This was driven by higher demand for wafer area, which could merely compensate declining ASPs. Our EBITDA came in at EUR 84 million. EBIT was down to EUR 53 million. CapEx was EUR 46 million after EUR 96 million in Q4 of last year. It mainly relates to our capacity expansion projects. Net cash flow increased to EUR 41 million compared to EUR 9 million in the last quarter of 2019. Our net financial assets stood at EUR 588 million at the end of March. Rainer will now explain in more detail our financial performance in Q1.
Yeah, thank you, Chris, and welcome everybody. Business in Q1 was a bit stronger than expected. As Chris pointed out, higher volumes could almost compensate the decline in ASP. Sales reached EUR 300 million and was thus only 1.4% down quarter on quarter. FX had basically no impact. Due to the higher sales volume, cost of sales increased quarter on quarter to EUR 211 million . However, cost of sales per wafer area was down as we saw some nice productivity improvements. Our gross profit in Q1 declined to EUR 89 million . Gross margin came down from 32% to 30% quarter- on- quarter. Our selling, R&D, and admin expenses of EUR 33 million were on a stable level compared to prior quarters. Next slide shows our FX exposure and sensitivity. FX had no major impact quarter on quarter.
The negative implications from currency effects like hedging added up to negative EUR 3.4 million in Q1 compared to negative EUR 4.2 million in Q4 of last year. Lower ASP quarter on quarter weighed in our profit. Our EBITDA in Q1 came in at EUR 84 million. The EBITDA margin went down quarter on quarter from 30% to 28%. EBIT in Q1 came in at EUR 53 million with a margin of 18% compared to 19% in Q4. The reason that EBIT decline was softer than EBITDA decline was lower depreciation quarter on quarter because we had in Q4 a small impairment charge relating to unused equipment, smaller diameters. In the remaining quarters of 2020, depreciation will go up. Next. Tax rate in Q1 was only 3% and exceptionally low.
You remember in Q4, we released deferred tax assets, which led to an additional tax expense of roughly EUR 20 million. In Q1, we saw deferred tax income and some tax relief relating to corona in the U.S. in Q1. This sharp decline in income tax contributed to the net profit of EUR 46 million in Q1. Earnings per share came in at EUR 1.32. Working capital went up in Q1 as expected. Inventories were roughly stable quarter on quarter. Trade receivables were down by EUR 7 million due to DSO down in Q1. Trade liabilities were down by roughly EUR 60 million due to lower CapEx levels. Looking at our balance sheet, equity was above EUR 1 billion at the end of March. Equity ratio improved to 53%.
The increase compared to the end of 2019 is attributable to the profit minus the interest-related change in pension obligations of 80 million EUR. Positive side. The pension provision in Germany was discounted at 1.92% as of March 2020 versus 1.24% as of December 2019. In the U.S., the interest rate came slightly down from 2.98% to 2.88%. Net financial assets basically stable at 588. CapEx in Q1 was 46 million EUR, most of it related to our 300 millimeter capacity expansion projects. Due to travel restrictions and travel bans, some equipment put into operation as engineers were not able to oversee the start of operations. We expect to see further restrictions on construction activities going forward, particularly in Singapore. There will be a shift of CapEx from H1 into H2, but the guidance stands at EUR 200 million .
Our operating cash flow in Q1 came in at EUR 86 million , falling EUR 101 million in Q4. We refunded EUR 22 million of customer prepayments in Q1. Cash flow for CapEx came down from EUR 88 million in Q4 to EUR 66 million in Q1. Net cash flow in Q1 was EUR 41 million . A strong first quarter as usual. And with that, I would like to hand over to Chris again.
Thanks, Rainer. Let's now have a look at the outlook and as we see it of today. Currently, our Q2 looks good. We did not see any significant reduction in customer demand. However, we assume that inventories in the supply chain are going up. We assume that corona will have an impact on H2 and a more important one than it did in H1. If you consider the impact of the virus had in the past weeks and months with shops and restaurants being closed in many countries and production in several industries being on hold, it seems to be likely that we will see a negative impact on silicon demand in the second half of the year. PC and server business is currently quite strong with more home office equipment being needed and more gaming consoles being sold.
But on the other hand, we see strong decline in automotive and industrial applications as also smartphones and consumer electronics are rather declining. Some semi players have already revoked their guidance for 2020 due to the uncertainties related to corona. As we saw in previous cycles, wafer players will be the last ones to see the effect with some weeks or even months of time lag. Our outlook for 2020 includes two scenarios. It appears that the first half of the year might be more on the positive side while we have some limited visibility for the second half. On the positive side, ASP decline is currently slowing down, and we did hardly see any order cancellations from our customers. On the negative side, we see the impact on corona on the end markets and consumer confidence, and consequently, our customers get more cautious in their own outlook for 2020.
Siltronic has a strong balance sheet and a very solid financial position. We believe our conservative attitude towards capital allocation is now very positive for our company in challenging times like these. Our goal is to generate a good profitability also in times of a crisis, preserve financial flexibility, and distribute a sustainable cash dividend to our shareholders. Due to the pandemic and the ban of large assemblies in Germany, we postponed our AGM, which was originally scheduled for April 23rd. We take the advantage of a new regulation in Germany to hold the virtual AGM, which will now take place on June 26th. The dividend proposal is unchanged at EUR 3 per share and will result in a dividend payout of EUR 90 million on July 1st if the AGM approves it. With this, we close our presentation and are now available for questions.
Operator, please open the question session.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset first before making your selection. One moment, please, for the first question. And the first question is from François Bouvignies, UBS. Your line is now open. Please go ahead.
Good morning. Thank you very much for taking my questions. I have three, one on the outlook, one on the ASP, and one on CapEx, if I may. So the first one on the outlook, you mentioned that Q2 is good. And my question was, what does it mean exactly, good? I mean, I'm just not quite sure how to interpret that. Is it up quarter on quarter, flat quarter on quarter, slowed down? I'm not quite sure. So if you could clarify, it would be very helpful.
Okay. Justified question, but it's a challenging one. When we look back in the past, we never gave outlook by quarters. This time, we changed the attitude a little bit without going too much into details because when we were reading through stuff that everybody has on his screen, we came to the conclusion that the expectations for Q2 are relatively poor, and this is not the case. Therefore, we said Q2 looks good.
Okay. So when you talk about expectations, I mean, if we look at the consensus, it's down like 10% on reported numbers quarter on quarter. So I guess if you assume that 10% is too poor, it means it's going to be much higher than that, or? I just want to understand the magnitude of it. I understand you don't want to give precise guidance, but it's just to help us better forecast.
I think we said Q1 was good, right, and we said Q2 will be good, so.
Okay.
So what are your conclusions? [crosstalk]
Okay. Okay. Thank you very much. The second one is on the pricing. So if we assume that Q3, Q4, like you say in your comments, that you will see an impact on the volume side because of the coronavirus and because of your customers revising down their production probably, I just was wondering what do you expect the pricing trend will be if the volumes come down significantly?
Like we said in our comments, prices went down in Q1 compared to the average of prior year, but also compared to Q2. Quantity could basically compensate this effect, and we saw and see a slowdown in price decline as we do not have any clear visibility on the quantity level in H2. It's difficult to predict what will happen to prices, but in general, I think it's fair to say that price discipline is better than it was in previous cycles like in 2011, 2012, 2013.
And do you expect new LTAs in H2? I mean, how is it trending your long-term agreements and discussion with your customers? I can imagine that H1 is a bit a specific area, but are you talking about maybe the ones that are running out end of life soon? Should we expect some new ones this year?
Maybe we will have some new ones towards the end of this year for the period after 2020, but actually, we do not have any bigger discussion with customers on LTAs.
Okay. And if you discuss with them, at what price would you like you to sign them? At which price? On the quarterly or higher than the quarterly?
We approached customers now for the third and fourth quarter and said we would like to go more on an H2 situation than on a Q3 situation because we want to have a little bit better visibility for the second half of the year. And this is the process which is going on up to now. Most of the customers support that idea, but it's far too early to have a clear picture on H2.
Okay. That's fair. And the last one for me is on your CapEx. So whatever the scenario, which is slightly down over your revenues or significantly down because of the COVID, in any scenarios, your CapEx is the same. So I was wondering what would you need to adjust your CapEx down in this environment?
Most of the CapEx that we will spend in 2020 is related to projects that we started earlier. And of course, you can postpone stuff like that, but at the end of the day, it will become much more expensive. And I think we will at the beginning, at the end of last year, we thought that more than 50% of the investment will be in the first half of the year. Now we have some delays. I explained our engineers can't travel, so bringing new equipment up to production is a little bit more difficult. So we will have some delays in the investment, but I think that will still happen in 2020. So it does not change the yearly picture. It might change the quarterly picture.
Okay. That's very clear. Thank you very much.
The next question is from Achal Sultania . Chris, your line is now open. Please go ahead.
Hi. Good morning, Chris. Good morning, Rainer. Just one question on the gross margin side. So if I look at Q4 of 2018, that was the peak quarter for gross margins and revenues. And basically, what we have seen is that from Q4 2018 to now this quarter, Q1, we have seen a EUR 90 million decline in revenues and about EUR 90 million decline in gross profit. So I'm just trying to understand. Clearly, pricing has not come down a lot over the last few quarters, but we have seen all of the revenue decline flow down to your gross profit line. So can you help us understand where we are on the utilization level, fab utilization level?
Just trying to understand how much of headwind is there in the numbers currently and how should we think about gross margins going into the second half if demand, as you say, could potentially weaken in Q3, Q4? Thank you.
Yeah. I guess if you think about gross margin, I mean, please remember first the effect we had on electricity cost last year and secondly, also the increasing depreciation, which both weigh on the gross margin. As Chris pointed out, I mean, pricing has come down over the last quarters, but we see the environment improving in a way that price declines soften.
Any color on the utilization levels?
Like we said, 200 polished is strong, 200 Float Zone is strong, 200 epi is improving. Smaller diameters are weak, and in 300 millimeter epi, which means foundry business is strong and polished, which goes into memory, is weak but stable.
Okay. Thanks, Chris and Rainer, one quick clarification on the tax rate, so obviously you had some benefit in Q1. I think your old comment was 10% tax rate for the full year broadly. Should we still continue to model that kind of rate, or do we expect 2020 to be below that level now given the benefits in Q1?
We didn't change our guidance on the tax rate. It will be around 10%.
Okay. Thank you.
The next question is from Amit Harchandani, Citigroup. Your line is now open. Please go ahead.
My first question is with regards to demand on the memory side. You've talked about, I guess, a slightly more constructive tone on memory versus what we saw a quarter ago. Could you give us a sense for what is driving this incrementally better outlook? Do you sense that your memory customers are trying to build up inventory levels to avoid any disruptions in the future? Is it more a function of data centers being so strong that customers think they would outweigh, say, weakness in other applications? If you could give us a bit more feel for what you are discussing right now with your DRAM and NAND customers and the level of visibility, whatever you have, if any, with regards to volumes trending forward on the memory side.
I think the additional server business is helping quite a bit on the memory side. We saw a decline in raw wafers at the customers where we see it. It started sometimes last year, and the pace of reducing inventories went down, but we are not yet at the 30-day level. The inventory level where we see raw wafer inventory at memory players is still somewhere around 45 days -50 days, more 45 days than 50 days . The concern that we have in general is not the inventory in raw wafers. This is something that we see. I'm more concerned about inventories which are built up further down the value chain, which means chips or even finished products or somewhere in between, and this is something, like always, you remember our statements regarding the changes in environment between 2018 and 2019.
This is something that we don't see, and our customers do not talk to us about it.
Understood. Understood. My second question is with regards to your comment on pricing discipline. You talked about it being better than previous cycles. What would you attribute this to? And could you maybe talk about this also in the context of the supply environment across the industry? Because clearly, pricing is a function of demand as well as supply coming online.
Yeah. Yeah, that's a very good question. I think that when you look at my first five years in Siltronic between 2010 and 2015, basically, nobody had experience in the industry with full load and the possibility to increase prices. So all the players, the one a little bit more, the other one a little bit less, were trying to gain market share with attractive prices for the customers. And at the end of the day, when you remember, market share distribution did not change significantly within these five years. So at the end of the day, the suppliers were driving down prices, but nobody gained market share. So this was really a lose-lose situation for the wafer suppliers. And you remember that the picture in the second half of 2016 changed. We announced price increases.
We started to implement then, I think, a little bit earlier than competitors did, but competitors fell out, and now we realized, all together, we realized how much better life can be with, let's say, more attractive prices for the suppliers, and yeah, at the end of the day, then we came back to a situation where utilization is not 100% but below, and people, obviously, remember that in the last phases of underutilization, driving down prices did not lead into higher utilization rates, so I think it's somehow normal that people do not commit the same mistake for another time, and I hope that it will stay like that.
Okay, and could you maybe comment on that in the context of supply situation in the industry right now?
We believe we can prove it, but we believe that 300 millimeter industry capacity is somewhere 6.7 - 6.8 million wafers. I think monthly shipments are somewhere between 5.8 and 6.1. This is what the utilization is. This is like always, Amit. This is the average temperature of the hospital. It does not indicate a lot because I would argue that utilization in 300 millimeter epi is above 97% for the industry. Consequently, the challenge is more on the polished side.
Got it. And my final question is with regards to your balance sheet. You've been very disciplined in terms of keeping a healthy balance sheet and now find yourself in a good position. Do you plan to use this relative strong position as a way for you to potentially gain at the expense of competition? Are you planning to be thinking about leveraging your strong balance sheet to maybe drive accelerated investments and position yourself even stronger when the world emerges from the pandemic? So any thoughts in terms of how you plan to strategically leverage your balance sheet would be appreciated.
I think when you look at market share development, we didn't have a very good year 2019. Maybe in the one or the other case, we did react a little with the delay of one quarter in adjusting prices, specifically on 200 millimeter. I think we learned our lessons. We had in Q4 a slight increase in market share, and this continued to be the case also in Q1. But it's not significant. It's a little bit step by step.
Thank you. Thank you very much, Chris.
The next question is from Florian Treisch, Commerzbank. Your line is now open. Please go ahead.
Yes. Good morning, gentlemen. I have two questions, if I may. The one is related to coming back a bit to your comments that the price declines have slowed in Q1. I wanted to check if you can kind of elaborate a bit on the reasons behind it. The simple question was, the basis for my question is that if you look at your current demand environment, I would simply argue that your higher ASP price wafers are in heavy demand, while the lower price demand wafers are in low demand. Is it just a mixed effect, or are you really seeing some pricing power on, let's say, the Epi side of the world that you can even increase prices?
The second angle to the question would then be, if you are ramping up new epi capacities in the second half of the year, would that also mean a positive impact on ASP? And the second question is, you mentioned the significantly increasing shipping cost. Is that something you have to bear on your P&L, or is that something you will share with your clients in the future? Thank you.
Unfortunately, we have to bear it. For pricing, yes, of course. It's not only by adding capacity. If the share within a given diameter of AP goes up because AP quantities grow more than the polished one, it always has a positive effect on ASP because the prices for polished are lower than the ones for AP wafers. That's true for every diameter. Yeah. Pricing, there was not a lot of discussions during Q1. We always have the situation that we had quite a bit of negotiations in the latest part of the last year for starting the year. Typically, there were not a lot of discussions. Most of the discussions ended with somehow close to flattish pricing, whatever the product was.
You need to keep in mind that we always talked about the LTA share, which is somewhere slightly above 60%. But the LTA share, of course, is much more bigger on larger diameters like 300 millimeter wafers and significantly below 65% for smaller diameters.
Okay. Thank you very much.
The next question is from Jürgen Wagner, MainFirst Bank. Your line is now open. Please go ahead.
Yeah. Good morning. Thank you. You mentioned a likely demand drop in the second half. What would be your base case when we could see wafer demand rebounding into 2021? And the second question is on China. What is your current view when it comes to local wafer manufacturing and how the situation is or the competitive dynamics evolving in China? Thank you.
Thanks for your question. Let's start to answer the last one on Chinese competitors. NSIG, when public, they have installed capacity of, let's see, around 120K of 300 millimeter wafers. The qualifications they have or they are trying to get is to a large extent with Chinese customers. And we know that 20 nanometer and 40 nanometer are still under development, which basically means, obviously, they have a capability for 28 if you are on the optimistic side. This installed capacity is less than 2% of the overall installed capacity, so it does not have a significant influence.
Okay.
Now, while answering the last question that you had, I forgot the first one. I'm sorry. Can you repeat it, please?
Yeah. When do you expect demand to recover or likely drop in the second half?
The challenge is that during February, the automotive industry was still relatively positive about the current year. In the actual environment, they talk about something like -15% to -18%. I just read yesterday smartphone shipments likely to be around -15%. This is a significant impact. And we today don't know what effect that will have on the second half of the year. So in the consequence, we do not have any clue when it will come back. Because one thing for me is completely sure. The coronavirus will be gone one day, but afterwards, the world will be different. It will not be like it was before. And therefore, it's very, very difficult to predict what will happen. Because when you look at the consumers, there are many consumers, they suffer financially from this crisis.
All the people who suffer financially from that crisis, there will not have the day where the car shops reopen, or in Germany, they already reopened yesterday, there won't be a big run into the dealers in order to buy cars. People are much more concerned about other things than getting a new car in the actual environment. Therefore, I hope you understand when it's even difficult to predict the possible decline in the second half of the year, it's even more difficult to predict when it will pick up again.
Yeah. Sure. Of course.
When you listen to German politics, they say it will be a V-shape. V-shape means it goes down very quickly and it goes up very quickly. You can also read about the automotive industry, the World Association of Cars. They say it will take five years to come back to the level of 2019. Where is the truth? I'm honest. I don't know.
Okay. Thank you.
And the next question is from Veysel Taze , Bankhaus Lampe. Your line is now open. Please go ahead.
Going forward. So in Q1, we have seen in SG&A plus R&D, there was EUR 2 million decline versus Q4. And I was wondering, is that a sustainable level going forward for modeling purpose?
The Q4 number was a little elevated. There was a small one-time thing in there. So the Q number is the right number.
Okay. And then the second one would be on the memory inventory topic you mentioned. I mean, we have this question about the raw wafer inventory levels now for a while going on. I was just wondering, I mean, if there may be a possibility that your memory customers might consider higher raw wafer inventories going forward for several reasons. I mean, in other parts of the semiconductor ecosystem, we have much higher inventory levels. So the players are carrying higher inventory levels, plus all the discussion about trade war, local supply, etc. So might there be a rethinking in the industry that 30 days might be too low considering also the 2017, 2018 shortage in raw wafers?
Theoretically, that's possible, but we didn't hear about that from our customers. I think one thing is still true that inventory levels which are beyond or above 60 days are still considered to be too high. In the past, people were always saying around 30 is a good figure. Now we are 45, maybe a little bit higher. I think it's still okay. But you're right. We saw some customers even saying that they want to increase the inventory level, but this was much more related to smaller diameters. And we tend to believe that the reason is that there is a significant supply share out of China for smaller diameters. And I think specifically at the beginning of the corona crisis, people were concerned about wafers coming out of China, whether they will get them also in the future.
So therefore, we saw some additional demand on smaller diameters.
Okay. And then on some of your memory customers, so particularly Micron, indicated in their March call that they are pulling forward some of the demand to build some strategic inventories, like you mentioned, to make sure that they have their sufficient raw wafers going forward. Have you seen such comments from your customers, from your other memory customers as well, or was that really specific to end of March, peak of COVID, so to say, and in uncertainty?
Not that I know.
Okay. And then final one on China. You mentioned in your statements the Chinese company now going public. If you look at the smaller diameters, so 150 millimeter and partly 200 millimeter, so it looks like the China demand is 20%-25% of this. And if they address the Chinese local chip makers with their products, is there from strategic perspective a thinking within your company to say, "Okay, maybe at a certain point, 150 millimeter and smaller diameters would be not a strategic part of your business," given the growing competition from China?
I think we already said internally that 150 millimeter and smaller will not live forever. One day, it will disappear out of the portfolio of Siltronic, but this is not today. It's not next year, and it is probably not also over next year. We are working on these ideas. Actually, there is no need because we said as long as we make money, we will continue to do so. To a large extent, it depends on the customers. If the customers decide for price reasons to buy only from China, then Western company will not continue forever to produce smaller diameters.
Okay. Thank you very much, Veysel.
This is for sure today not a hot issue.
Okay. Thank you.
The next question is from Stéphane Houri, ODDO. Your line is now open. Please go ahead.
Yes. Hello. Good morning, Stéphane Houri from ODDO . I have two questions, if I may. The first one is to have your view on your understanding on why you didn't feel any impact of the COVID-19 in Q1 and most likely in Q2. I understand the late cyclical aspect of your business, but would you say that in this crisis, there is a different behavior from your customers and the customers from your customers trying not to panic and maintain their level of buying and activity, thinking that the COVID-19 story will be over soon and that the structural growth will come back soon? That's the first question.
Let's try to find an answer to the first part of your question where you were basically asking for the impact that COVID-19 had on Q1. I'm pretty sure that our Q1 would have stayed very, very similar to what we announced today, even without the corona crisis. Second quarter, I do believe that we will see more a positive effect because, like I said before, in some areas, people are trying to build inventory more on smaller diameters than on larger diameters. But again, when the crisis, when the pandemic crisis is over, it will not be back to normal from one day to another. I tell you, it's far too early to think about the day where everything will be like it was end of last year.
Okay. And about the memory market, also asking, according to your experience, do you think that there could be a recovery in the memory market, even if other semiconductor markets are weaker because of the end demand that you're illustrating, meaning that memory is more a question of demand meeting supply? And we know that the memory manufacturers have not really invested in capacity since 2018. So is there, in your view, still a scenario where demand would meet supply and then the prices would be balanced, which would be a good situation for you?
I think when you look at the spot price development for NAND and DRAM chips for the first four months of this year, I think it was relatively positive. In the last 10-14 days, it went down a little bit, but before, there was an increase on spot prices, and I think this always should be a good indicator, and when you read through what people are saying about the memory industry, memory industry is supposed to be also in the future the growth driver for semiconductor applications like it was in the past. It's something like close to 40% is memory, and this will not change significantly.
Okay. Many thanks for your answers. Thank you.
We have a follow-up question from Amit Harchandani, Citigroup. Your line is now open. Please go ahead.
Thank you. Thank you for taking my follow-on questions. Firstly, if I may, just a clarification. Did I hear you comment about impact in Singapore from further restrictions going forward? And if yes, do you anticipate that to weigh in on Q2 or the second half of the year?
There is no reason to believe that the picture in Singapore will change for Siltronic.
Okay. Secondly, you talked about the world being very different when we exit the pandemic. I mean, in terms of supply in the wafer industry, there's been a view to obviously build a lot of capacity in one location because it helps with better overheads. I mean, my understanding is approximately 50% of your 300 millimeter output is linked to Singapore. Do you think from a strategic perspective, you need to rethink how you think about capacity expansion exiting the crisis and whether you need to diversify more in different locations when it comes to capacity expansion?
I mean, that's a very good question, but look at TSMC. TSMC is in Taiwan in basically one science park, and this is a high-risk area for earthquakes. So I think everybody will think about, let's say, is it good to put all the eggs in one basket? Are we willing to spend more money in order to distribute the eggs on different baskets? Yes or no? I don't think so because we already have three locations for 300 millimeter, and I think that's good. And there is no guarantee that if you go to another location, that next time another location might be harder. And please keep in mind that every day now, basically, you have between 1,000 and 1,200 new cases in Singapore. More than 95% of these new cases are coming from dormitories, which are anyhow under quarantine.
Okay. And just finally, there's a lot of talk of legislation out there, licenses around semiconductor capital equipment. Some talk about restrictions to Huawei. They both talk about bifurcation of supply chains. From your perspective, where you sit in the supply chain, have you seen any impact of legislation, or do you anticipate yourself to be subject or exposed to any form of legislation as a part of a broader trade war backdrop?
Directly, not at all. Indirectly, maybe. I don't know what the future will be in this trade discussion between the U.S. and China or other parts of the world. At the moment, it's not subject number one because corona overrules everything, but maybe this discussion will come back. And this is a political issue, and to predict politics is as difficult as predicting wafer demand.
Okay. Thank you, Chris.
There are currently no further questions, so as a reminder, if you would like to ask a question, please press zero and one on your telephone keypad now, and we've received a further question from Holger Schmidt from Metzler Capital Markets. Your line is now open. Please go ahead.
Yeah. Thanks for taking my questions. You mentioned that your cost per wafer area was down quarter over quarter due to productivity improvements. Can you quantify your targeted cost savings from productivity enhancements in the current year? That's the first question. And then the second question, you continue to build up your capacity. What kind of underutilization charge do you see for the full year?
Let me try to give an answer to the first question. We do not disclose in detail our productivity improvements, but if you assume that it is a good mid-single-digit figure, you're not that wrong. For the financial impact on utilization right now?
I mean, it's kind of what we're doing now. We're just completing what we started. So it's really the very end. It does not mean that there's an enormous additional amount of capacity. So utilization rates won't change a lot going forward. But how high do you see the underutilization charges for the current year?
I said before, what do we believe is the installed capacity on 300 millimeter, what is reported by SEMI as shipments? You can do the math on your own, and Siltronic is relatively typical for the industry.
Okay. Thank you.
We have another follow-up question from Amit Harchandani, City Group. Your line is now open again.
Thanks, and thanks for taking in the other follow-up. Just a quick clarification, please. You talked about memory inventory being around 45 days -50 days . Can I clarify if that was a comment for total memory or just for DRAM? And if it is for total memory, can you break it down between the inventory you see for DRAM and NAND?
The first one is easy to answer. The figure that I mentioned, 45 days -50 days, is for memory in total. And I cannot give you very much more detail, but let's put it that way. The situation on DRAM is not as good as it is on NAND. So NAND is lower and DRAM is higher, but I'm not capable to quantify it.
That's helpful, Chris. Thank you for the clarification.
There are no further questions at this point, so I'll hand back to the speakers.
Thank you very much, Operator. So this concludes our Q&A session for today. Before we conclude today, please be advised that the replay of this conference call will be accessible within two hours from now on our website. Thank you for joining us today. We hope everyone continues to stay healthy and safe, and we hope you will join us again on our Q2 release on July 30th. Goodbye, and please have a good day.
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