The semiconductor industry is in a state of flux. After a period of unprecedented demand, chipmakers are grappling with bloated inventories, forcing wafer suppliers like Siltronic AG to navigate a challenging landscape. While the prevailing narrative focuses on delayed recoveries and pricing pressures, a subtle yet potentially seismic shift is occurring within Siltronic's portfolio. The company's decision to phase out small diameter (SD) wafer production in 2025, while seemingly a minor footnote in its recent earnings call, could signal a bold strategic move—one that anticipates a dramatic reshaping of the wafer market.

On the surface, Siltronic's explanation for the SD exit appears straightforward. The company cites dwindling volumes and significant pricing pressure, portraying the move as a natural response to a declining market. However, a deeper dive into the transcript and Siltronic's financial data reveals a more nuanced picture.

Firstly, the timing is curious. While SD wafers represent a mid-single-digit percentage of Siltronic's sales, the company emphasizes that the exit will have 'no substantial negative effect' on 2024 results. This suggests that customer demand for SD wafers hasn't plummeted as dramatically as one might expect in a 'dying' market. Customers are reacting with relative calm, neither rushing to stockpile wafers nor immediately slashing orders.

Secondly, the margin impact is noteworthy. Siltronic anticipates a 'slightly supportive' effect on its EBITDA margin in 2025, indicating that SD wafers were dragging down the company's overall profitability. This begs the question: why exit now, when the expected recovery in the broader semiconductor market could potentially bolster SD wafer demand and improve their margins?

The answer might lie in a strategic gamble by Siltronic. The company is placing a decisive bet on the growth of leading-edge 300mm wafers, particularly in the power and high-end logic segments. This is underscored by the ongoing ramp of its new, highly automated FabNext facility in Singapore, which promises EBITDA margins exceeding 50% once fully utilized.

By shedding its lower-margin SD wafer business, Siltronic is streamlining its portfolio and freeing up resources to double down on its 300mm production. This allows the company to capture a larger share of the anticipated boom in leading-edge wafers, driven by megatrends like artificial intelligence and electromobility.

Siltronic's Wafer Demand Outlook: Shifting Focus

The following chart visualizes Siltronic's wafer demand projections, highlighting the expected decline in smaller diameter wafers and the strong growth anticipated for 300mm wafers.

A Preemptive Strike?

Here's the crux of the hypothesis: Siltronic may be anticipating a scenario where the SD wafer market not only fails to rebound with the broader semiconductor recovery, but actually undergoes a significant contraction. This could be driven by several factors, including:

Accelerated technology migration: Chipmakers may be more aggressively shifting to larger wafer sizes, even in traditionally SD-dominated applications, to capitalize on economies of scale and advanced manufacturing capabilities.

Increased competition from Chinese suppliers: Despite challenges in the leading-edge segment, Chinese wafer manufacturers are making inroads in the 200mm and smaller markets, potentially eroding Siltronic's competitive position in the SD space.

Consolidation in the SD customer base: The ongoing semiconductor industry consolidation could lead to fewer, larger chipmakers that prioritize larger wafer sizes and exert greater pricing pressure on SD wafer suppliers.

Siltronic's SD exit, therefore, can be seen as a preemptive strike. By acting now, the company avoids getting caught in a margin squeeze in a potentially shrinking market. It also positions itself to capitalize on the expected surge in leading-edge 300mm wafer demand, potentially outpacing its competitors who are still entangled in the SD segment.

Implications and Outlook

This hypothesis has significant implications for Siltronic's long-term growth trajectory. If the company's gamble pays off, its 2028 ambitions of exceeding EUR 2.2 billion in sales and achieving EBITDA margins in the high 30s become even more achievable. However, if the SD wafer market proves more resilient than anticipated, or if the 300mm ramp faces unforeseen challenges, Siltronic may find itself playing catch-up.

The coming quarters will be crucial for validating this hypothesis. Closely monitoring Siltronic's performance, particularly the ramp-up of FabNext and the evolution of the SD wafer market, will be key to understanding the long-term impact of this silent shift. This is a story that goes beyond delayed recoveries and pricing pressures; it's a story of strategic positioning and anticipating the next wave of semiconductor growth, and Siltronic might be the first to ride that wave.

"Fun Fact: A single 300mm silicon wafer can hold hundreds or even thousands of individual chips, depending on the chip's size and complexity! This incredible efficiency is one of the key drivers behind the industry's shift towards larger wafer sizes."