Siltronic AG (WAF) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Siltronic's conference call. Please note that this call is being recorded and also streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation in 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. Welcome, everybody, to our 2019 results presentation. With me are Chris von Plotho, our CEO; and Rainer Irle, our CFO. Covering our initial procedure, Chris will talk with some remarks on the results. Rainer will then comment on key financials, followed by Chris again updating you on our guidance and current market developments. After the introduction, we will be happy to take your questions. Please note that our presentation contains the usual safe harbor statement and applies throughout this call and presentation. Today, we have published all documents relating to our 2019 reporting. They are available on our website. And now I turn over the call to Chris for opening remarks.

Good morning, ladies and gentlemen. 2019 was challenging with the ongoing general global economic slowdown, geopolitical uncertainties and high inventories in the value chain of our customers, wafer shipments were down by roughly 7% compared to the exceptionally strong year of 2018. Let me shortly recap the business development in 2019. Demand for smaller diameters was significantly down with related price pressure on short-term contracts. Also, our standard products in 200-millimeter were down, while some special products, for example, for power applications, were okay. Demand in 300-millimeter was slightly down due to the high customer inventories and because customers shifted volumes under LTAs in the beginning of 2019. However, prices for LTA were firm. On non-LTAs, prices for short-term contracts started to come down slightly in Q3 and Q4. But overall, our ASP in euro terms was slightly above 2018. In Q2, we lost some market share, but by the end of 2019, we saw a positive trend upwards as we were able to deliver products to customers, which you could not supply in times of tightness. And we are confident that we will see an improved market share figure going forward as customers like our high-quality products and our reliability. Now let's have a look at our key financials. Q4 came in a little bit better than expected, driving our sales to EUR 1,270 million, 13% down versus prior year. This was driven by lower volumes. Our EBITDA went down to EUR 409 million, EBIT came down to EUR 298 million. In addition to the weak business development in 2019 and the rise in energy cost, higher depreciation weighed on profits. CapEx was EUR 363 million after EUR 257 million in 2018. It was related to investments in improving our capabilities, various automation projects as well as our new crystal-pulling hall in Singapore and the capacity expansion. Due to the high CapEx, net cash flow in 2019 came down to EUR 81 million compared to EUR 240 million in 2018. Despite the high payments for investments, the dividend payment and the refund of customer prepayments, our net financial assets still stood at EUR 589 million at the end of December 2019. To summarize, 2019 was clearly a downturn year for us, but it was still the second best in the history of the company, and despite the downturn, we were still very profitable. Rainer will now explain more in detail our financial performance in 2019.

Thank you, Chris, and welcome, everybody. Business in Q4 was a bit stronger than we had expected. As Chris pointed out, we saw some positive business development with customers where we had capacity limitations until early 2019. The sales came in at EUR 304 million and was up 1.5% quarter-on-quarter. FX was stable. In 2019, sales came in at EUR 1.27 billion, representing a 13% decline compared to the previous year. Main reason for the decline was the lower area sold. A stronger U.S. dollar could not compensate the decline in area. Euro to dollar was $1.12 in 2019 versus $1.18 in 2018. Due to higher loading and higher depreciation, cost of sales increased quarter-on-quarter. For the full year, cost of sales were EUR 830 million compared to EUR 825 million in '18. This decline in cost of sales is due to the lower wafer area sold. As the decrease in wafer area was higher than the decrease in costs, our unit costs were up. There are 3 reasons for the higher unit costs: lower loading, higher energy costs of roughly EUR 20 million and increased depreciation. Gross profit in Q4 declined to EUR 97 million. Gross margin came down from 35% to 32% quarter-on-quarter. Gross margin in 2019 came in at 36% compared to 43% in 2018. Lower cost for materials and supplies were more than offset by higher energy cost and depreciation. Our R&D expenses of EUR 68 million were on a stable level compared to previous years, and accounted for roughly 5% of sales. Looking at the next slide, you can see that only 10% of our sales generated in euro, while roughly 65% of our costs originated in euro. So the rule of thumb for 2020 is that $0.01 in dollar change would be roughly EUR 6 million more or less in revenue and roughly EUR 4.5 million more or less in EBITDA unhedged. A change of JPY 1, either direction will be EUR 2.5 million in revenue and roughly EUR 2 million in profit. Negative implications from currency effects, including hedging, added up to EUR 27 million in 2019 compared to a positive EUR 1 million in 2018. In Q4, we saw a negative EUR 4 million. In Q3, we had a negative EUR 7.7 million. Lower wafer area sold and higher electricity costs weighed on our profit. Our EBITDA in Q4 came in at EUR 90 million. EBITDA margin went down quarter-on-quarter from 31% to 30%. In 29 (sic) [ 2019 ], EBITDA was EUR 409 million with an EBITDA margin of 32% compared to a margin of 40% in prior year. In addition to the slow business, EBIT was also burdened by higher depreciation. EBIT for 2019 came in at EUR 298 million with a margin of 24% compared to 34% in 2018. Tax rate in Q4 was 21% after 8% in Q3, driving our full year tax rate to 14%. The effective tax rate would have been below 10% for the full year due to the high profit share in companies and group companies where we have a low effective tax rate. However, in Q4, we also released certain deferred tax assets, which led to an additional tax expense of roughly EUR 20 million. Net profit reached EUR 45 million in Q4, and EPS came in at EUR 1.21. For the full year, we generated net profit of EUR 261 million and EPS of EUR 7.52. The net profit attributable to Siltronic's shareholders was EUR 226 million. The dividend proposal to the AGM will be EUR 3 per share, which equals a dividend payment of EUR 90 million. This is in line with our general dividend policy with a payout ratio of roughly 40%. Working capital has come down in Q4. Trade receivables were down by EUR 8 million. Trade liabilities were up by roughly EUR 40 million due to the high CapEx level. Looking at the balance sheet, equity was EUR 930 million at the end of December. Equity ratio was 48%. The drop compared to prior year is due to the profit, minus the dividend payment of EUR 150 million and minus the interest related to change in pension obligations of EUR 130 million. Pen provision in Germany was discounted at 1.24% as of December '19 versus close to 2% as of December '18. In the U.S., interest rate basically fell from 4% to 3%. Despite the dividend payment of EUR 150 million, there are payments for CapEx of EUR 349 million and the refund of customer prepayments of EUR 45 million. Net financial assets decreased by only EUR 102 million to EUR 589 million. And this slide, you already know, if we were to apply a 3% discount rate, our pension reserves should be EUR 174 million, i.e., more than EUR 300 million lower than stated on our balance sheet. CapEx in 2019 was EUR 333 million and included investment in 300-millimeter capacity expansion of crystal-pulling hall in Singapore as well as investments in automation and capabilities. Our CapEx will come down significantly in 2020 and will be around EUR 200 million. We will finish our expansion project in Q1 and continue to bring equipment into the new crystal-pulling hall in Singapore in Q2. In the second half of the year, we will expand our EPI capacity to accommodate demand and market growth. Our operating cash flow in Q4 came in at EUR 101 million, following EUR 74 million in Q3. In total, we had a net refund of EUR 47 million of customer prepayments. Net cash flow in Q4 was EUR 9 million positive. And for the total year, it was EUR 81 million compared to EUR 240 million in the prior year. And with that, I would like to hand over to Chris.

Thank you, Rainer. Now let's have a look at the current market development. The semi market environment shows a mixed picture of 2020 and the following comments are pre-coronavirus view. Logic showed a better-than-expected development with foundry business growing, strong server growth and inventory levels being okay. Memory on the other side is still a challenge, independent of corona. DRAM stays weak. As already noted, inventories at customers are still high but show first signs of a slow decline. DRAM development will strongly depend on the growth of the server market. NAND seemed to do somewhat better. The SSD share in PCs and servers is growing, showing that price elasticity is working. However, development of PC business in the actual environment remains to be seen. Finished goods inventories are nearly at a normal level. The automotive ADAS seems to be better, while in some uncertainty -- while there is some uncertainty about the demand for hybrid and electrical cars, currently, the direction of this development is not yet clear, can be positive or can be negative. However, current data from the auto market might lead to a more accurate assessment in the future. In traditional applications like electrical window lifts, inventories are still high, but there seems to be some kind of a stabilization. However, of course, this development also depends heavily on the further development of the automotive sector in general. 300-millimeter EPI and 200-millimeter float zones are currently strong. 200 EPI is doing better, while 300 polished is still weak as well as smaller diameters up to 150 millimeters. After a challenging 2019, we expect another challenging year, 2020. The current market environment continues to show a high level of uncertainty. The trade-related uncertainties continues to persist. The coronavirus outbreak is adding to these uncertainties. Apart from the human tragedy, it might have a major impact on economic activities and weigh on GDP growth. Siltronic is currently not directly impacted by the coronavirus. Of course, we monitor the situation carefully, especially in order to protect the health and safety of our employees. We have implemented various measures at our sites, synthesized our employees regarding hygiene measures, limited travel or even banned travel to some countries like China, Japan, impacted parts of Italy or South Korea. Currently, we do not have any reported coronavirus infection in the Siltronic Group. So far, we have not received any order cancellation by customers due to the outbreak. But as you all know, some of our customers already cut their guidance for this year. So business development going forward is highly insecure. Despite those positive news from customers at the beginning of the year, especially raw wafer inventories for memory customers are still elevated. We saw a somewhat positive trend that these inventories currently do not go further up and even come down very slightly. However, not enough to speak of a relief. Taking all this into account, elevated inventories at memory customers, end markets considerably slowing down and the spread of the coronavirus, we expect that the broad-based recovery will not set in very shortly in H2 -- if H2 will really see an upturn, remains to be seen. Given this picture to provide an outlook for 2020 today is a challenge and there are 2 scenarios. If we assume that the impact of corona is limited to the current status, we should expect sales to be slightly down based on slightly higher wafer area sold and ASPs being down compared to 2019. EBITDA margin would be slightly below prior year, and net cash flow, clearly positive in the region of 2019. However, assuming a stronger impact on the end markets, and therefore, on semi industry because corona is spreading further, the forecast for 2020 would be that sales, EBITDA margin and net cash flow could be significantly below 2019. Irrespective of corona due to higher investments, depreciation will go up to around EUR 140 million. Hence, EBIT will be significantly below 2019. Our tax rate should be around 10% as we record more sales in group companies with low effective tax rates. As Rainer already explained, our 2020 CapEx will come down significantly. Apart from finishing our running projects in 300-millimeter expansion, we will invest in some EPI reactors in the second half of the year. And in order to fulfill more demanding design rules, we will further invest in our capabilities. In Germany, we will continue to do some automation projects. And in Singapore, we will finish the crystal-pulling hall project. We will see a roughly EUR 40 million burden from a carryover of unpaid 2019 investments in our net cash flow, mainly in the first quarter. Earnings per share shall be significantly below 2019. With this, we close our presentation and are now available for your questions. Operator, please open the QA session.

[Operator Instructions] And the first question received is from Francois Bouvignies from UBS.

I have a couple, if I may. The first one is on your long-term agreements. So I just wanted to have your view on what we should expect in terms of long-term agreement this year? I mean, do you expect to sign new ones? Or is it -- this year, is it going to be mainly based on the long-term contracts signed in 2018 and '19? That's the first question.

Well, I think like we also said in prior calls, there are always some long-term agreements that expired or will expire. We had, for example, 1 LTA expiring end of last year. This was renewed by another LTA, but in some areas, also customers are looking for nonreplacing LTAs, but going for shorter-term contracts, which means 0.5 year or a year or even quarterly. Overall, the share of LTA will not change significantly compared to prior year.

Okay. And in the case, on the -- your view of 2 scenarios, excluding the virus and including it. So in the case of further impact from the virus, do you expect this LTAs to be unchanged? Or is it going to -- the share, is it going to be lower? I mean, how is it impacting, the virus, your share of LTA you think?

Well, let's try to exclude from this discussion the virus -- possible virus effect. As you all know, 300-millimeter is not fully utilized. And consequently, when lines are not fully utilized on the -- in the case of a negotiation, prices are under pressure.

Okay. And with regard to the price, you said that in Q3 and Q4, prices was down slightly quarter-on-quarter. What is Q1's trend and Q2 trends in your view?

Well, we said that we will see a negative ASP effect comparing 2020 to 2019. This is partially due to ASPs going down during the year 2019, so what we call a base effect. And then we know that everything which is negotiated -- newly negotiated for 2020 or during 2020, will be under price pressure with some exceptions like maybe 300 EPI and 200 float zone.

Okay. But you don't see any further deterioration of the pricing in '20? Like a Q1 '20 versus Q4 '19, for example?

Well, we never disclosed in detail price development going from one quarter into the next quarter. But like I said, there are contracts which expire towards the end of the year and which were renewed. And like we said, also for the negotiations in the second half of last year when loading is quite a bit away from 100%, prices are under pressure.

Okay. And just a question on the net cash flow as well. I mean, you said that it's going to be flattish in terms of 2019, if I understand correctly, but the CapEx is down from EUR 360 million to EUR 200 million. So I was wondering why the net cash flow should have improved as well as the CapEx is going down significantly by more than EUR 150 million basically?

Yes. I guess, one of the reasons is the EBITDA margin and the other reason is the carryover effect of EUR 40 million from unpaid CapEx of prior year. And then we said it's in the order of last year, so that also implies a certain range.

Okay, okay. And last one, and after I leave the floor to my peers. The automation work that you are doing at the moment and the 300 EPI capacity expansion, what -- when you spend in automation, what kind of a performance improvement do you target usually on the capacity side from this work?

Well, automation at the end of the day does not directly has a positive impact on output. First of all, it's a cost reduction measure because you replace automated -- you substitute highly paid hourly people in Germany by a automated process flow. Secondly, you avoid human errors. And then specifically, due to the transportation system, which is now under the ceiling, you gain some floor space, which will allow you to put some more equipment in. But the major target is not adding capacity, the major target is avoiding human errors and reducing payroll.

And the next question received is from Achal Sultania from Crédit Suisse.

Just trying to understand some of the pricing and the volume trends in the industry. So I was looking at the data from CMI and they seem to indicate that volumes are down 7%, whereas industry revenues are down 2%, which kind of shows that pricing is slightly up in '19. Obviously, you're calling down pricing was going down as we went through 2019. Can you help us understand like what are the -- like specific drivers or specific vendors issues, which have basically led to price increase last year as what CMI is suggesting. And then secondly, on the cost side of things, obviously, coronavirus is still a big uncertainty, but how should we think about some of the cost items going into 2020, whether it's the IT cost, electricity cost, any of those items? If there are any moving parts in that, that would be helpful to understand.

Well, let's first try to answer your second question, which was related to cost development. We took a big, big additional cost due to legislation changes in Germany last year, which was slightly over, plus EUR 20 million. Electricity cost will also go up in 2020, but this is compared to what we saw last year, really not significant. What do we see on the cost savings side? I think we have relatively good projects for cost reduction. So last year, cost reduction were negative. It was overall a cost increase. We expect to see cost reductions this year, because we are pretty convinced that our cost reduction measures will be more important than what we see from tariff increases. And regarding pricing, there's basically nothing to add to what I answered to the first questions coming from UBS, and I want to repeat it. Last year, we saw a price development during the year, especially linked to things which were newly negotiated, and these prices were under pressure, like we said before. On the other hand, we had firm prices on the LTA level. Consequently, our ASP comparing 2019 to 2018 went up slightly in euro terms, and this was more a base effect than anything else. And for 2020, like I said before, some prices are flattish because they are negotiated and are part of an LTA and some prices -- every price, which is renegotiated, is, of course, under pressure.

And the next question received is from Amit Harchandani from Citigroup.

Amit Harchandani from Citi. A few questions from my side, if I may. Firstly, question number one, to begin with, I think in your prepared comments, Chris, you talked about your confidence in seeing improved market share going forward. And I think you talked about that being based on your superior product. Could you maybe comment a bit more on what gives you the confidence given that market share is also a function of how the competitors approach adding capacity in the industry? And where do you see your product being superior to competitors? That would be my first question.

Well, I think we have -- it depends on the diameter. There are only a few players in 300-millimeter, you know them as well as we do. We have good reasons to believe that the latest design rules, for example, to the Logic industry is not supplied by all 5 players. We know that we supply these products, specifically on these latest design rules, we have a significantly higher supply chain at given customers than the overall supply chain that we have at these customers. And this is, for us, a very good indicator that, obviously, not all the competitors have this capability. And then we need to talk about reliability, and reliability is something which is much more linked to what we call smaller diameters. You know that in Mainland China, there is a significant number of potential players in smaller diameters. They are improving. They are learning. But when you look at reliability in the broad sense, they are not at the level that our customers expect.

That's helpful. Secondly, if I may, in your commentary around demand pre-coronavirus, I think you talked about the trend around inventories on the memory side. I think you said it was slightly positive, in the sense they were not going up, but even came down slightly. Could you elaborate a bit more? Was that more DRAM or NAND? If you could just elaborate a bit more on the picture in memory before the coronavirus impact, please.

Well, I think there was a positive development for both end applications for NAND and for DRAM, but it was a little bit more important on the NAND side than on the DRAM side. So on the NAND side, we think we are, as far as what we see, very close to a normal level. And in DRAM, there is still some way to go.

Thirdly, if I may. With regards to the month of February, some of your customers who have updated the market last week -- or I guess, some of the chipmakers, let me put it this way, have talked about an initial first half of February being impacted, particularly in China, with second half coming through. Can you share with us, from your perspective, how your customer discussions have trended over the month of February as the situation has evolved? Did you start seeing it coming in back up to normal before it escalated in Europe and then things have changed for you? Any color would be helpful.

Well, I think it's very transparent. There is no color. Up to now, we basically didn't see any impact in customer behavior. Maybe in smaller diameters, we have a little bit additional demand, and we have also some players in Asia, talking about building up inventory to put themselves more a little bit on the safe side, but we do not believe that this is really linked to, let's say, higher demand and more wafer starts and improving area environment. It's much more that people are getting a little bit nervous about the future and they want to secure some inventory to be on the safe side for the future. It's like the normal human being who's now buying more noodles and more toilet paper and more ice and more sugar and whatever.

Got it. And just the last one from me. Obviously, you talked about uncertainty, agreed, and uncertainty, it really comes down to experience and you have plenty of experience on your side with the wafer industry. So perhaps from using your experience, maybe not necessarily the data points which are uncertain, how would you characterize the current level of uncertainty in the market versus, say, some of the previous scares we have seen SARS, NAS, global financial crisis, how does this compare to anything that you've seen previously when it comes to customer behavior that you see out there?

Well, like I said before, in customer behavior, up to now, we do not see any change. But when you look at -- let's take the example of the automotive industry. Automotive industry had a weak start in Europe. I think in Europe, was close to minus 10% in January. Germany was in the first 2 months as together at minus 9%. China was, I think, at minus 86% in February. So it's difficult to believe that there will be something different from a negative development in the automotive industry. And the largest market for smartphone by region is China, but when their people are not on the street and the shops are not open, they won't buy. And you remember what EPA said in -- I think it was late January. They couldn't -- they said, we will probably be below our guidance, and this was related by due -- this was related to the fact that they can't sell products if the EPA shops are closed. And I think it's very difficult to say whether the coronavirus and the effect can be judged. I think it's very, very difficult to predict how it will develop. And there is also a major influence coming from communication because it always has a big influence, how people talk about this coronavirus and what are the messages that they send. I think from my personal perspective, yes, it's important, yes, we need to care about it. But it's for sure not a disaster yet.

And the next question received is from Florian Treisch of Commerzbank AG.

Two questions, if I may. And the first is on your outlook, so it looks like that you're guiding basically sales and EBITDA margin in tandem, i.e. both slightly below or both significantly below. The one question is, if you look at the slightly below revenue guidance, it implies that the majority of the decline, basically 100% is coming from lower ASP. And as I would argue, ASP will have basically 100% further full effect on the EBITDA margin. Isn't it kind of optimistic to slide for only slightly below EBITDA margin then? And the second question is on -- prepayments were up in Q4, if it is only like end effect or one-off effect? Or is that a positive or a slight positive sign that we have seen kind of a more optimistic view or willingness of clients to go for ATS again.

So I mean, the first question on the EBITDA margin, I mean, remember, we are -- I mean, our guidance is based on the midpoint of the -- of 2019 and not on the endpoint of 2019, so I think slightly below is perfectly correct, if we don't see a further impact from the virus. And the second question, I guess, was on if there is more appetite from customers on long-term agreements? I would say, so far, we haven't seen any like that.

Okay. If I may, just one follow-up. You talk about that there were no order cancellations in the book. The question is a bit, if they can shift volumes, they don't have to cancel something. So in the end, how does that compare to historic kind of downturns like financial crisis and so on? Have you seen cancellations back then? Or is it only just shifting volumes?

Well, you're perfectly right. I said in my comments, we didn't see any cancellation, but we didn't see either any shifts into the future. So up to now, in January and February and also March, people took the material that they ordered.

And the next question received is from Gustav Froberg of Berenberg.

Can you hear me okay?

Yes, we can.

Yes.

Okay, super. I just have, firstly, one question on your 150-millimeter capacity that you're talking about. You mentioned intense competitive pressure here and that you want to keep it open for as long as it's viable. What are some of the options that you're considering here with regards to 150-millimeter?

Well, we have several projects to further reduce cost and we will probably also -- effective 1st of April, we will adjust the shift system, which reduces cost at the same time and reduces maximum output which basically means that during the times that people are working, loading will go up significantly.

Okay. And more on the sort of longer-term view, are you considering actually shutting it down? Or will you try and keep it open and still serve customers on 150?

We will try to keep it open as long as possible. And as long as possible means, as long as it makes sense financially.

Okay, super. And then one question just on your tax rate, which is quite low for 2020, 10%. How should we think about the tax rate then going forward for the next 2, 3 years as well, just as a modeling thing? Should we try and keep it in the 10% range? Or is it sensible to assume that it would trend upwards towards 20% again?

It will not trend up. It's good to assume that it will stay there.

Okay. Excellent. And then a final one, just on pension. You mentioned that the pension risk has increased a little bit from 2019 versus 2018, what are some of the risk factors you're seeing here right now?

We said that the interest rates have come down. And I mean, that -- the full answer to the question would be to elaborate on the financial policy of the European Central Bank. I mean, if they keep the interest rates low and what we currently see going into the year, if the interest rates are actually coming further down, that would further increase our pension reserves. And this is just due to the fact that we have to account for pension reserves using just investment-grade bond yields and not the actual assets we have in the portfolio, and that's what -- why I'm always saying, I believe that our pen reserves are overstated, but we have to account for it like that. And if interest rates come down further, we will see our pension reserve to go up further.

Okay. Super. So there's no other change aside from interest rates?

No, no, absolutely not.

And the next question is from Martin Jungfleisch of Kepler Cheuvreux.

I have just one follow-up question, please. You mentioned that part of your EUR 200 million in CapEx for 2020 is for the expansion of your EPI wafer capacity in H2. Is it fair to assume that the expansion is in the ballpark range of around 25,000 or 30,000 wafers per month? Is that correct?

Well, I don't know where that figure comes from. And basically, what -- it's basically an ongoing process. We added EPI reactors last year. We added also EPI reactors in 2018 and there are some more to come in the second half of the year, but we do not disclose the capacity or the number of reactors.

Okay. But in terms of EUR 1 million, it's 1/4 or so of the total CapEx?

No comment.

And the next question is from Veysel Taze of Bankhaus Lampe.

Yes, my first question is related to your outlook. I guess, you have now -- we are mid of March, I guess you have a good visibility for the first half of the year. And looking at your full year outlook, what are your expectations for the second half of the year? And I have some follow-up.

But we made it very clear in our outlook, we have basically 2 scenarios. One is pre-coronavirus...

Sorry, without coronavirus, sorry, for disrupting you. But without coronavirus, let's say things stay like they are, what would be your second half recovery scenario? Or what are you expecting for the second half of the year?

Well, like I said before, visibility is -- even without coronavirus is not that great. We still have the inventory issue on the memory side. So -- and we typically give a guidance for the year, but we do not give a guidance for quarter or for half year.

You mentioned in your presentation, the ASP decline for 2020, but say, okay, slightly decline in revenues really without coronavirus. So does that -- I mean, would that imply volume growth for the full year? Or how should we think about volumes in 2020?

Slightly positive.

Slightly positive. Okay. And then coming on the coronavirus topic, I guess, you had the first discussions on the -- on 2021 or 2020 volumes. The short term contract, so to say. And of -- or beginning of December and now in February, you had the next discussions for your -- with your customers on the quarterly volumes. So what would you say from the customer behavior? Are they turning more conservative now due to coronavirus? Or was that no kind of direction to read from your conversations with the customers?

Well, like I said, we saw at some customers, mainly in smaller diameters, a little bit more the tendency to increase the inventory level but we didn't see that for other diameters.

Okay. And then a question regarding your CapEx and Logic or yes, the investments there, is that related to what you mentioned that you see in the next nodes, a higher share for your company? Or how should we see the EPI investments there?

Well, the reason for the EPI investment is that EPI is close to fully loaded. We have good reasons to believe that this is not only the case for Siltronic, this is also the case for our competitors. And the market is growing. Look at the foundries, they had a relatively positive development, they also give a relatively positive outlook. And this is basically only, let's say, maintaining supply chain in the 300-millimeter EPI environment.

Okay, great. And then on your LTA comments. Just a reminder, what was last year the LTA share? I mean, you said it will be not -- it will stay flat, more or less for 2020?

Yes, yes, I said comparable 65%. A 65% is like the average translator of a hospital. So for 300-millimeter, it's higher and for smaller diameters, it's significantly lower. But pay rate of the company is 65%.

And the next question is from Jürgen Wagner from MainFirst Bank.

In looking at your scenario, too, so let's say, yes -- or as recession fears are back, what is your current EBIT breakeven sales level? And the second question, at what share price would you reconsider your attitude or your assessment of share buybacks?

Our revenue, EBIT breakeven depends on the price. It's not only sales. It's basically very much linked to the price development. But we are significantly away from a breakeven in EBIT. And second question was buyback shares. There is actually no discussion in Siltronic about buying back shares.

And the next question is from Robert Sanders from Deutsche Bank.

I was just wondering if you could first give an update on the inventory days you're seeing at some of your key customers in memory. I remember you saying in January, your inventory days at 1 major customer had gone from 80 to around 70 in January. Have you seen that trend kind of continue, that trend of reduction towards the sort of 30 to 50 level? And I have a follow-up.

Well, it's always difficult to say where this reduction came from. The reduction that we saw at 1 major customer was, from our perspective, not so much linked to more wafer starts at this customer. I think there were other effects that we can't judge. You remember that we always said that typically the target level for inventory is something like around 30 days. And today, the inventory at customers where we see it in detail for Siltronic wafers is still higher than 30 days.

Got it. So that customer didn't continue to trend down in February basically is what -- it sounds like an anomaly for now?

Well, I think there was a slowdown -- there was a decrease. It was more in December and January and February looked a little bit more flattish. But in this development, it's very difficult, and we shouldn't overestimate the development during 1 month.

Sure. And just on the -- my second question would just be on your market share. Obviously, it looks like your market share came down a lot in 2019. And I think part of that is just because of mix, you're over-indexed to 150, et cetera. But you are high over-indexed at TSMC as well, which is obviously doing better than a lot of the rest of the industry. So why should your share recover in 2020? Is it because you're hoping memory will recover in your over-indexed to memory? I mean, how -- why should this memory -- so this share trend recover strongly into 2020? And how is that going to happen?

Well, we -- during the shortness, specifically in '17 and '18, there were interesting potentials that where we couldn't deliver any quantity because we were simply sold out. This situation changed during the year 2019, and we were relatively successful to gain some shares at customers where we couldn't supply during the time of tightness.

Got it. So there's no particular end market that you think will drive your share recovery. It's just more about availability of product?

Well, let's put it that way. Siltronic is for sure very exposed to the memory business. And if memory really picks up, this would be, for sure, to our advantage.

[Operator Instructions] And the next one is a follow-up of Amit Harchandani from Citi.

A couple of follow-ups, if I may. The first follow-up goes back to the answer, Chris, that you gave earlier to my previous question about market share gains. And you talked about good reasons that some of the competitors cannot necessarily meet demands of the latest design rules. Can I just confirm that you were referring more to the Logic end market there? Or do you also see towards the memory end market that some of your competitors cannot meet all the requirements, the latest requirements of your customers?

Well, it's more linked to the Logic and foundry market.

Okay. And could you give us a broad split for polished versus EPI for you? Or you would not like to disclose that?

Well, I don't want to comment on that one.

Okay. And secondly, if I may. With regards to your shipment towards domestic Chinese customers. I just wanted to know if you think that's material enough for you. And the reason I ask is obviously there are some like YMTC, which have had issues, given where they are based in China. So if you could give any color on your shipment into domestic Chinese customers if that is material enough to influence your outlook for this year?

Well, the challenge for shipments to China today is shipping. It's not about the customer, it's not about us, it's about transportation. It's more a transportation issue than anything else.

Sure, but have you encountered those issues yourself already? Or has that been factored into your outlook when you talk about the virus spreading?

Well, I think it will have a major impact on the overall economic development, and I wouldn't link that to China.

And we received a follow-up of Veysel Taze from Bankhaus Lampe.

A question regarding the industry capacity expansion at this stage. What are your thoughts there? Do you -- I mean, a few key players said that they are not going to expand capacities. But still, what are your thoughts, what are your expectations for this and next year? What the industry will do in terms of adding new capacities?

Well, as far as it is our judgment that the so-called shell capacity for 300-millimeter is somewhere 7.1 million to maybe 7.2 million wafers. And we do believe that this capacity will be fully built out maybe end of this year, maybe mid of next year. And every additional capacity afterwards would be a greenfield investment, but we do not see any greenfield investment on the horizon.

Do you see Chinese local wafer makers? I mean, there were delays there, some key players have their capacity plans there for years, but it's not coming really online. Do you see the Chinese local wafer players may be pushing now this. And so it could kind of be a risk to the shell capacity assumption you said before?

Well, I think on one side, you have the shell capacity and you have the capability. And the shell capacity, let's say, whether it's a Japanese player or a Korean player or a German player or a Taiwanese player, this can always decline with adding equipment into really capacity. When we look at the performance of what the Chinese produce today, this is not -- shouldn't be a concern to the market. Our latest news is that the output of doing semiconductor somewhere at 80,000 to 100,000 wafers per month, but they are far away from latest design rules.

[Operator Instructions] We received a follow-up of Robert Sanders from Deutsche Bank.

Just one quick question. You mentioned sea freight and airfreight. There's been obviously a lot of disruption in the sea freight industry, people are now choosing to go use road, use air. Is that going to affect your margin? Because in the past, you've done some airfreight and it's added cost relative to what you've done in the past?

Well, typically, when we bring material into China for sea freight and airfreight, and the airfreight rates went up, went up significantly. And of course, it has a impact on our profitability, but it's very small.

And we received a follow-up of Amit Harchandani from Citi.

But I was just intrigued by the comment you made earlier about the shell capacity in the industry. And if I heard it correctly, you said it would be filled out by the end of this year and anything thereafter would be greenfield. Given that everyone, at least so far publicly talks about the COVID-19 as being a timing issue, a temporary issue and secular drivers are intact, surely, if the shell capacity is going to finish or being used up by the end of this year, you would be having constructive discussions around greenfield capacity with your customers right now, given the lead times. So can you confirm if you're having any of those discussions, if anything going forward is going to be greenfield from next year?

Well, first of all, my comment regarding brownfield, brownfield will be fully equipped either by the end of this year or mid next year. But it does not mean that this is fully loaded. And you know that in 300-millimeter, we are not at full load. So this does not mean that by, let's say, later '21 or early '22, we will run into the supply issue. But we know that a greenfield investment takes longer than brownfield adding simply equipment into existing building. And consequently, people need to think about it. And it's much more our customers who need to think about it, and as soon as customers are willing to discuss with us, we will always listen to them. We have to think about the future. And also in the future -- sometimes in the future, the industry will need greenfield investment and probably also Siltronic.

That was my understanding as well. Thank you for clarification, Chris.

Sorry?

No, I said that was my understanding. So thank you for clarifying. I would have thought the discussions need to start happening at some stage.

As there are no further questions, I hand back to the speakers for some closing remarks.

Okay. Thank you all for joining today's call. Our next call will be on April 28 with the release of our Q1 figures. And with that, we close today's call, and wish you all a very pleasant day. Goodbye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.