Siltronic AG

Hanns-Seidel-Platz
Munich, 481737
Germany
Telephone: (49 89) 8564 3000
Fax: (49 89) 8564 3129
Web site: http://www.siltronic.com

Wholly Owned Subsidiary of Wacker-Chemie AG
Incorporated: 1968
Employees: 5,700
Sales: EUR 925 million ($1.09 billion) (2005)
NAIC: 334413 Semiconductor and Related Device Manufacturing

Siltronic AG is the world's leading producer of the silicon wafers used in semiconductors, which form the basis of microprocessors, tiny chips that power computers, mobile telephones, DVD players, flat-panel displays, navigation systems, aircraft control systems, and much more. Siltronic develops and manufactures a variety of wafers with diameters of up to 300 millimeters (mm) at production sites in Europe, Asia, Japan, and the United States. The company has 14 sales offices in all the large markets, including Asia and the United States, and distribution partnerships elsewhere.

THE RISE OF THE SILICON WAFER

Siltronic's parent company, Wacker Chemie, was already a pioneer and leader in the chemicals industry when it began research and development of hyperpure silicon in 1953, in Burghausen, Germany. It started production of the first semiconductor silicon in 1958. As there were hardly any usable machines available for this new technology, a great deal of development work had to be invested into the machinery and the processes. Costs were high and the market extremely volatile. In fact, in some years, the company's losses so outstripped sales that it was on the verge of ceasing all silicon activities.

Then a breakthrough came with a process in which silicon was deposited from trichlorosilane and hydrogen. At the same time, the float zone process provided a method of achieving a perfect crystal lattice, in addition to chemical purity. Wacker succeeded in producing high-quality semiconductor silicon, which made it possible for the production of high-quality transistors on an industrial scale and heralded the era of the transistor and semiconductor technology.

The demand for silicon products grew phenomenally after 1959, when Texas Instruments presented the first integrated circuit. Instead of just one transistor, this circuit consisted of a functional group of several transistors on a single piece of silicon (otherwise known as the chip). In 1959, Wacker produced 530 kilograms of polysilicon. By 1969, this figure had grown to almost 60 metric tons. The disparity was even greater for monocrystals; during the same ten-year period, production rose from 22 kilograms to more than 14 metric tons.

Throughout the 1960s, North America dominated the semiconductor market as microelectronics joined electronics and sparked an increasing number of applications. In 1961, Wacker's Burghausen site increased its staff and made major additions to its product range, including the production of monocrystals no larger than a fingertip. Polysilicon crystals and monocrystals and hyperpure silicon wafers were shipped throughout Germany and to many European, and even a few American, customers. Wacker also become active in the U.S. silicon market. In 1965, it acquired the American silicon producer, Monosilicon, in Los Angeles.

By the late 1960s, it was clear that Wacker's silicon activities would best evolve as a new, independent company. So in December 1968, Wacker-Chemitronic GmbH, Burghausen was founded as a wholly owned subsidiary of Wacker-Chemie GmbH. At the time, chemical giant Hoechst AG and the Wacker family each owned 50 percent of Wacker-Chemie. A few years later, it became evident that the Los Angeles plant could no longer meet the specifications imposed on the new silicon products. For a while, Wacker supplied its few American customers with material from Burghausen. When its U.S. market share grew substantially in the late 1970s, however, Wacker-Chemie decided to build a plant in the United States to take advantage of the huge market for silicon chips and the cheaper cost of power in America, and to offset the rising cost of shipping chips from Europe.

The city of Portland, Oregon, went out of its way to woo the foreign company, offering to make grants available to train the local workforce and arranging postgraduate engineering courses for staff. For weeks before the $40 million to $60 million 200,000-square-foot Wacker Siltronic Corporation opened for wafer production in 1980, its 600 workers practiced the necessary procedures of pulling, polishing, and wafering on old equipment from Germany.

WACKER CHEMITRONIC EXPANDS GLOBALLY

Throughout the late 1980s, the demand for silicon wafers increased until, by the early 1990s, the worldwide silicon wafer market was garnering between $2.3 billion and $2.5 billion a year and was expected to continue to grow at a rate of 10 to 12 percent annually. Wacker Chemitronic began to explore ways of increasing production. It entered into a joint venture in 1985, called NSC Electron Corporation, with NSC and began production of 125 mm and 150 mm wafers in Japan. It acquired a plant in Wasserburg, Germany, in 1988 which helped fulfill the new demand for 200mm wafers. It hired additional workers for its Portland facility, bringing their number to more than 900 by 1988. In late 1994, the company decided to expand the capacity of its Portland plant at a construction cost of between $240 and $300 million.

Some of the new hires came from a technology program that Wacker Siltronic started at Benson Polytechnic Public High School. The high school, which housed a manufacturing studio known as a "clean room," prepared students to assume permanent jobs at the company upon graduation. The program was amazingly successful. Within two years of the opening of the semiconductor training program, employees' job retention had risen from 56 to 73 percent.

Wacker Chemitronic GmbH, which changed its name to Wacker Siltronic GmbH in 1994, increased wafer production through the mid-1990s. In 1995, it acquired the hyperpure silicon production plant in Freiberg, in Eastern Germany, taking over the former, state-owned VEB Spurenmetalle Freiberg, which had started semiconductor operations in 1957. After two years of plant modernization and expansion, it was integrated into Wacker Siltronic. The company initially produced 150 mm wafers in Freiberg and then began making 200 mm wafers. In March 1998, the foundation stone for a new facility was laid, and in 1999 production of monocrystals began.

COMPANY PERSPECTIVES

We are dedicated to always being one generation ahead through perfect silicon solutions creating lasting values for customers, employees and shareholders. Our vision and values guide the way we act. As a global enterprise we are committed to deal with all our stakeholders with the highest ethical standards and as a responsible corporate citizen. We conduct our operations with honesty, integrity and openness and with respect to the human rights and interests of our employees. Within Siltronic, each of us feel bound to these values and act accordingly.

However, 1996 marked the start of a three-year downturn for the semiconductor and personal computer industries. At the time of the downturn, which proved the longest slump in two decades, wafer prices plummeted. Wacker Siltronic cut 50 jobs in Portland. A second round of cuts eliminated another 30 jobs. Despite excess supplies throughout the chip industry and a weak Asian economy, Wacker Siltronic completed construction of its new plant in Portland, which began to produce 200 mm wafers and became a cornerstone for the company's globalization strategy.

When the industry rebounded in 1999, Wacker Siltronic engaged in a 200-person hiring spree, bringing its workforce back to prior levels. Then, in 2000, the Internet boosted demand for personal computers and thereby increased demand for electronics, from telecommunications and networking gear to handheld organizers, Internet devices, and cell phones. Globally, there was once again an upturn in wafer demand. The surge in demand for electronics led to increased demand for the small- and large-diameter wafers then in short supply. However, even as demand increased, wafer prices, which had dropped in 1999, remained below 1995 levels.

Wacker Siltronic also became a presence in Singapore in 1999 when Wacker Siltronic Singapore Pte. Ltd. opened its 200 mm wafer-production plant. The factory in Singapore allowed the company to participate actively in the booming Asian economy, whose chip market accounted for about 60 percent of global silicon demand. The plant created about 1,000 jobs.

Big organizational changes came about in 2000 as ultimate parent Wacker-Chemie ended its 80-year association with Hoechst AG. Also that year, a joint venture between Wacker Siltronic and Nippon Steel subsidiary NSC Electron (NSCE) led to the formation of Wacker NSCE Corporation, of which Wacker Siltronic owned 55 percent. The two companies' wafer-production facilities consolidated in NSCE, making NSCE the second largest wafer manufacturer with production facilities in all four regional semiconductor markets and a 20 percent global share of the wafer market. By 2003, Wacker Siltronic took over the remaining shares of NSCE, opening the way for the company to enter the Japanese market.

Hard times hit chip manufacturers again in the early years of the new century and Wacker Siltronic ceased to make a profit in 2002. In 2003 and 2004, the company completed an internal restructuring and once again cut jobs. During the course of the restructuring, Wacker Siltronic shut its Wasserburg plant and opened one of the world's most modern 300 mm wafer production plants at its Freiberg site. Freiberg's initial capacity was 60,000 wafers per month, but once fully expanded the new large-wafer production facility in Freiberg almost tripled existing capacities in Burghausen and Japan. Parent Wacker-Chemie also sought to spin off the company, but plans fizzled after one potential U.S. buyer withdrew its bid in light of the company's losses.

This new addition coincided with a strong rise in the semiconductor market in 2004, as a total of $227 billion in electronic components were sold worldwide. Demand for wafers rose accordingly. In 2004, Wacker Siltronic changed its name to Siltronic AG and increased capacity at its Burghausen silicon-manufacturing facility.

Overall growth in the semiconductor market was moderate in 2005, which was reflected in a modest growth in the wafer market. Demand for silicon wafers rose by 6 percent in 2005 with growth strongest in the 300 mm wafer market. Siltronic saw a turnaround in 2005 and gained in market share for all its wafer diameters. Its total wafer sales rose by 8 percent in 2005 to $7.9 billion from $7.3 billion in 2004. Revenues rose throughout 2005 by 14 percent, largely attributable to strong performances in Asia and North America and to sales of 300 mm wafers, which more than doubled in 2005 compared to 2004. For the first time since 2002, Siltronic AG returned to profitability.

KEY DATES

1953:

Wacker-Chemie starts research and development of hyperpure silicon in Burghausen, Germany.

1958:

Company begins producing semiconductors.

1978:

An American subsidiary, Wacker Siltronic Corporation, is established in Portland, Oregon.

1994:

Wacker-Chemietronic GmbH changes its name to Wacker Siltronic GmbH.

1996:

Wacker Siltronic GmbH becomes a joint stock company.

1999:

The company begins wafer production at Wacker Siltronic Singapore Pte. Ltd.

2000:

Wacker Siltronic enters into a joint venture with Nippon Steel; founds NSCE Corporation in Japan; ends its relationship with Hoechst.

2003:

The company buys the remainder of NSCE from Nippon.

2004:

Wacker Siltronic changes its name to Siltronic AG.

In 2005, Siltronic invested a considerable portion of its revenues in research and development to expand its research facilities in Asia as sales volumes there grew by 19 percent, accounting for 44 percent of the company's total revenues. At the same time, sales in Europe continued to decline, dropping to 30 percent of revenues in 2005. As a consequence, the company began to look to Asia and Japan in particular for its future growth.

As experts forecast steady if modest growth in the semiconductor market for the years 2006 and 2007, with growth in the 300 mm silicon wafer segment well above average through 2008, Siltronic increased capacities at its Burghausen and Freiberg plants by a total of 110,000 300 mm wafers per month. The company joined forces with Samsung in 2006 to construct a silicon wafer production site in Singapore as the price for 300 mm silicon wafers once again increased. At an estimated price of $1 billion, the plant was expected to be fully functional in 2008.

Carrie Rothburd

PRINCIPAL COMPETITORS

MEMC Electronic Materials Inc.; Shin-Etsu Handotai Co. Ltd.; Sumitomo Mitsubishi Silicon Corporation (SUMCO).

FURTHER READING

Anscombe, Nadya, and Yoshiko Hara, "Wafer Vendors Warn of Scarce Raw Silicon," Electronic Engineering Times, March 6, 2000.

Chappell, Jeff, "Wafer Market Vendors Plagued by Overcapacity, Low-Price Issues," Electronic News, May 13, 2002, p. 1.

"Corporate Strategies: Siltronic: Hanging Its Future on 300 mm Wafers," Electronics Chemicals News, October 31, 2006,

Hunsberger, Brent, "Wacker Siltronic Suit Tackles Clean-Room Uniform Issue," Oregonian, December 5, 2001, p. B1.

Williams, Elisa, "Chip Industry Bucks Up," Oregonian, October 28, 1999, p. B1.