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GlobalWafers/Siltronic: risks to Taiwan fuel chip nationalism

The failure of the €4.3bn takeover of Munich-based Siltronic by GlobalWafers of Taiwan challenges stereotypes of German efficiency. The German government said it had not got around to reviewing the deal before the deadline expired.

You do not need to be a conspiracy theorist to wonder who that failure suits. German politicians, perhaps, rather than the Chinese authorities whose foot-dragging they blamed?

Intensifying east-west tensions mean big economies want greater security of chip supply. Geopolitical pundits claim China could invade Taiwan if a Russian invasion of Ukraine is weakly resisted.

That possibility is thankfully remote for the moment. The west is heavily dependent on Taiwanese tech groups such as chipmaker TSMC and iPhone manufacturer Hon Hai. Germany might credibly want to keep one small wafer supplier.

Fortunately, supplies of wafers are less imperilled by politics than microprocessor production. Japanese manufacturers Sumco and Shin-Etsu dominate the market.

The EU would still like to do better. The imminent European Chips Act aims to double the home share of semiconductor manufacturing to 20 per cent by 2030.

Superpower politics are not the only thing that has changed since GlobalWafer’s initial bid at the end of 2020. A semiconductor glut has switched to a shortage.

The global chip market grew by more than a quarter last year and is expected to expand by almost one-tenth in 2022, thinks World Semiconductor Trade Statistics. Slack in the wafer market has disappeared, pushing up prices and profit margins.

Siltronic has guided for 15 per cent sales growth over 2021 and ebitda margins of 32 per cent that would be back to 2019 levels. With output at capacity, price rises would offset higher energy and input costs. Consensus forecasts envisage margins rising to 44 per cent by 2024.

A fresh bid from an acquirer closer to home is possible. GlobalWafers can be expected to sell its 14 per cent stake in Siltronic. Shares in Siltronic are trading at 11 times next year’s earnings, back at 2019 valuation levels. A fresh bid would offer a chance for opportunistic investors to benefit from the heightened geopolitical risk afflicting Taiwan.

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