Siltronic AG

XETRA:WAF

Earnings Call Transcript 2023-Q1

[Verena Stutze, Head of Investor Relations and Communications]

Thank you, operator. Welcome everybody to our Q1 2023 Results Presentation. This call is also being broadcast live over the internet on siltronic.com. A replay of the call will be available on our website shortly after the conclusion of this call.

Joining me on today’s call are; our new CEO, Dr. Michael Heckmeier; and our CFO, Rainer Irle. We are very excited to have Michael on Board since this week. He will introduce himself in a minute. Rainer will then guide you through the current trading, key financials and provide an update on our guidance and current market developments. After the presentation, we will be happy to take your questions.

Please note, that management comments during this call will include forward-looking statements, which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the Safe Harbor statement contained in today’s press release and presentation. All documents relating to our Q1 2023 reporting are available on our website.

I now turn the call over to Michael for his introductory remarks.

[Michael Heckmeier, CEO]

Thank you, Verena. Welcome everyone and thank you for joining us for our Q1 ‘23 results call. It is my first conference call for Siltronic and I’m very excited to have my new role as CEO. Some of you might know me from my previous roles.

I’ve spent the last 25 years in various functions at Merck, a DAX listed company. Most recently, I was in charge of the Display Solutions business at the same time, Member of the Management of the Electronics division, where I gained already invaluable insight into the electronics and semiconductor landscape. I consider it a great and unique opportunity to serve as CEO of such a thriving company.

Wafers and semiconductors are the basis for future technologies. These products enable advancements in digitization, AI, autonomous driving, and countless other groundbreaking applications that are transforming our lives and the global economy. I’m truly proud to be part of this dynamic environment and to contribute to the future together with the Siltronic team.

I joined the company just few days ago and already gained some first insights. I look forward to speaking to you in the H1 ‘23 conference call on July 27th. As you’re key stakeholders, appreciate your feedback and input during the upcoming roadshows, investors meetings, I will enjoy meeting many of you personally.

For today, I ask Rainer to take over the lead in this call. So let me hand over to Rainer and thank you for joining today.

[Rainer Irle, CFO]

Thank you, Michael. And I must say we are thrilled to welcome you onboard to Siltronic. I promise that you will enjoy the time here. We have a greatest employees, we’re a technology leader, and we have a great future ahead of us. But now let’s dive into the latest developments of Siltronic.

Again, it is all about inventories at our customers and OEMs, massive inventory built through H2 last year in Q1, this year now requires a massive response. You’ve probably read about the significant wafers stock reduction at many of our customers. As usual, customers tell us rather late about their plans. January still looked okay. However, in the meantime, we received many calls from customers asking us for push outs.

Consequently, our earnings were impacted significantly. Compared to Q4, our sales were down by 14% to EUR 404 million. EBITDA was at EUR 125 million and the margin came in at 31%. CapEx was EUR 260 million, mostly spent for FabNext, our new factory in Singapore. Due to the high CapEx, our net cash flow was negative as expected, and came in at minus EUR 106 million.

Our net financial assets were positive at EUR 284 million at the end of Q1. FabNext construction is fully on track. This is actually a great story. We have such a great team down there to make it possible. The building is basically completed and the cleanroom is operational.

To give you an idea of the impressive work done by the team, the construction site covers an area roughly equivalent to the size of 25 soccer fields. Around 5,000 people are working on site to get everything ready in time. The picture on the slide gives an impression of how large the site is.

On the left side, you see our existing fab which is connected by a link bridge to the new fab. We already moved in some equipment and started it up. I’m convinced that FabNext will be a game-changer for Siltronic. It is the largest and most automated factory at Siltronic, which will enable a leap in Siltronic’s EBITDA margin.

And now, we go through the financials in more detail. We start with sales, which, as anticipated, were weaker quarter-on-quarter due to a decline of wafer area sold. Additionally, the FX headwind from the stronger euro against the dollar put some extra pressure on Q1 results. Of all, sales reached EUR 404 million and are in line with our expectations.

In Q1, COGS came down to EUR 288 million, EUR 13 million down quarter-on-quarter due to lower wafer area sold. Costs went down with lower area sold. However, less than proportional to sales volume. We saw inflation and labor cost, raw materials and supplies, as well as an energy cost. Of all, we expect another EUR 50 million unit cost increase year-over-year. Given their slow, but good improvement in electricity costs, such increase may actually come in somewhat below EUR 50 million.

Our gross profit decreased to EUR 160 million and the gross margin to 29% in Q1. The euro-US dollar exchange rate averaged 1.07 in Q1, i.e., it was almost EUR 0.05 stronger than in Q4. On the slide, we updated our FX sensitivity and a change in USD1 cent impact sales by approximately EUR 11 million and EBITDA by roughly EUR 7 million, as always, excluding hedging effect.

With the US dollar at 1.10 and the Japanese yen at 145, we expect a EUR 65 million negative impact on sales for the entire year ‘23. The stronger euro burdens Siltronic sales and gross margin, though we get some of it back through an FX hedging. Hedging result was negative EUR 20 million in ‘22 and is expected to be about EUR 20 million positive in 2023 if the US dollar was around 1.10.

EBITDA in Q1 came in at EUR 125 million and was in line with our guidance. EBITDA margin was 31%, down from 35.6% in Q4. What is disappointing to see the decline, I would like to give it a different spin. With all the improvements of the last decade, we have elevated margins to a much higher level. Even at times of a cyclical decline, we still run the company at 30% EBITDA. This, in my view is impressive.

EBIT in Q1 reached EUR 78 million was an EBIT margin of 19%. EBITDA and EBIT were both impacted by the low wafer area sold and higher cost for raw materials, energy and supplies. Despite the market weakness, a considerable net profit of EUR 73 million was achieved in Q1. Earnings per share were EUR 2.20. A dividend payout of EUR 3 per share for ‘22 was approved by the AGM last week and actually paid yesterday.

Looking at our balance sheet, equity rose to EUR 2.1 billion at the end of March ‘23. Equity ratio was 51%. The increase in equity as a result of the strong net profit. The IFRS interest rate for pension provisions in Germany who 3.66%. In the US, the interest rate decreased slightly to 4.68% at the end of Q1. This resulted in pension provisions of EUR 122 million, almost no change.

Net financial assets were still positive at EUR 284 million, despite high CapEx. Again, we had strong cash flow from operating activities. We have some EUR 676 million financial debt and liquidity of almost EUR 1 billion, which will obviously decline in Q2 with the dividend payment and high CapEx.

Operating cash flow in Q1 was EUR 147 million, following EUR 190 million in Q4. Net cash flow in Q1 was negative at minus EUR 106 million as expected. Net prepayments for customer LTAs amounted to EUR 22 million in Q1. We expect some additional prepayments in ‘23. However, prepayment inflows and returns will be in the same order of magnitude this year. ‘23 CapEx is expected to be slightly above ‘22. Most of this amount will be spent for FabNext in Singapore.

In ‘24, this amount expected to come down by half. Due to the planned startup of FabNext in ‘24, depreciation will nearly double in ‘24. The financing strategy of the new fab and other CapEx has a solid foundation. We primarily use cash on hand and operational cash flows, customer prepayments to fund the project. In addition, we have some financing in place.

And to give you a quick overview, the three instruments in place, and the fourth one will be completed soon. The first one is the ESG-linked promissory loan note EUR 300 million that is fully drawn. The second is the EUR 450 million in Singapore dollar term loan that is partially drawn and will be fully drawn through this year.

Then the EUR 200 million loan from the European Investment Bank which is also fully drawn. And then in preparation of the ongoing expansion of FabNext, the term loan in a combination with our revolver is currently negotiated. It is intended to serve as a liquidity reserve and will be drawn in ‘24. And as I said in last call, we do not plan a capital increase in ‘23.

Now, let’s turn to silicon end markets. I will talk about the end markets first and later about inventory drawn. Year-over-year, smartphones which represent the largest silicon end market anticipated to show weaker unit sales. On the positive side, silicon content in smartphones continues to grow. Therefore, wafer demand is expected to remain stable this year.

PCs coming down from high demand around COVID are expected to decline further this year. Server demand remained strong. Although, we see some pockets of weakness, AI and other high-performance applications massively drive silicon content in service. Demand for industrial applications is projected to see a modest increase, while the automotive sector, particularly electric and hybrid vehicles continue to see significant growth. In summary, the overall end markets before inventory correction in ‘23, anticipated to show yeah, somewhat a little growth.

But due to the high inventory levels throughout this value chain, particularly among our customers and to a lesser extent, altered OEMs, wafer demand is expected to decline by slightly more than 10% year-on-year. We’ve seen such excess inventory before, particularly in 2009, 2012 and 2019.

Burning inventories takes time and the three month cycle times that our customers do not allow quick response. Some customers already reduced wafer sales in Q4. Others, just recently decided to reduce output. We do not like it. But heating through these high inventories will delay our upturn by a couple of quarters compared to end market.

And this leads us to our outlook for the second quarter. Siltronic start to the financial year was muted. Siltronic expects the market to remain sluggish in the coming quarters. Some customers asked to push out beta shipments and this will probably affect the entire year ‘23. In the second quarter, we expect sales on Q1 level and EBITDA margin to come in between 27% and 31%. This is based on an FX rate of 1.10. Inventory burn takes times, therefore, we do not anticipate any improvement in H2 yet.

As you may have read, a large memory customer will be reducing wafer stocks forever, which will put some burden on the second half. Accepting that things will take a while is difficult, but we continue to be convinced that a bright future lies ahead of us. And let me highlight three areas. Area one, the demand is down a little more than 10% due to excess inventory. Once burned, demand will automatically increase by 10%. Some end markets might already be through the worst, while other markets need more time.

Memory has just reduced wafer stocks further. Reason two, megatrends, such as 5G, AI, electromobility and digitization continue to be growth drivers for the semi industry. Consumer sentiment is still muted. Inflation is hard to find. China is still under shock from the lockdown and the terrible war that’s looming in Europe.

But sooner or later, consumers will come back and content will continue to grow anyway. And finally, costs are coming down. Electricity prices are improving, both in Europe and in Singapore. Electricity costs are still elevated, but far below the fear prices of last year. We also see improvements in other cost categories like freight costs.

Now, prior to concluding the call, please allow me a few words about myself. As you may have read, today’s webcast will be my last one for Siltronic. Claudia Schmitt will take over the role as CFO on July 1st, as I have decided to take on a new professional job. With Claudia Schmitt, Siltronic will gain an experienced and highly competent CFO from within our own ranks.

Claudia has been with Siltronic for over 13 years and Claudia and I have been working together for almost 20 years at Siltronic and at Wacker. Claudia is the Head of Controlling and Treasury, she has played a significant role in shaping key strategic decisions during this time. Having worked closely with her for many years, I cannot envision a better successor.

For me, personally, the past 20 years at Siltronic and at Wacker has been an incredible experience. When I started in 2003, our EBITDA margin was 20% lower compared to peers. And we started an incredible journey, slimming overhead functions, driving automation to new levels, moving HBM to Singapore, and fostering our technology leadership. The IPO definitely stands out as one of my most memorable experience.

But I’m also proud of the leadership team that we put together a strong basis for future success. I enjoyed engaging with all of you during earning calls, investor conferences and roadshows. And I’m deeply grateful for the trust that you have placed in me as CFO. Obviously, I will be still available for meetings and calls until my departure end of June. But in case, if we do not speak before, all the best to you and I’m looking forward to seeing you again in my new role.

And with this, we close our presentation. And we are now available for your questions. Operator, please open the Q&A session.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Robert Sanders from Deutsche Bank. Please go ahead.

[Robert Sanders, Deutsche Bank]

Yeah, good morning. And Rainer, best of luck with your new role, which I’m sure will be a huge challenge. But we’re looking forward to seeing where you can do that. So my first question would be on utilization. So it looks like your utilization, your loading is about 60% at 150 and about 80% at 200 and 100. So, you know what I’m interested in is, how you think the pricing situation is going to play out? Are you seeing customers wanting to drive concessions on pricing, particularly those with short-term contracts? And I have a follow-up. Thanks.

[Rainer Irle, CFO]

Yeah. Thank you, Rob for the wishes. I’ll try to do my best. Under utilization, I mean, if waivers stock are down 10% and then, utilization is down 10%. So, utilization is down. Luckily actually we do not see pricing pressure. And that’s a kind of a bit different from the prior slowdown in 2019, where we saw pricing pressure. But so far, it is more about customers just pushing out and I guess, all customers we talked to know that that wafers were probably still remain to be very tight next year, so they try to be friendly to us, they ask for push outs, but they have not been talking about prices so far.

[Robert Sanders, Deutsche Bank]

Got it. Okay. And then on the CapEx. It looks like it’s a little bit lower than your previous statements. So, is the situation you’re going to ramp up full speed to Phase 1 and then perhaps revisit depending on demand as we move through this year, the speed of Phase 2? Or is there anything I should read into to what you’re saying about CapEx? Can you just remind us on first wafer out and what capacity Phase 1 will give you? Thanks.

[Rainer Irle, CFO]

Yeah, Rob. I was trying not to change the language that we have been using. So absolutely no change, we go full speed. We just had the first wave actually last week, but it will be a longer process to qualify everything and then kind of I mean, we still expect the first wafer to ship basically on January 1st or on January 2nd.

And so, no change there. We never disclose the exact output, the capacity of Phase 1, so we want to continue not to disclose that. But there’s no change in strategy. And then, maybe later this year, there needs to be a decision on the ramp speed for Phase 2. But I think this is something to be done in fall of this year.

[Robert Sanders, Deutsche Bank]

Just one quick follow-up on that. On depreciation, how do you think depreciation and amortization will start kicking in from that FabNext year and the year after? Because I think depreciation is roughly EUR 200 and something million this year? How will it trend in the next two years? Does that mean, I understand doesn’t affect your EBITDA, but does it affect your gross margin as and what sort of step up in depreciation should we see? And that’s it for me. Thanks.

[Rainer Irle, CFO]

Yeah. Okay, Rob. So, depreciation will basically double next year, I mean, if you look at our balance sheet we’re of half of the long-term assets or assets in construction, so that will all hit next year to come operational, and then depreciation will stop. I think the new factory will have the positive impact on EBITDA margin from day one, because even at a slow production output, will be already very effective.

Though, obviously, it will put a burden on EBIT with the higher depreciation, and that will take a little to come back, because depreciation really comes from day one for all of the factory, for all of the cleanroom and for all of the equipment that is already there. And then, kind of with the loading increasing over the first years with the ramp, then more and more EBITDA will be generated. And then EBIT will kind of come back to all levels and in the end, probably at higher levels than we see today.

[Robert Sanders, Deutsche Bank]

Thanks a lot.

[Operator]

And the next question comes from Adam Angelov from Bank of America. Please go ahead.

[Adam Angelov, Bank of America]

Yeah, hi. Thanks. And just echoing the well wishes and all the best for the next role runner. So firstly, just wanted to get, you know, I know visibility is low today, but your initial views and maybe you’re having any of these conversations with customers on 2024, given and I guess, a limited or no expectation for the market to recover in H2 2023. And we have all this new capacity coming online in 2024. Just what you’re hearing from customers there?

And then secondly, just on the pricing developments, I was curious just maybe if you could go into in a bit more detail on your answer to the last question. I would have thought maybe spot was slightly weaker than where we were a few months ago. And LTA pricing maybe a bit more resilient and if you could just go into that in more detail? That’d be great. Thanks.

[Rainer Irle, CFO]

Yeah, sure. That’s the aim, Adam. Thank you. So kind of, I mean, if you’ve read through customers’ presentations and also from our conversation with customers, everybody is expecting a significant uptick in ‘24. I mean, if you look through the earnings calls, I mean, for example, large logic manufacturer, they see already the truck now, though, typically, we see it six months later, because you know, the inventory need to be digested. But there’s clearly a lot of positive signals into next year.

And again, I mean, if this year is down 10% for inventory adjustments, you would expect next year to pick up just from that by 10%. New capacity, as you said, I think the amount of capacity coming online from customers next year might even be a bit higher than capacity coming online from beta manufacturers. We believe we are somewhat ahead of competition when it comes to this tension.

As you remember, we are the first ones to site on Greenfield. And the project is actually executed very, very well. So, we will be able to shift from the new line really already on January 1st. And we think we already have and we do not expect that there’s, you know, more capacity EBIT on our site that our customer site it’s rather the other way around.

Now, we said that pricing for this year would be up a little. And we stick to that comment, particularly from new LTAs coming online. But there is no weakness in quarterly contracts. It is really less, I mean, the volume is down, but we have not had customers asking for price reductions, we’re kind of you know, I give you more volumes, if you lower the price. We really don’t see that, because the customers are expecting this to be a very temporary weakness and the market to come back next year, and then, they need a significant amount of wafers.

[Adam Angelov, Bank of America]

Okay, got it. That makes sense. And just a quick follow-up. Is the plan roughly still to around FabNext over four years?

[Rainer Irle, CFO]

Yeah, Adam, this is nothing that we need to decide today. So we have kind of Phase 1, we will continue to go as planned. And then, what we do kind of in ‘26, ‘27, ‘28 is something that can be decided later. We can continue as planned, meaning, that we will ramp to ‘28 that kind of depending on the market assessment in the second half of the year, we could also slow them down by a year or two.

[Adam Angelov, Bank of America]

Got it, very helpful. Thanks.

[Operator]

The next question comes from Gustav Froberg from Berenberg. Please go ahead.

[Gustav Froberg, Berenberg]

Hi, everyone. Thank you for taking mine as well. Also to just reiterate from previous comments, Rainer, best of luck in your new role. And so on to questions. I just really have one. And I think you’ve alluded a little bit to it earlier, and it’s on cycle dynamics, I’m just trying to compare the current cycle as you see it with the one we saw in 2019, when we basically saw EBITDA decline year-on-year in ‘19, we saw further decline in 2020.

And given what you see today and what you know, today, how do you think the timings of the cycle will work this time around? Do you think that the inventory digestion is greater than or less than what you’ve seen previously? Yeah, just basically any color around cycle dynamics compared with the past would be very helpful. Thank you.

[Rainer Irle, CFO]

Yeah, sure, Gustav. And thank you for the kind words. It’s kind of feels a little like 2019. Those kind of there, I mean, the market is down even a little further. The big difference is really that we do not see pricing pressure. And so, kind of, but the starting point is the same right, 2018, end of 2018 was particularly strong, customers were still taking spot volumes. And that’s kind of the same that we saw end of last year.

So I mean, customers took spot orders or spot volume and they also said they would take more spot only in Q1 this year, and then suddenly kind of inventory went up and inventory always comes late and kind of you know, we realize very light that there is the issue. And then customers reduce wafer stock.

And then kind of we are behind their, I mean, our cycle is like six months behind the semi cycle, because kind of that takes a long time. So we are told to reduce wafer stocks actually result in lower wafer sold. And so also the uptick takes six months later on our site.

But really, I mean, it feels like the last cycle. But the big difference is that there is no pricing pressure. And I truly believe that the reason is that, I mean, first of all, we have a lot of great LTAs, but also on the shorter-term, we do not see pricing pressure and customers really expect that wafer supply might actually be pretty tight next year.

[Gustav Froberg, Berenberg]

That’s great. Thank you. Just a follow-up on the LTAs. Could you remind us of the percentage share covered by LTAs currently?

[Rainer Irle, CFO]

Two-thirds, roughly. No change.

[Gustav Froberg, Berenberg]

Okay, great. So, same as before.

[Operator]

So the next question comes from Jurgen Wagner from Stifel. Please go ahead.

[Jurgen Wagner, Stifel]

Yeah, good morning. Thank you for taking my question. I have yeah on solar wafers, given the current initiative of our green government to subsidize electricity by significantly. At what point would you consider the production of solar wafers being an economic alternative? I know that you previously said an option, but now, things seem to change in terms of the production costs? Thank you, and all the best.

[Rainer Irle, CFO]

Yeah, Jurgen, thank you. I think we will see each other soon. So yeah, I mean, solar wafer, I think the last solar wafer we sold in 2008, and this is really another business for us. I mean, that this is kind of a, I mean, I saw solar wafer manufacturing in China, I saw these huge holes where they have thousands of products to produce a very, very cheap product in you know the manufacturing costs of a solar wafer of maybe 10% over electronic grade wafer or maybe even less, this is really nothing we are interested in. And, I mean, personally, obviously, follow that that discussion with a lot of interest, but that is definitely nothing we would ever engage in.

[Jurgen Wagner, Stifel]

Okay, thank you.

[Operator]

[Operator Instructions] And we have a follow-up question from Robert Sanders from Deutsche Bank. Please go ahead.

[Robert Sanders, Deutsche Bank]

Yeah, I’m just picking up on the pricing commentary you made. I mean, if pricing is stable, and the industry is worried about tightness next year, why don’t either customers continue to build up inventory or you run your factories flat out in order to take market share next year, because you’ll have the volume and no one else will? I mean, that’s a bit I don’t quite follow.

[Rainer Irle, CFO]

Yeah, Rob, I think customers already built inventory, and they know real life that their warehouses are full and they have to reduce. You know, and then also on our side, I mean, you’re always, I mean, you’re thinking about, yeah, that’s pre-produced. I mean, kind of the capacity that we don’t use today, it’s been gone. But, I mean, history clearly tells that good leadership means to cut immediately. And don’t transfer the problem, right. I mean, it’s kind of, if you let it go in Q1, and then you might have a problem in the second half of the year.

So, it’s clearly good leadership is having flexibility in the company, being able to cut quick, but also to restart quickly. So, we are ready to ramp up production quickly as soon as the demand comes back. But you know, as it’s always difficult to predict the exact timing, we actually reduced our manufacturing output in line with market demand. And I’m 100% certain that it’s the right thing to do, because otherwise, you would just push out the problem.

[Robert Sanders, Deutsche Bank]

Got it. And the only other thing I wanted to just ask was around prepayments. So Simco makes a big deal that none of their expansion is contingent on prepayments. What they argue is that companies like you and GlobalWafers are kind of obligated to ramp at full speed, because of prepayments. So, can you just sort of contrast and compare what you’re doing with prepayments with a company that is just building to demand as they see it? Is there an obligation for you to kind of buildup regardless of the demand picture?

[Rainer Irle, CFO]

I mean, I’m surprised to hear that comment. I’m not sure if that makes a lot of sense. I mean, our LTAs sell wafers, not a specific factory, right. So, I mean, if we would realize that the overall demand is growing less than we had expected, and we have sufficient existing capacity, we would not be obliged to expand the factory.

That’s why I said before, kind of you know, if we later realize this year, that the demand picture for the next five years probably lower than we thought before we could very well slow down the expansion, though, I mean, Rob I actually do not see that. So, I would, as of today, I think that we would continue to ramp, but you know, the LTAs just obliges to sell wafers, but it does not tell from which factory necessarily.

[Robert Sanders, Deutsche Bank]

Got it, thank you.

[Operator]

And the next question comes from Martin Jungfleisch from BNP Paribas Exane [sic - Exane BNP Paribas]. Please go ahead.

[Martin Jungfleisch, Exane BNP Paribas]

Yeah. Hi, good morning. Just a quick question on the margin guidance. I mean, do you expect sales basically flat “on Q2”, but margins down at the midpoint? And if it’s not the pricing, what is the primary driver for this? Is it ForEx and personnel cost? And then maybe, generally on costs. I mean, obviously the market is not something you can control. But what are you doing in order to keep profits at a certain level? Is there any levers that you have set stronger influence on? Thank you.

[Rainer Irle, CFO]

Sure, Martin. Yeah so the margin in Q2 is down very little. And the biggest driver for that is exchange rate, you’re right. And I mean, then there’s a small minor things, for example, kind of, you know, to be a first in, first out, in January, we still use a lot of materials that we actually bought last year. And you know, in Q2 then you only consume material that you bought this year. But that is small effect, but that is reason for the guidance.

Now, profitability is sluggish, and we do a lot of things like I said, we don’t pre-produce, we rather try to reduce the workflow for us temporarily to also see the reduction in labor cost, and what’s probably most important during this time is keeping the productivity up. So you know, reducing temporary people or reducing our accounts and so on.

And then also and there, you know, we saw a significant inflation in our material costs, last year, also in electricity, we’re trying to take the right decisions now to make sure that electricity costs come down next year, we see some reduction already in spot prices now. And you know, we try everything we can you know, to change the course of the supply costs. So rather to see I mean the first step no further increases, but then maybe going into next year, some first reductions.

[Martin Jungfleisch, Exane BNP Paribas]

Okay, great. Thank you, and all the best, of course, for the future.

[Rainer Irle, CFO]

Yeah. Thank you, Martin.

[Operator]

And we have one more follow-up question from Adam Angelov from Bank of America. Please go ahead.

[Adam Angelov, Bank of America]

Yeah, thanks. Just a quick one. I was wondering if you could go a little bit deeper into logic foundry versus memory, both on the inventory side? And then I guess, as a result on the demand side as well? Would be great. Thanks.

[Rainer Irle, CFO]

Yeah, I can I mean, we cannot make any specific comments on the individual customers. But obviously, there if you look at the logic companies, they, in their own communication seem to be through the worst, and they see improvement starting in the second quarter already. Foundry obviously is kind of, you know, always sees a bit more of a reduction. But if I read the transcripts of some of the foundry customers, correctly, they also seem to be a bit more positive about the second half of the year.

And then, in memory, I guess, we would all say that they were slow to accept that they have to reduce wafer stocks and that they kept producing and memory is probably the area where we see the highest inventory levels. So, that will be the area where it takes up most time to actually get back into growth.

[Adam Angelov, Bank of America]

Makes sense. Thanks.

[Operator]

[Operator Instructions] So, it seems there are no further questions at this time. And I hand back to Verena Stutze for closing comments.

[Verena Stutze, Head of Investor Relations and Communications]

Thank you. This concludes our Q&A session. Thank you for joining us today. We hope you will join us again in our H1 ‘23 release on July 27. Have a good day. Goodbye.