Siltronic AG
XETRA:WAF
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Siltronic AG
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Hello everyone and welcome everybody to Siltronic Second Quarter 2023 Results Conference Call. Please note that this call is being recorded and streamed on Siltronic’s website. The call will be available as an on-demand version later today. Your participation on this call implies your consent with this.
At this time, I would like to turn the conference over to Verena Stutze, Head of Investor Relations and Communication of Siltronic AG.
Thank you, operator. Welcome everybody to our Q2 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. This is the first quarterly call of our new management team consisting of our CEO, Michael Heckmeier; and our CFO, Claudia Schmitt.
Both will introduce themselves in this call, and will give you an overview on our Q2 financials, our guidance and the current market developments. After the presentation, they will be happy to take your questions. Please note that management comments during this call will include forward-looking statements which involves 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 Q2 reporting are available on our website.
I now turn the call over to Michael for his introductory remarks.
Thank you, Verena. A warm welcome also from my side for those of you who did not have the chance to hear my short welcome message during our Q1 call. My name is Michael Heckmeier and since May, I am the new CEO of Siltronic. As you might have read in the press announcements, I hold a PhD in physics and most recently worked for Merck for almost 25 years in various management positions.
By my side today, also for the first time as a member of the Siltronic Executive Board is Claudia Schmitt, our CFO since July 1st. She has been with Siltronic for almost 14 years. Today's financial results will be presented to you in a new structure and in a different way than in the past. This reflects our ambition to give you a clear and transparent picture of our company.
Besides this, Claudia and I will further develop Siltronic on the basis of a strong track record. Therefore you can expect more on evolution than a revolution from us today. As long as you might have seen in the first Slide, the central theme of today's presentation is sound basis for future growth. What does this mean? And what can you expect from us today?
We will, of course, explain the future for Q2 2023 to you in detail and give an outlook for ‘23 as a whole a year, which shows a very pronounced weakness in demand from the semiconductor industry, with a noticeable impact on our financial performance. But what's more interesting for all of you and also for the value of our company is to look beyond this year.
Most experts, including us see very promising prospects for strong medium and long-term growth in view of several megatrends that we enable with our products. Today, we will shed some light and share our perception of this. And how we are preparing for the next upswing and will shift our company from an investment to the next harvesting phase.
Today actually is my day 83, on my learning curve at Siltronic. And this learning curve couldn't hardly miss three points. On my journey through the Siltronic world, I have learned that our group is European, but nevertheless a truly global company with sites in Burghausen/Freiberg, in Portland and in Singapore. During my field trips, I met hundreds of Siltronic employees and I am impressed by the unique skills, the deep technological understanding and commitment of everybody.
They are proud to work for a high-tech company with such a pronounced and strong innovation focus. This was also confirmed and underlined by many customers I met on my tour who made a special importance of Siltronic as the only leading western wafer producer, very clear to me.
Based on this and being one of the technology leaders in this industry Siltronic offers fascinating products with huge future potential.
We will make sure that we are prepared for the future and invest to further develop our USPs. So that's what we do at Siltronic to leverage our USPs piece to take our company to the next profitable growth level.
Ladies and gentlemen, I think we all agree that Siltronic is important player in a market that is central to the future of the global economy. Already mentioned is our market position with an estimated market share of roughly 14%, a position which has not changed in the recent downward trend. The future of the semiconductor industry and wafers are the fuel for this industry is driven by megatrends such as artificial intelligence, digitalization and electromobility.
I can promise you today that Siltronic is prime to seize the future opportunities resulting from these developments. But now, let's have a look at developments in Q2 2023. A quick summary of the quarterly highlights. The operating figures are in line with expectations. Despite difficult conditions pricing is stable. Our profitability is solid. And in this year, we will see the investment peak. Our market share stable, and our investment focus next is on schedule.
Claudia will now present all important details on the financials of Siltronic, before I will report back with the outlook for the full year 2023 and beyond Claudia, please?
Thank you, Michael. A warm welcome also from my side. I'm very honored to represent Siltronic today for the first time as the new CFO of the company. As you may know, from the announcement a few months ago, I have a long history with Siltronic since I joined the company almost 14 years ago. Before joining the board, I was Head of Controlling and Treasury.
Now let's go through our financials. As expected, sales in Q2 were stable quarter-on-quarter. We saw a little pressure from FX, but in general, the main sales parameters were unchanged. I'd like to underline that prices remain stable in the course of the year, despite a significant year-on-year decline in volumes. EBITDA came in at EUR119 million, 5% percent down quarter-on-quarter.
Compared to Q1, we saw some negative effects from inventory changes and higher cost for raw materials and supplies. Given that these materials are strongly dependent on energy costs, our suppliers have increased the prices for 2023. In the first quarter, we still benefited from prior year stocks, which were priced lower.
Regarding energy prices, the picture is mixed. In Germany, we see and partially profit from a downward trend for powered natural gas, compared to last year, and also quarter-on-quarter. In Singapore, where electricity prices are largely set in the previous year, we see an upward trend. Most of the prices for 2023 were fixed in 2022 and likewise, the prices for ‘22 were already agreed in 2021.
Looking into next year, we expect some positive impact from lower energy prices in Singapore, as well as in Germany. On the upside, our FX hedges from last year which were at favorable rates resulted in a positive hedging result of EUR6 million in Q2. At the Euro/US Dollar exchange rate of 1.10, we expect a positive hedging result of roughly EUR20 million in 2023.
With these effects our EBITDA margin of 29.4% in Q2 was below Q1 but still at a very solid level given the current weakness in the industry. EBIT declined by around 10% quarter-on-quarter. In addition to the EBITDA effects, depreciation showed a slight increase as expected.
Net income came in at EUR61 million, down 15% quarter-on-quarter. Due to substantial capital expenditures, our cash and securities have declined significantly. This led to a decrease in interest income, compared to Q1. In total, the financial results were slightly negative in Q2.
Looking at our balance sheet, total assets sum up to roughly EUR4.1 billion. All the changes compared to the end of 2022 are mainly attributable to our high investments. In the first half of this year, CapEx totaled EUR626 million. As a result, our fixed asset share increased from 58% to 70% of total assets. Consequently, our cash and securities have clearly decreased from over EUR1 billion to just under EUR 600 million.
The equity ratio remains stable at 50%. The provisions primarily comprising pension provisions were almost unchanged. Financial liabilities, including loan and lease liabilities were relatively stable. No further loans were drawn in the first half of this year. So the total of all loans is still at around EUR650 million.
In H1 2023, we've received customer prepayments amounting to EUR78 million. Total prepayments sum up to EUR611 million at the end of June. 2023 will be the peak of our investment phase. Therefore, as mentioned before, our CapEx year-to-date already amounted to EUR626 million. We expect a similar amount for the second half of this year bringing our total CapEx for 2023 to around EUR1.3 billion.
These investments primarily cover the FabNext project in Singapore, for completion of the expansion of the crystal pulling Hall in Freiberg, as well as capability enhancements. The CapEx increase compared to the previous guidance is due to some price increases in our FabNext project, and a slightly earlier capitalization of some equipment.
With the progress of investment projects, you gain a better view on the timeline regarding delivery, installation, and final inspection of assets and thus, to the capitalization date. For 2024, we expect the CapEx to come down by more than half. Michael will provide some further details on this later. Depreciation this year is expected at around EUR210 million and we assume it to more than double in 2024.
Due to the high investment level, our net cash flow will be substantially negative in 2023. To finance these high investments, we have a conservative approach in place ensuring we always maintain an adequate liquidity reserve. In addition to our existing cash and future operating cash flows, the financing is supported by customer prepayments, as well as debt financing.
For this debt financing we have four financing instruments in place. The promissory note loan and the loan from the European Investment Bank in total EUR500 million were already fully drawn last year. The Singapore dollar loan was partially drawn in 2022 and the rest will be drawn in Q3 this year.
In addition to the three existing loans, we have secured a syndicated loan in Q2 consisting of a term loan and a revolver totaling EUR380 million euro. The Syn loan amount is slightly higher than initially announced in Q1 as it was oversubscribed the commitment from the participating banks was very high. We expect the first drawdown of the term loan in 2024 and the revolver will serve as a liquidity reserve according to our plan.
Let's take a closer look at our cash and debt situation, looking at the bridge at the left side. By the end of 2022, Siltronic had net financial assets of EUR374 million. We generated a solid operating cash flow of EUR232 million in the first half of this year, but this cash flow was not enough to offset the high payments for CapEx of EUR588 million and the dividend payment of EUR90 million. As a result of our net financial assets turned into net financial debt of EUR83 million.
With this, I hand back to Michael.
Thank you, Claudia. And as announced, we now come to the outlook for the full year 2023. Let me briefly highlight the characteristics of the current market weakness. Firstly, there's a market weakness with the strongest mark decline since 2009 with a high level of excess inventory, which led to volume shifts from our customers.
Our customers have learned from the recent booming years, how important it is to keep the value chain flowing in order to remain capable of delivery. In our opinion, this has led to the fact that unlike in previous weak phases, we see a reliable stable price environment in 2023. Another fact that helps us and also clients in planning is our high proportion of long-term agreements.
Our definition of an LTA includes a contract that is longer than one year for Siltronic, approximately two-thirds of our sales are based on this LTAs with already most defined prices and volumes. But last and not least, we have seen a lean over cost structure and you can see a high profitability despite the current market weakness.
Siltronic has succeeded in sustainably raising the EBITDA margins from historic levels in the mid-teen area in the years after 2016 to regions of around 30% and even in an extremely difficult market environment. I look at wafer demand in the Silicon end market shows that only demand from the PC sector will decline sharply in 2023.
For smartphones, we expect weaker unit sales, but on the opposite side and positively silicon content continues to grow. Same is true for servers and automotive where we see a nice content growth. In total, the overall market will tend to stagnate or decline slightly. So apparently, things wouldn’t look so bad for the wafer market.
If there weren’t massive destockings at all levels of the value chains, this is a late consequence of the supply and materials bottleneck in the past few years. This effect, which is also massively happening with Siltronic customers and OEMs is likely to lead to a declining global wafer demand of around 15% in the full year 2023.
Having said this, let us now turn to the outlook for the remainder of fiscal year 2023 and the year as a whole. The second half 2023 will also be negatively impacted by the continuing weakness in demand, mostly due to their high excess inventory within the semiconductor industry. As some wafer volumes were postponed quite late this year, Siltronic will feel the impact more the second half of ‘23.
Therefore we expect H2 to be lower than H1 with Q3 probably the weakest quarter from today's perspective. A decline in volume of around 15% overall is to be expected in full year ‘23. Prices nevertheless, are expected to remain stable. Accordingly, the Executive Board of Siltronic is concretizing, its full-year forecast, and now expects consolidated sales to be 14% to 19% below the previous year's record level of EUR1.8 billion at an FX rate of the Euro against the US dollar of 1.10.
The EBITDA margin will also be significantly lower in ‘23 at 26% to 30%. In addition to the reduced sales volume, inflation-related rising costs of below EUR40 million, negative exchange rate effects and the absence of a positive one-time effect from the termination fee of EUR50 million in ‘22, will contribute to this decline.
CapEx will be around EUR1.3 billion and depreciation is approximately EUR210 million, as Claudia already mentioned. And no surprise, net cash flow will be significantly below ‘22. Furthermore, tax rate is expected to be around 10% in 2023.
So, the figures for ‘23 also worrying, but the market is, as it is and the big question that concerns us all here is what will happen in ’24? And when will we see the turnaround in the industry? I hope you didn't expect a very detailed answer from me today. I'm afraid I have to disappoint you. My crystal ball is just as good as yours.
Nevertheless, I would like to give you our market assessment based on our most important market channels. Whilst memory inventory still elevated, we see first positive signs from logic players, especially for the artificial intelligence. And the power segment is still performing strongly with nice content growth. We are closely watching the consumer sentiment in China because this is a key end-market.
And furthermore, especially in Europe, the inflation is still a burden. It's also not secret for US market, experts that the typical time lag for the wafer industry to see improvements in demand from a general market turnaround is approximately two quarters. But what I know is that, generally mid to long-term positive trend for wafer demand is intact, driven by megatrends, artificial intelligence, digitalization and electromobility.
Let's have a look at the facts and figures for the growth driver artificial intelligence. We all saw the flashing AI announcements. The positive is that server specialized for AI leads up to eight times more silicon content than conventional datacenter service.
However, today, AI servers only represent less than 5% of the total servers shipped worldwide. Therefore, the silicon content is growing up from a small base. I believe that AI is just at the beginning. Market experts see high annual growth rates of more than 30% in the next year's.
Therefore, the server end-market will be one of the key drivers in the years to come, but won't change the total - for far this year. The general outlook how our world is becoming increasingly more digital and connected which is also driving wafer demand. This is also true for electromobility for electrical cars, which is 60% to 100% higher wafer area compared to conventional cars.
In general, we see a nice content growth in cars due to the ever more systems and entertainment systems. Despite not knowing where the exact timing for the next semiconductor boom based on these megatrends will start, Siltronic will be ready to participate. In my meetings with external partners I have noticed that Siltronic is often perceived merely as a memory supplier.
To be clear on this slide, you see the ‘22 market split between memory, logic, power and others. The Siltronic split almost mirrors this Market mix. You can see we have established a well-diversified and resilient product mix in recent years. At the end of my presentation, I would, of course, like to present a brief update on our FabNext, from which we expect an upside for additional revenues and earnings most probably from fiscal ’25 onwards depending on the actual timing of the market turnaround,
FabNext is fully on track, but we see a slight increase in CapEx for ‘23. As communicated, production will start in early ’24. In view of the expected even accelerated market weakness in the second half of ‘23, we have slightly reduced the ramps for 2024, and ‘25 according to market reality. Our focus is on qualifying customers in ‘24 to be prepared for growing demand.
Again, here we can rely on a very high share of volume chase which will be roughly 80% during the run phase. I would like to briefly remind you of the advantages and the potential of FabNext for the future of Siltronic. Our new production site is state-of-the-art and the wafer industry and has a high share. We will have a very high automation rate and we will see substantial economies of scale.
To sum this up, all sites in Singapore will be the most cost efficient Siltronic except in the midterm reaching margins of above 50%, which we promised for the next limit term and anyhow this will have a substantial positive impact on our group margins.
Let me finish today's presentation, with a quick summary and a strong commitment from Claudia and myself to create substantial value for all our shareholders and stakeholders. This commitment is based on the strong optimism regarding the potential of the wafer industry in general and Siltronic in particular. We are still in a huge investment phase and we can finance this and fuel future growth due to our very solid financial strengths.
We have strong customer relations with a very high share of long-term agreements. We have a very strong technological position and a clear innovation focus, which will help us to develop further in future. Therefore, we see significant sales and earnings upside with and when the market turnaround starts. And based on what a chipset regarding our major expansion projects FabNext Siltronic is about to tap into substantial additional potential.
Thank you very much for your attention today. With this, we close our presentation and Claudia and I are very happy to answer your questions now.
Operator, please open the Q&A.
[Operator Instructions]
The first question comes from the line of Adam Angelov with Bank of America. Please go ahead.
Yeah. Hi. Thanks for taking my questions. And I'll just go one at a time. So firstly, I understand it's difficult today to have strong visibility into 2024. But just thinking, through 2023, it feels like, I mean H2 is down versus H1. As you look into 2024, would you think that H1 could be flat versus H2 2023? And I guess, another way of asking is, what is the actual like progress you're seeing in the reducing of inventories at your customers? That's the first one.
Thank you very much. And this is a very important question for us, as well. I think, you will appreciate that today we moved away from the principle of giving quarterly guidance only and give you already our visibility and guidance for the full year ’23. So I think we did a step forward in really work on transparency and give you what we know ‘24 visibility.
I have to say, it’s still limited, but as you are referencing to inventory levels in the industry, I can reiterate that there are different levels of inventory levels in our three core segments. For the memory side, we still see elevated inventories, in particular, some of the memory players did pull the brake pretty late in this situation.
So I think, we will see a hang on of memory inventory also potentially into ’24. With regards to logic, I think there's a clear progress visible with regards to elevated inventory levels already in the second half of 2023, and we expect this to normalize in ’24. And the Power segment is on the pretty robust inventory level anyway.
So pulling this all together, we don't know when the market turnaround will come fueled by inventory reductions, but I think there is a strong hope in industry that ‘24 will see an increase in this industry again.
Got it. That's very clear. Thank you. And thenm, just on the FabNext ramp, so you did mention there's flexibility there and maybe it's slightly delayed versus your prior expectations. But just trying to think about, presumably you will already have some spare capacity in 2024. So moving ahead with the ramp at the beginning of 2024, what's the kind of rationale behind doing that and not delaying it further? Just wondering what I'm missing there. Thank you.
Yeah. Thank you. And again, very, very important question. FabNext ramp was planned with full speed for ‘24. We still see huge customer interest and work on qualification, which is customers. So that means there's definitely no reason to further delay than what we anticipated in this communication. So we work with customers. Try to work on key qualifications. That means, we do a little more moderate ramp up, but currently there is no reason at all to push this out further. So ‘24 will be there ramp year for FabNext that's very clear.
That's right. Thank you very much.
The next question comes from the line of Constantin Hesse with Jeffries. Please go ahead.
Good morning. Thank you very much for taking my questions. Just to follow up quickly on the inventory situation. I mean, you mentioned that you believe Q3 might be the bottom at this point. What gives you kind of the confidence on the back of that? I mean I know it’s SMC entered towards bottom in Q1 Micron entered towards bottom in Q2. So if you could just elaborate a little bit on your confidence there that would be great. That’s my first question please.
Thank you. Yeah, from our perspective, let’s have in mind to maybe two things, yeah. When you talk about our customers’ space, there's always this kind of supply chain delay until we see it in the wafer industry. When we talk about low quarter Q3, this is basically a fundamental based on our customer situations and volume shifts we experienced from our customers in a very direct manner.
This is the visibility we currently have. For sure, we see a softer H2 than H1. Based on our current view, Q3 will be the trough in ‘23 for us. For us yes, that does not mean that’s a trough for everybody or for the industry based on the effects I just mentioned.
Understood. Thanks. And second question is on the regulatory environment. I mean, there's obviously a lot going on in renewable, but you know, clearly also quite a bit with regards to potential subsidies in Europe concerning, overall semiconductors. I'm just wondering is there anything be it either in Singapore, or in Europe, or even in the US for that matter that you could benefit from either via subsidies in the future or anything specific that you could draw upon that would be positive. Thanks.
Yeah, thank you very much. Again, great question. I think in Singapore, we did benefit already from some particular subsidies and in particular tax benefits for our FabNext. So I think we anticipated some of this already. Looking at the wider landscape, of course there's a huge playground of cheap – cheap act money and public funding. So far Siltronic did not tap into this, but let's say we are open to look into opportunities.
Okay. So today there's nothing concrete out there that is pretty obvious where you could benefit from?
That’s right. Yes.
Okay. Great. Thanks my next question is on cash flow? I mean, going forward, CapEx cycle is now kind of behind us in terms of the Green Fields. From ‘24 onwards, could you potentially consider cutting the dividend a bit to pay back your debt faster, because obviously you've ramped up quite a bit of debt there. I mean, you're obviously free cash generative quite a bit actually in future years as well. But just looking at the conservative culture around balance sheet in the past of Siltronic, could you consider a cut to the dividend to pay your debt faster?
Hi Constantin, this is Claudia. I would like to take your question.
Hi Claudia.
Hi. In general, our financing is secured. So, currently we do not expect any changes in our dividend policy and also currently we do not need any further loans in our planning. So, there are no discussions ongoing out there.
Okay. That's fine. But I'm just thinking in terms of the debt position that you've cleared what you’ve ramped and your CapEx is of course, declining now. So, in terms of the debt repayments, there is nothing that you need to necessarily change to back over time?
No, it's all included in our planning and there's no additional need at the moment for a change here.
Great. Last question, just on China very quickly, any developments there with regards to them developing 300 millimeter. Anything that you've seen that could be relevant?
The China question I take Constantin. China is a market for us as you know. I think we talk about our market share which is a little over 10% in China. We don't see particular moves in 300 millimeter area. But China is growing as a market and also is a semiconductor space, that's very clear. A watch case for us is definitely the US, China situation.
What I can say currently Siltronic is not concerned by the recent announcement of some rare earth materials bans from China. We own a very tiny amounts of these materials and secured sourcing from outside China already. But it's a watch case to a certain extent and we are pretty close on these developments.
Okay. Excellent. Michael, I'm sorry, I actually meant Chinese competition. Sorry, I should have been clearer, because clearly even today the wafer market is dominated by the top five. But, just wondering, if you've seen anything that looked interesting in terms of Chinese competition arising in, well, 200 obviously, but 300.
We see activities of Chinese competitors particularly in small diameters. They working on 200s. We don't anticipate a serious competition in 300 millimeter so far.
Great. Thank you.
The next question comes from the line of Gustav Froberg with Berenberg. Please go ahead.
Thank you very much for taking my questions. Two - I have two please. And first on LTAs and the sort of - I guess, work that you're doing with customers around keeping price steady, but the being accommodative on volumes. And given the slowdown expected in the second half and the fact that we don't really have good visibility on when the overall market will pick back up again.
Does there come a time when your customers need to take the volumes that they have contracted for under your LTA? Or is it so that you can kind of further extend when they take the full contract value of your LTAs? That's my first question, please.
Yeah. Thank you. And this is very, very difficult and important question at the same time. So typically, what happens in this is contractors to following. We have - I think, as you know, we have very few customers and then you go into detailed talks and we always try to accommodate the particular customer situation at the same time, of course, being very clear on Siltronic’s position.
So, typical conversation would be taking out some volume for a certain period of time and then add it to the end of the contractor. So that that's a typical pattern we are pursuing. At the same time, also then prepayments which are in place, which we have to repay at a certain point in time also shifted accordingly to the volume shift. And so, we see kind of proportional activity typically. So that's a pattern we kind of following and this is agreeable to our customers.
Okay. Super. So, no actual point in time when they need to fulfill their obligation, you can still be flexible.
I mean, if this hangs on forever, we will have more serious conversations. But what we see, some positive signs for next year. We are confident that those volumes will be picked up at the end of those contracts as I just described.
Okay. That's great. Perfect. And last question is on FabNext ramp and you are still ramping it up it seems in ‘24 albeint at the slightly slower pace. And - but my question is more, given the profitability or prospects for profitability at FabNext relative to some of your other factories, for example, in Europe, can you shift utilization around sort of globally within Siltronic to maybe allocate more capacity and ramp FabNext faster? And then, have lower utilization elsewhere as a way of boosting your profitability or is that not possible?
So the short answer is yes, and we are doing that continuously already. That's I think what global production networks are doing anyway, moving volumes to places which reduces - which is most beneficial for the overall group. So, we do that on the continuous basis and with that, of course, we can play with the detailed loading.
There is a little caveat is, of course, which kind of products is exactly qualified at which customers and that's exactly what we want to sure with the ramp of FabNext that relative broad qualification at key customers, particularly for the two segments polished and AP. So that we have as much flexibility as possible. Yeah, but, this is what is done anyway, in Siltronic continuously.
That's super. Thank you very much.
The next question comes from the line of Robert Sanders with Deutsche Bank. Please go ahead.
Yeah, hi. Thanks for taking my question. On FabNext, I have 300k installed by end of ‘25. If I just take the old EUR4 million per K thumb rule for Greenfield, If I gross it up to make it five, given inflation, that means that the peak capacity of FabNext in Phase 1 would be 400k. Are these kind of numbers, I mean you're saying your CapEx is coming down. So it feels like, is that right at full capacity we’re talking about 400k wafer demands? And I have a follow-up. Thanks.
So, thank you very much. I mean, to be fair, we never communicated a capacity number for FabNext. What I can share with you today, I think is there was an initial ramp plan which in the first year did end at about 150k per month capacity and we are tampering that down to the 100-plus level. That’s what I can share today. This has no CapEx impact in ’24. The machines already there commissioned and we'll just come. So we just tuning the ’24 ramp, and adjust it to the market demand. We didn't communicate a full capacity, picture of the Fab. And we don't do that today.
Okay. But obviously, you've mentioned the potential profitability of this site. At what point during the ramp could you achieve this profitability? Obviously, there needs to be a kind of minimum efficient scale to achieve that kind of profitability.
Yeah. And it really dependent on the capacity mix of our global sites. The more capacity we can install and realize in FabNext of course, this will have a positive impact on our group profitability. What I can say, next year this will be a pretty marginal as we start from zero to the level as I just described to you. And then, we see more beneficial effects coming in from ‘25 onwards.
Got it. And then, just a question on costs. You are talking about inflation still being an issue. How does the outlook look for input costs into next year as you stand today? I'm talking about things like salaries, utility cost, raw materials, what are you seeing? Are you starting to see some moderation? Or is it – it could be another year of cost inflation? Thanks.
Yeah, hi, Rob. Here it’s Claudia again. I would like to take this question. Perhaps you remember last year, we had a price-driven cost increase of almost - of around EUR130 million. This year, we will be low EUR40 million. And we see that we reached, let's say hopefully the peak of those cost increase by mid of this year. We see some relief in energy prices coming in Germany and for next year also in Singapore.
So, looking into next year, we don't have the full picture by now. But we expect some relief in energy prices that I as I just said, and perhaps also, in energy-related materials. But at the moment, we can't tell more on that.
Got it. Thanks for that. And just last question, would just be customer inventory, if you look at Simco’s latest presentation, they talk about customer inventory in both logic foundry and memory being very, very high. Is that what you see from your customers? Is there a limit that they are reaching just because they can't hold onto any more inventory? Or what are you seeing? Thanks a lot.
Yeah, thank you. And as a policy, of course, we don't comment on competitors in detail. But what I can say or more reiterate is that, we see different levels in the industry. Memory, pretty inflated still and that will hang on for a while. In the Logic segment, we see some good developments. Inventory is coming down and two logic players just published their view in the last couple of days. So you might have a check with those statements are, yeah, but we will see Logic on a more reducing track already.
The Power segment, I think I said it already never was elevated too much, So they still in the kind of healthy arena in this inventory situation.
Great. Thank you very much.
The next question comes from the line of Martin Jungfleisch with BNP Paribas Exane. Please go ahead.
Yeah, hi, good morning. Thanks for taking my questions. I have two please. And the first one is, going back on the LTAs. Can you comment as customers are increasingly asking for shorter-term contracts today when LTAs are expiring and would you expect the LTA share to remain relatively unchanged to-date? And then, do you see any larger LTAs expiring in the coming quarters? And if you see any risks on your pricing there? That’s my first question.
Sorry, I – we had a bit of noise in the line. I think you should repeat your question. Sorry for this. But it wasn't clear to me. What the question is?
Yeah, sorry. The line has pretty – I think. I have a follow-up on the LTA side. If you can comment if customers are increasingly asking for shorter term contracts today, when LTAs are expiring, and also if you see any larger LTAs expiring in the coming quarters and if you see any risks on your pricing there?
Now I got it. Thank you very much. And it’s difficult to – in a question. Our LTAs are pretty long-term particularly around FabNext. We talk about contracts that go into ‘28, to even 2030. So we see a pretty stable LTA situation. There is nothing major coming to an expiration and to be honest, we didn't realize any trend that customers want to negotiate for sure LTAs or kind of changing their behavior and this was the fact.
Okay. Great. And then, maybe a second question on, also a follow up on the cost base and the margin outlook. So the implied H2 margin guidance suggests a good 200 basis point decline, compared to Q2. That sequential decline mainly driven by lower expected volumes and cost absorption or are there any significant cost increases that you would highlight that are quarter-on-quarter?
No. That’s exactly the point. We see lower volumes you will have a much lower fixed cost dilution. So, that's - that will put pressure on our margin in the second half of this year. No additional cost increases in H2 expected.
That's helpful. Thank you.
[Operator Instructions] There are no further questions at this time. I hand back to Verena Stutze for closing comments.
Thank you. This concludes our Q&A session today. Thank you for joining us. We hope you will join us again for our Q3 results release at the end of October 2023. Good bye and stay safe.
Ladies and gentlemen, the conference is now concluded and you may disconnect you telephone lines.