June 18, 2019 / 9:34 AM / 3 months ago

UPDATE 1-Wafer maker Siltronic hits 3-year low as U.S. Huawei ban bites

* German company issues second profit warning in 2 months

* Blames “negative impact” of U.S. curbs on exports to China

* Follows warning of $2 billion sales hit from Broadcomm

* Shares down 14% in biggest one-day drop, hit 3-year low (Adds market reaction, context on Siltronic)

By Douglas Busvine

FRANKFURT, June 18 (Reuters) - Siltronic, a German maker of wafers used to make silicon chips, became the latest semiconductor firm to fall victim to a U.S. crackdown on exports to China as it issued its second profit warning in two months.

Shares in Siltronic fell 14% - their biggest one-day drop - to hit a three-year low after the company said second quarter sales would be “significantly below” first-quarter levels, with a further decline likely in the third quarter.

“Siltronic AG currently sees a continuing slowdown of the semiconductor industry, which is driven by geopolitical uncertainties, and the negative impact of export restrictions by the U.S. government against Chinese technology companies,” the Munich-based company said.

“These developments indirectly affect important customers of Siltronic AG, which have therefore significantly reduced orders for the second half of 2019.”

The profit warning, while not a surprise, will force analysts to lower their forecasts for Siltronic, which was Tuesday’s worst performer in Germany’s MDax mid-cap index, said one trader.

“There is no light at the end of the tunnel. The chart is destroyed. There’s no reason to buy the shares for now,” the trader added. Siltronic shares dipped below 50 euros, bringing losses for the last 12 months to 65%.

Brokerage BHF Oddo cut its price target for Siltronic to 60 euros from 90 euros and kept its ‘hold’ rating on the stock.

Siltronic has a 15% percent share of the global market for silicon wafers, ranking it fourth out of the five leading producers that between them account for nine-tenths of global production.

It claims the No.3 spot in the production of large-diameter 300 mm wafers used in the latest applications, and supplies the top 20 chipmakers including Intel, Samsung Electronics and TSMC.

That directly exposes the company to an industry prone to swings in demand that can that be exacerbated if, for example, a major new smartphone launch fails to catch on with buyers.

DEMAND COLLAPSE

The entire sector was enjoying strong demand into late 2018 but Apple’s weak year-end iPhone sales and a pileup of supply-chain inventory going into the New Year were early signs that output was outpacing demand.

Escalating trade tensions between the United States and China, culminating in a ban last month on exports of U.S. technology to Huawei Technologies, have turned the slide into a rout.

Industry heavyweight Broadcom Inc sent shockwaves through the industry last Friday by saying that the Huawei ban would knock $2 billion off its 2019 sales.

Huawei’s founder and CEO, Ren Zhengfei, said on Monday the U.S. export restrictions would knock as much as $30 billion off its sales this year - the first time the Shenzhen-based company has put a figure on the estimated damage.

Huawei’s U.S. suppliers, including Qualcomm and Intel, have meanwhile been pressing the Donald Trump administration to ease the ban on sales to Huawei, according to people familiar with the situation.

Siltronic said that for the year as a whole it expects sales to be 10-15% down on 2018, compared to an earlier forecast of a 5-10% drop, while its EBITDA margin would be squeezed to 30-35% from an earlier expectation of 33-37%.

Net cash flow would remain positive but would decrease by 180 million euros ($202 million) from a year earlier, compared to an earlier forecast of a decline of 150 million euros.

Siltronic was spun out of Wacker Chemie, which retains a 30.8% stake, and floated in 2015 after undergoing a restructuring that returned it to profitability. Wacker shares fell 3%.

Siltronic reports full second-quarter results on July 25. ($1 = 0.8916 euros) (Additional reporting by Christina Amann, editing by Louise Heavens)

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