TSX runs higher on rate cut expectations
Investing.com -- European chip wafer makers Soitec (EPA:SOIT) and Siltronic (ETR:WAFGn) were downgraded by Citi Research due to persistent inventory overhangs, slowing demand, and reduced earnings visibility, in a note dated Tuesday.
Citi cut Soitec’s rating to “sell” from “neutral” and lowered its price target to €40 from €58.
The brokerage cited ongoing weakness in the company’s mobile and automotive businesses, which together account for over 75% of revenue.
Inventory in the RF-SOI segment stood at 14 months in 2024, compared with a pre-pandemic norm of 6-9 months.
Soitec aims to reduce this to 11 months, but Citi questioned whether that level is sustainable.
The mobile business, projected to contribute 61% of Soitec’s fiscal 2025 revenue, remains under pressure.
Citi forecasts 0% smartphone growth in 2025 and 2% in 2026, below Soitec’s estimates of 2% and 4%.
A shift away from premium smartphones may further affect demand for Soitec’s higher-margin substrates.
Automotive revenue is expected to decline 45% year over year in fiscal 2026, with Soitec guiding for almost no revenue from auto customers in the first quarter.
Citi estimated sales of €3 million for the quarter, down from a typical range of €30 million to €45 million.
The decline is attributed to elevated customer inventory and softer electric vehicle demand.
Citi also flagged delays in Soitec’s SmartSiC program, hindered by slower EV adoption and long qualification timelines.
The segment has six customers in qualification and about 35 in evaluation. Rising Chinese competition in silicon carbide wafers and pricing pressure further cloud the outlook.
Though Soitec’s Edge and Cloud AI segment is performing better, it missed expectations in recent quarters.
Citi noted that growth assumptions may be overly reliant on Photonics SOI, while FD-SOI is expected to grow more slowly. Consensus does not appear to account for Soitec’s exit from legacy products.
Citi reduced its fiscal 2026 and 2027 EPS estimates for Soitec by 57% and 56%, respectively, and lowered EBITDA margin forecasts to 31.6% and 33%. The firm retained a 14x P/E multiple, now applied to fiscal 2028 earnings, and placed the stock under negative “Catalyst Watch.”
Siltronic was downgraded to “neutral” from “buy,” with the price target cut to €44 from €57. Citi projects a 10% revenue decline in 2025, citing order delays, foreign exchange headwinds, and a weaker mix.
The company guided for flat sales and EBITDA margins of 21–25%. Citi expects this guidance to be lowered.
Siltronic’s exposure to power-focused wafers and less to AI-related nodes is weighing on growth relative to peers.
The company plans to exit the 150mm segment in 2025 due to poor margins and faces increasing Chinese competition in 200mm and 300mm wafers.
With EBITDA estimates trimmed by 3% for 2025 and 2026, Citi applied a lower 5x FY27 EV/EBITDA multiple.
Consensus EBITDA estimates were 7% above Citi’s for 2025 and 16% for 2026. Siltronic also remains on negative “Catalyst Watch” heading into its second-quarter earnings.