General Sector-Specific Conditions

We supply products to a wide range of industries. Our main customers are in the semiconductor, photovoltaic, chemical, construction, electrical-engineering and electronics sectors.

Semiconductor Market Declining

Expectations for additional semiconductor growth were not met in 2011. During the year under review, Gartner, a market research institute, lowered its original assumption that the market would grow by 4.6 percent. The second half-year in particular saw slow demand for consumer electronics, such as cellphones and computers. Overall, Gartner’s experts predict that semiconductor sales will drop by 1.9 percent to around US$10.3 billion in 2011. Demand for silicon wafers is estimated at about 60,923 million cm² – a year-over-year decline of 3.4 percent. Substantial delivery bottlenecks – which were forecast due to the earthquake in Japan – were only of short duration. Global demand for 300 mm wafers rose 9 percent compared with the previous year. Demand for <300 mm wafers dropped by some 14 percent. While the sales volume of 300 mm wafers at Siltronic rose by 19 percent year over year, the sales volume of 200 mm and smaller wafers declined by about 20 percent. Siltronic’s overall market share remained at about 15 percent. In parallel, Siltronic slightly increased its US-dollar prices for 300 and 200 mm wafers as well as for smaller wafers year over year.

 
 
Lower Prices and Excess Capacities in the Photovoltaic Market

The photovoltaic market expanded further in 2011. According to the EPIA (European Photovoltaic Industry Association), over 27 gigawatts (GW) of capacity were installed worldwide. Germany remains the most important market for photovoltaic systems, despite the cut in feed-in tariffs. According to Germany’s Federal Network Agency, the installed output continued to edge up slightly to 7.5 GW (2010: 7.4 GW). Global production capacities, though, exceeded demand, resulting in increased price pressure, tougher competition, and a consolidation phase in the photovoltaic industry. Since the third quarter, polysilicon manufacturers have been among those affected by the price pressure. Despite this difficult market environment, WACKER was able to conclude long-term contracts, mainly during the first half of 2011. Prices on the spot market fell considerably year over year, the decline being particularly noticeable in the fourth quarter of 2011. During the first nine months of 2011, all WACKER’s output was sold on the market. In the fourth quarter, shipments weakened appreciably.

Growing Chemical Industry

The chemical industry continued to grow in 2011. Global sales revenue reached another new high in 2011, after climbing to above €3 trillion for the first time in 2010. Production and sales revenue increased, particularly during the first half of 2011. Momentum weakened, however, in the second half. Our chemical divisions’ performance reflects this trend. WACKER SILICONES increased its sales revenue slightly compared to the previous year, while WACKER POLYMERS posted substantial sales growth. Higher raw-material costs, though, slowed earnings development in both business divisions. The German Chemical Industry Association (VCI) estimates that Germany’s chemical-pharmaceutical sector produced 5 percent more than in 2010. Capacity utilization at German chemical plants was 84 percent. According to the VCI, sales revenue increased to over €180 billion.

Spot-Price Trends for WACKER’s Key Raw Materials

Construction Industry Recovering

The global construction industry recovered in 2011, following two weaker years. Based on data from market research institute Global Insight, construction volume rose to over US$6 trillion.

Regionally, Asia saw the strongest increase at 6.6 percent. South America, Eastern Europe and the Middle East also posted gains. Volume fell slightly in Western Europe, while North America recorded a 3.3-percent decrease.

Global Construction Industry by Region in 2011

WACKER POLYMERS’ performance was positive in all regions. The division posted growth of about 12 percent in Germany and the USA, 16 percent in Europe and 20 percent in the Middle East. In Asia, our sales revenue rose by 13 percent. Product sales-volume growth was particularly robust in thermal insulation systems and the renovation of buildings.

WACKER SILICONES – another construction-sector supplier – generated organic growth of 5.1 percent, excluding the Lucky-Silicone brand acquired in 2010. WACKER performed especially well in Asia (over 17-percent growth) and in the Middle East (over 29 percent), thanks to the successful marketing of our products, new product developments, and improved availability of siloxane from newly commissioned facilities in China.

Electrical and Electronics Industries Grow

With sales of €2.8 trillion, the global electrical and electronics industries continued their growth path in 2011. The German Electrical and Electronic Manufacturers’ Association (ZVEI) estimates worldwide growth at 7 percent in 2011. The emerging markets, which saw growth of about 10 percent, were the main driving force here, while advanced economies posted an increase of 3 percent. The three WACKER divisions that serve the electrical and electronics sectors benefited from this growth. Siltronic reported a slight sales gain here compared to 2010. WACKER POLYSILICON sold 15 percent of its 2011 polysilicon capacities to the electronics industry.

WACKER SILICONES, which supplies diverse industries, also posted higher sales. The division increased its automotive-electronics sales by over 15 percent compared to 2010. We generated growth of almost 10 percent in low-voltage applications and medium-voltage and high-voltage insulators.

Overall Statement on Underlying Conditions

The development of the global economy in 2011 can be divided into two phases. During the first half of the year, 2010’s growth continued. In the second half of 2011, demand fell in important customer sectors and the economic climate cooled substantially. The reasons for the decline lie in the EU’s continuing debt crisis, the weakness of the American economy, China’s battle against an overheating economy, and structural risks in the banking sector. All these factors contributed to a substantial increase in the risks of a downturn and a negative impact on economic development. This trend continued during the first months of 2012.

The rapid upturn in economic output in 2010 and in the first six months of 2011 was not entirely positive for WACKER. The steep increase in raw-material costs dampened our business and reduced profitability. We were unable to pass on all of the high raw-material costs to our customers. Overall, sales rose in the three chemicals divisions – WACKER SILICONES, WACKER POLYMERS and WACKER BIOSOLUTIONS – while their EBITDA margin edged down. WACKER POLYMERS’ sales volumes were especially positive and we benefited primarily from volume gains in our dispersions business. At Siltronic, the additional business expected in the aftermath of the earthquake in Japan largely did not materialize. In the photovoltaic industry, strong competition and price pressure due to excess capacities also affected WACKER POLYSILICON’s business, especially in the fourth quarter. The current consolidation will continue into 2012 and lead to a market shakeout. As the quality, technology and cost leader in polysilicon production, we are well equipped to cope with this trend successfully. Overall, WACKER maintained its market position in its four major business divisions.

WACKER increased its sales revenue in all regions by single-digit percentages in 2011. Growth was strongest in Asia. Its share of total Group sales continued to rise and is currently at 37 percent.