Raise PO and reiterate Buy: silicon wafer prices set to rise

Research evidence excerpt

Raise PO and reiterate Buy: silicon wafer prices set to rise

Exhibit 10: Primary material for semiconductors; made from polysilicon

Silicon wafer

Source: Shin-Etsu Chemical

BofA GLOBAL RESEARCH

Factors behind high profitability and performance stability in competitive

comparison

• OPM in Shin-Etsu Chemical’s silicon wafer business is c.20-30%, higher than peers,

and earnings are more stable than industry-wide trends. We attribute this to the

following factors:

o The company’s high ratio of long-term agreements.

o High ASP (favorable product mix)

o The company’s strong cost competitiveness, with large-scale facilities

concentrated at the Shirakawa plant, which we understand is the

world’s largest base for producing 300mm wafers. Since silicon wafers

come with heavy fixed costs, concentrating facilities makes it easier to

cut fixed costs.

• The company generates synergies in sales and R&D by handling various

semiconductor materials. Shin-Etsu Chemical offers not only silicon wafers, but also

other semiconductor materials like cutting-edge semiconductor photoresists.

Semiconductor makers apparently choose Shin-Etsu Chemical for not only its silicon

wafers, but also as a comprehensive supplier of semiconductor materials. In R&D,

we find that almost all semiconductor makers have business transactions with Shin-

Etsu Chemical, allowing it insights into the latest trends at semiconductor makers

and the direction of R&D efforts. We also note there are synergies in R&D among

silicon wafers and other semiconductor materials, like photoresist.

• The company has curbed personnel costs by outsourcing a certain amount of back-

end processing. Shin-Etsu Chemical’s average annual salary (parent) was ¥8.865mn

in FY3/24, higher than ¥6.033mn at Mimasu Semiconductor in FY5/23. Back-end