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Soitec Sales Up 42 Percent

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Company achieved strong revenue growth and increased profitability during the year

Soitec, a semiconductor materials company based in Grenoble, France, has announced its full-year results for the fiscal year 2019 (period ended on March 31st, 2019). Sales were up 42 percent to €443.9m; operating income was up 61 percent to €108.4m; margin was 34.3 percent of sales (up from 29.2 percent in FY'18); and net profit was €90.2m.

Paul Boudre, Soitec's CEO, commented: "We achieved strong revenue growth and further increase in profitability during the year. High operating cash-flow and a convertible bond issued at favourable terms allowed us to finance a high level of capital expenditure dedicated to ongoing capacity investments, repay credit lines and end up the year with a strong cash position. We also had a very productive year in terms of new research alliances, strategic partnerships, enhanced industrial relationships, commercial initiatives in China and strengthened cooperation with our key customers.

"Looking forward, we will continue investing in production capacity at our French and Singaporean industrial sites to support long term growth in customer demand for 300-mm FD-SOI and RF-SOI wafers. In the meantime, we will benefit from Dolphin Design to support chip design on FD-SOI dedicated to energy efficient solutions and integrate EpiGaN to expand our engineered substrate portfolio into GaN-based technology. Last but not least, we have signed an agreement to fulfil our commitment to divest our equity stake and the loan associated in the Touwsrivier [in South Africa] solar power plant," added Paul Boudre.

Highlights

200-mm wafer sales reached €221.0 million (52 percent of total wafer sales), recording further steady growth (up 17 percent); this growth reflects higher volumes thanks in particular to production outsourced to Soitec's Chinese partner Simgui, which represented around 13 percent of the total 200-mm wafers sold, as well as a more favourable combined product mix. It was supported by the sustained demand for both RF-SOI and power electronics applications (Power-SOI) in the mobile and automotive markets.

300-mm wafer sales amounted to €205.7m (48 percent of total wafer sales), representing an almost twofold increase (up 97 percent at constant exchange rates and perimeter1); this sharp growth results from much higher volumes, but also, to a lesser extent, from a better mix effect. By product type, the sales increase essentially reflects a very strong surge in both FD-SOI and RF-SOI 300-mm wafers; sales of Imager-SOI and Photonics-SOI were both lower than in FY'18 but demand is expected to stabilise in FY'20; sales of legacy PD-SOI products came a bit higher than in FY'18.

Total royalties and other revenues were up 45 percent at €17.3m compared with €11.9m FY'18 thanks to the acquisition of Dolphin Integration assets, a leading provider of semiconductor design, silicon IP and SoC solutions for low power and power management applications.

Gross profit reached €165.0 million Euros (or 37.2 percent of revenues) in FY'19, up from €106.9 million (or 34.4 percent of revenues) in FY'18. This improved gross margin is mainly due to higher volumes, which, together with favourable mix and price effects, have led to a better absorption of production costs despite unfavourable forex impact, higher bulk material prices, higher outsourced production and higher expenses incurred by the restart of Singapore facility.

Bernin I plant (200-mm wafers), which is running at full capacity, benefited from greater productivity due to a better mix with higher value-added products. In the meantime, gross margin at Bernin II facility (300-mm wafers) benefited from a more favourable product mix as well as from a significant volume increase in both FD-SOI and RF-SOI 300-mm wafers which led the level of capacity utilisation to raise from an average of 36 percent in FY'18 to nearly 70 percent in FY'19.

Gross R&D costs increased from €43.9 million to €51.3 million, mainly as a result of the acquisition of Dolphin. These costs were partially offset by subsidies, research tax credits and prototype sales, which altogether amounted to €31.3 million in FY'19 compared to €35.6 million in FY'18, the latter figure including a €7.5 million non-recurring R&D redeemable advance that was recognised as an income. As a result, net R&D expenses increased from €8.2 million in FY'18 to €20.0 million in FY'19.

On May 13th, 2019, Soitec announced it has entered into an agreement to acquire 100 percent of the share capital of EpiGaN, a European supplier of GaN epitaxial wafer (epi-wafer) materials, to expand its engineered substrate portfolio into GaN and therefore accelerate its penetration across high-growth 5G, power and sensor market segments. EpiGaN's GaN products are used primarily within RF 5G, power electronics, and sensor applications, with the total addressable market of GaN technologies estimated to be between 500,000 to 1M wafers per year within five years. The contemplated amount of this acquisition is €30 million in cash, plus an additional earn-out payment based on completion of certain milestones.

FY'20 outlook

Soitec expects FY'20 sales to grow by around 30 percent at constant exchange rates. Sustained demand is expected in RF-SOI (200-mm) and Power-SOI (200-mm) leading Bernin I production site to continue operating at full capacity, whereas Soitec will continue to benefit from outsourced capacity. In the meantime, Soitec's 300-mm business is expected to continue to grow further thanks in particular to further increase in FD-SOI and in 300-mm RF-SOI wafer sales. Consequently, Soitec expects its Bernin II production site to reach a capacity utilisation rate close to 100 percent in the early part of FY'20.

Profitability will be affected by the following negative effects: a less favourable product mix; Singapore fab will generate higher operating expenses whilst sales will remain marginal; dilutive effect of 200mm wafers sourced from Simgui will increase; bulk material price increases, following the end of some long term supply agreements.

In Bernin, preparatory works will continue in relation with an extension of Bernin II existing building with a view to ultimately bring total capacity from 650,000 to 1,000,000 wafers (300-mm) per year - Soitec's previous indication was about bringing Bernin II capacity to 800,000 wafers. Investments will also relate to Bernin III facility dedicated to new engineered substrates for filters with a view to start building capacity in Piezo-on-Insulator (POI) wafers.

In Singapore, investments will continue to progressively increase 300-mm wafers production capacity as part of the plan to reopen the plant with a view to potentially reach a production capacity of 1,000,000 wafers per year (300-mm) in order to support long-term demand for FD-SOI and RF-SOI 300-mm wafers - Soitec's previous indication was about bringing Singapore capacity to 800,000 wafers.

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