Germany’s Merck KGaA insists chip market remains attractive

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  • CEO says falling smartphone sales aren’t a drag on business
  • According to the high demand for chips in automotive and other applications
  • China’s investment strategy has not changed

FRANKFURT/LONDON, Oct 20 (Reuters) – Merck KGaA (MRCG.DE) does not expect an expected drop in smartphone sales this year to weigh on its semiconductor chemicals business, the CEO told Reuters on Thursday. Belen Garijo, insisting that the market remained attractive.

Sales of mobile phones, the main driver of the microchip market, are expected to fall 7.1% this year amid economic uncertainty and a cost of living crisis.

In addition to the manufacture of pharmaceuticals and laboratory equipment, the German family conglomerate Merck supplies chemicals and materials used in the manufacture of semiconductors.

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There is a significant shortage of chips and Merck customers are increasing capacity for the future, but there is currently a slowdown in demand for smartphones, Garijo said.

“We think this is a transitory impact,” she said, adding that the chips are used in every industry, from automotive to data storage and beyond, which keeps the attractive sector.

“We don’t hear anything that should call into question the attractiveness of the semiconductor market.”

Competing with rivals like Entegris (ENTG.O), Samsung SDI (006400.KS) and DuPont (DD.N), Merck’s Electronics division owes its current size mainly to the takeovers of AZ Electronics in 2014 and Versum Materials in 2019.

Merck’s electronics division has benefited from a global investment surge to end the chip shortage. During the second quarter, it saw its sales increase by 7.4% excluding currency to reach nearly 1 billion euros, driven by a 20% increase in activity with semiconductor manufacturers.

Garijo’s bullish outlook is similar to that of ASML (ASML.AS), a key equipment supplier to computer chipmakers, which said this week that customers were focusing on long-term plans rather than the current economic downturn, although analysts have been more cautious. Meanwhile, Merck’s investment strategy in China has not changed but it is “aware of the potential risks”, Garijo noted in the Reuters Newsmaker interview.

China is a key region for the semiconductor industry and pharmaceutical companies, but geopolitical challenges are growing. With Taiwan living under Chinese threat for decades, the war games in early August shook nerves.

It is necessary to have a “constructive dialogue” with markets like China, which are important for German industry, and Merck, said Garijo.

“We are aware of the potential risks…but our investment policy has not changed,” she said.

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Reporting by Ludwig Burger in Frankurt and Natalie Grover in London; Editing by Kirsten Donovan and Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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