By Ludwig Burger and Natalie Grover
FRANFURT/LONDON (Reuters) -Merck KGaA does not anticipate that a projected decline in smartphone sales this year will weigh on its semiconductor chemicals business, CEO Belen Garijo told Reuters on Thursday, insisting the market remained attractive.
Sales of mobile phones, the biggest driver of the microchip market, are forecast to fall 7.1% this year amid economic uncertainty and a cost of living crisis.
Besides making pharmaceuticals and lab equipment, family-controlled German conglomerate Merck supplies chemicals and materials used in making semiconductors.
There is a significant shortage of chips and Merck's customers are ramping up capacity for the future but there is currently a softening in smartphone demand, Garijo said.
"We believe that this is a transitory impact," she said, adding that chips are used across industry, from automotives to data storage and beyond which keeps the sector attractive.
"We don't hear anything that should be questioning the attractiveness of the semiconductor market."
Competing with rivals including Entegris, Samsung (LON:0593xq) SDI and DuPont (NYSE:DD), Merck's Electronics division owes its current size mainly to takeovers of AZ Electronics in 2014 and Versum Materials in 2019.
Merck's Electronics division has benefited from a global investment push to end the chip shortage. During the second quarter, it saw sales increase by a currency-adjusted 7.4% to close to 1 billion euros, driven by a 20% gain in business with semiconductor makers.
Garijo's bullish outlook is similar to that of ASML, a key equipment supplier to computer chip manufacturers, which this week said customers were focusing on long-term plans rather than the current economic slowdown, although analysts have been more cautious.Meanwhile, Merck's investment strategy in China has not changed but it is "mindful of the potential risks", Garijo noted in the Reuters Newsmaker interview.
China is a key region for the semiconductor industry and drug companies, but geopolitical challenges are growing. While Taiwan has lived under the Chinese threat for decades, war games in early August have rattled nerves.
There is a need for "constructive dialogue" with markets like China that are important to German industry, and Merck, said Garijo.
"We are mindful of the potential risks ... but our investment policy has not changed," she said.