UBS Report: 40% Price Increase Required to Drive Silicon Wafer Expansion

Written by: Rita

The market views silicon wafers as beneficiaries of a cyclical rebound, but UBS believes price increases are a prerequisite for capacity expansion. In its global silicon wafer industry report released on September 18, 2026, UBS noted that the supply-demand outlook for 12-inch and 8-inch wafers will continue to improve over the next two years, with 12-inch wafer utilization rates rising from 84% in 2026 to 99% in 2028. However, new capacity expansion requires price increases of 40% to 50% or more to incentivize manufacturers; otherwise, a severe shortage could emerge after 2028. UBS has issued a "Buy" rating on Shin-Etsu Chemical, GlobalWafers, and Siltronic, and a "Neutral" rating on SUMCO.

UBS's core assessment is that silicon wafer manufacturers remain cautious about capacity expansion after the downturn from 2023 to 2025. Current operating profit margins stand at only 12.3%, and return on equity at 6.8%, significantly below the 18.3% and 19.1% seen from 2017 to 2022. Major customers will need to offer higher prices to incentivize manufacturers to expand capacity; otherwise, supply shortages will constrain growth across the entire semiconductor industry.

UBS has raised its forecast for 12-inch wafer demand growth to 11% in 2026, from 9%, with growth of 14% in 2027 and 13% in 2028. For 8-inch wafers, demand is forecast to grow by 11% in 2026, 9.9% in 2027, and 8.8% in 2028. Utilization rates for 12-inch wafers are expected to reach 84%, 91%, and 99% from 2026 to 2028, up from previous estimates of 82%, 88%, and 94%. Utilization rates for 8-inch wafers are projected at 80%, 90%, and 97%.

The upward revision in demand is primarily driven by stronger customer restocking needs and accelerated expansion of DRAM capacity. UBS notes that supply-demand conditions in 2027 will be tighter than in 2026, with utilization approaching full capacity by 2028. If manufacturers do not expand capacity, utilization will reach 103.7% in 2029, and supply shortages will begin to emerge that year.

UBS expects silicon wafer prices to rise by more than 20% annually between 2027 and 2028, similar to the upward cycle seen from 2017 to 2018. However, the key argument is that major customers must offer significantly higher prices to incentivize wafer manufacturers to consider new capacity expansions beyond 2028. Industry feedback indicates that wafer manufacturers may require price increases of 40% to 50% or more before considering expansion.

Major silicon wafer manufacturers are maintaining caution regarding capacity expansion due to significantly reduced profitability caused by the downturn cycle from 2023 to 2025. UBS notes that if manufacturers do not expand capacity, a severe shortage could emerge after 2028, constraining growth in the semiconductor industry. Under this logic, price increases are not merely a result of cyclical recovery but a necessary condition for new capacity expansion. A deadlock has emerged between the cautious stance of wafer manufacturers and customers’ demand for capacity growth—one that can only be resolved through price adjustments.

Chinese silicon wafer manufacturers are actively expanding production, but UBS believes the impact on global supply and demand between 2027 and 2028 will be limited. China’s opportunities may be largely confined to its new mature logic wafer fabs, while China’s leading logic and memory customers prefer overseas silicon wafers due to yield considerations. For non-Chinese customers, it is difficult to extensively adopt Chinese silicon wafers in mature logic foundry processes, as recertification is required and performance lags in advanced logic and memory applications.

NSIG is China’s largest silicon wafer manufacturer, with an average selling price of $54 for its 12-inch wafers, compared to the industry price range of $100 to $120, reflecting that most of its shipments are non-production-grade wafers. UBS believes that Chinese manufacturers have limited competitiveness in the high-end silicon wafer segment, and global supply-demand dynamics will not be significantly altered by China’s capacity expansion. The pace of expansion and product mix of Chinese manufacturers mean they are unlikely to enter the global high-end supply chain in the near term.

UBS maintains a Buy rating on Shin-Etsu Chemical, GlobalWafers, and Siltronic, and a Neutral rating on SUMCO. GlobalWafers’ target price has been lowered from NT$2,000 to NT$1,750, based on a forward price-to-book ratio of 7.5x, down from 8.5x. UBS has reduced its EPS forecasts for GlobalWafers by 7% for 2026 and by 14% for both 2027 and 2028, but expects sales growth to accelerate in Q4 2026 and 2027.

The target price for Siltronic has been raised from €105 to €120. SUMCO maintains a neutral rating with a target price of ¥4,000. UBS noted that the price-to-book ratio for the silicon wafer sector has declined from 3.3x in July 2026 to 2.6x, positioning it at the midpoint of its 1.0x to 4.0x range over the past decade, presenting a buying opportunity amid a structural upward cycle.

If silicon wafer prices rise more than 20% by 2027 but manufacturers still do not expand production, a supply shortage in 2029 will become the next bottleneck for semiconductor industry growth.

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (UBS, September 18, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.

The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.