Christoph Steitz and Jens Hack

FRANKFURT, GERMANY: Wacker Chemie expects margins at its cash-cow polysilicon unit to fall in the medium term, due to shrinking demand from the solar industry where tough conditions have forced some players out of the market.

The German company's polysilicon is a key ingredient in the production of solar cells. But solar companies in Europe and the United States have been hit hard by oversupply, falling prices, low-cost Asian competition and lower government subsidies.

"EBITDA (core profit) margins we have seen in this area so far are a thing of the past and will be below 40 percent in the mid-term," Chief Financial Officer Joachim Rauhut told Reuters an interview on Thursday after the world's No.2 maker of polysilicon released lower-than-expected 2011 results.

In 2011, Wacker Chemie's polysilicon unit accounted for about 30 percent of group sales and about two thirds of earnings before interest, tax, depreciation and amortization (EBITDA), with an EBITDA margin of more than 50 percent.

Shares in Wacker Chemie were up 1.2 per cent before the interview but turned negative after Rauhut's statements and were down 2.2 per cent at 65.80 euros by 5:03 ET.

Wacker earlier reported results for its 2011 financial year that came in below analysts' expectations due to the weakness at its units catering to the semiconductor and solar sectors. The company also said that it had seen customer demand rebound in the first weeks of 2012.

Sales reached 4.91 billion euros ($6.37 billion) in 2011, below the 5.02 billion Thomson Reuters I/B/E/S estimate and also lower than its own outlook of about 5 billion. EBITDA reached 1.1 billion euros, falling short of the 1.17 billion Thomson Reuters I/B/E/S estimate.

"The decline in semiconductor and solar demand was stronger than we had expected and caused Q4 figures to come in below our estimate," Chief Executive Rudolf Staudigl said.

Wacker said, however, it was currently experiencing higher sales volume for semiconductor wafers and polysilicon compared to the last quarter of 2011.

"Demand is picking up but Q4 indicates that competition will intensify further and erode margins," a trader said.

Wacker Chemie's main rivals in the production of polysilicon include Hemlock Semiconductor, a joint venture between Dow Cornin, Shin-Etsu Handotai and Mitsubishi Materials, as well as Korean OCI Co Ltd and China's GCL-Poly Energy Holdings.