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Wacker Holds Own in Chemical World

Private company spends big on R&D and homegrown production technology

May 9, 2005 | A version of this story appeared in Volume 83, Issue 19

Wacker chemists have developed organosilanes used to make construction foams with no free isocyanates.
Wacker chemists have developed organosilanes used to make construction foams with no free isocyanates.

A person attending Wacker-Chemie's annual press conference in Munich last month could be excused for mistaking Wacker for a publicly traded firm. The company's 2004 financial results presentation mirrored that of public German firms like BASF, Degussa, and Bayer. Wacker distributed a detailed annual report, and its chief executive officer made a lengthy presentation, after which he patiently answered questions from reporters.

But Wacker is in fact a private company owned 51% by the Wacker family and 49% by the Hoechst unit of Sanofi-Aventis. It was founded in 1914 by Alexander Wacker and today is headed by his great-grandson, Peter-Alexander Wacker.

Many private firms relish their anonymity and give out little information about their financial condition. Wacker has a different philosophy. According to Peter-Alexander Wacker, the company holds an annual press conference--and often a subsequent technical briefing--because it desires the public exposure that the press can provide.

This exposure isn't always so favorable. At its press conference last year, Wacker announced a net 2003 loss of $118 million and a particularly bad performance by Siltronic, the silicon wafer business that it wants to spin off in an initial public offering (IPO). This year, the news was better: a net profit in 2004 of $98.6 million and earnings before interest and taxes of $257 million. Sales were $3.15 billion, up 3%.

Although he may want to replicate the recognition enjoyed by his publicly traded competitors, Peter-Alexander Wacker says he isn't otherwise envious of them. After the presentation, he told C&EN that a big part of Wacker's strength is its ability to make long-term investments without worrying about the short-term concerns of outside investors.

"Stability is one of the biggest advantages of a private or family-owned company," he said. "Stability means we are not looking at every quarterly result. We can go through cycles where the earnings are a little bit lower because of high investment costs. It is much easier if you are not on the radar screen every quarter."

Private ownership also allows Wacker to put more money into R&D--some 6% of annual sales--than most publicly traded chemical companies, without having to fend off investor complaints of high spending. And the company can put this research into practice with expensive plant construction projects that public companies might shy away from.

Indeed, investments based on the results of R&D are ongoing in almost all of Wacker's businesses. Siltronic recently completed one of the largest of these, a half-billion-dollar facility in Freiberg, Germany, that makes the 300-mm-diameter silicon wafers used in advanced semiconductor fabrication facilities. It is the world's only such plant outside Japan.

Nevertheless, Siltronic continues to lose money, posting a loss of $114 million before earnings and taxes last year. Peter-Alexander Wacker expects its performance to strengthen throughout 2005 as the semiconductor industry improves and output from the new wafer plant picks up. However, he said, stock market conditions will not likely be conducive to an IPO until 2006.

The IPO, first announced in 2003, is key to an overall Wacker strategy of refocusing on chemicals. As part of this plan, the company sold its ceramics business in July 2004 and its insulation materials business in November 2004. Then, on Jan. 1, it launched a new five-division structure made up of Siltronic, silicones, polymers, fine chemicals, and polysilicon.


Wacker CEO Lambastes Rigid German University System

Wacker-Chemie is a decidedly German company. Its headquarters are in Munich, and its largest plant, in Burghausen, Germany, is a huge manufacturing complex that employs some 10,000 people.

But Peter-Alexander Wacker, the firm's president and chief executive officer, is currently not happy with German higher education. He took time out of Wacker's annual press conference last month to disclose the firm's failure to create an academic chair in silicon chemistry--putting the blame squarely on the largely state-run German university system.In 2003, on the centennial of its corporate research facility, Wacker endowed the world's first chair in macromolecular silicon chemistry, picking Munich's Ludwig-Maximilian University as the chair's home after what it considered an international survey. With the help of a selection committee, the company then embarked on a search for a silicone chemist to offer the chair to.

According to Peter-Alexander Wacker, the committee's "clear number one" was a U.S. chemist of German origin. The chemist agreed to accept the chair, but the company could not meet his salary requirements because of what the CEO called "rigid" regulations governing pay for German educators. Another obstacle, he said, is the difficulty that German professors encounter when pursuing outside research funding from industrial partners.

"Germany still has a deficit when it comes to conditions for world-class research," Peter-Alexander Wacker declared at the press conference. He said Wacker is about to cancel its endowment agreement with the German state of Bavaria. The company is working to find another solution, which might involve endowing a chair at an American university.

NOT SURPRISINGLY, the chemical businesses to which Wacker is committing itself are also receiving ample investment. At the meeting, the company announced that it will spend some $250 million in Burghausen, Germany, to add 2,500 metric tons of annual capacity for polysilicon, the starting material for the silicon wafers used to make both semiconductors and photovoltaic panels.

Karl Hesse, director of process design for the polysilicon business, explained at the follow-up technical briefing that the solar panel industry is booming, thanks to tax breaks in countries such as Germany and Spain and states such as California. He said the solar panel industry has been expanding at 30% annually and grew a heady 60% last year alone. The upshot is a shortage of polysilicon that Wacker hopes to relieve.

The just-announced project will use the traditional manufacturing technique in which trichlorosilane is deposited at high heat on a starter rod, where it decomposes to polysilicon. This technique, however, is a batch process that requires workers to remove completed rods from the reactor and transfer them to crushing machines that create manageable pieces. Contamination introduced during crushing must be removed with an acid-based etching process.

At the briefing, Wacker detailed plans for a new process--now in pilot-stage testing--that will produce granular polysilicon continuously, eliminating the rod removal, crushing, and etching steps. The company claims to have overcome technical hurdles that stymied other firms and is already eyeing commercialization.

Wacker's other big investment announcement was in fine chemicals, a business that became stand-alone in the January reorganization. Weeks later, Wacker acquired ProThera, a microbial-based pharmaceutical protein maker in eastern Germany, and at the conference it revealed plans to invest up to $60 million to become a significant contract manufacturer of pharmaceutical proteins.

Thomas Maier, Wacker's business director for biologics, acknowledged that his firm is something of a dark horse in the field. Over the past year, while companies like Dow Chemical and DSM aborted high-profile forays into bulk protein production, Wacker was quietly building up a unique technology position. It is now considering a facility in Germany that would capitalize on this position.

The facility would feature a Wacker-developed extracellular secretion system for which the firm claims protein yields of 5 g per L of cell mass, much better than the 1 g per L achievable with conventional expression systems. It would also deploy a high-cell-density technology developed by ProThera that Wacker says offers shorter development times and good reproducibility.

According to Maier, Wacker has made a conscious decision to focus on microbial rather than mammalian cell expression, a field that has seen a significant capacity buildup by firms such as Lonza and Boehringer Ingelheim. He conceded that many blockbuster biotech drugs are monoclonal antibodies, proteins that can only be expressed in mammalian cells, but he anticipates a second generation of drugs that are based on antibody fragments, which can be expressed microbially at much lower cost.

Gerhard Schmid, who heads Wacker's overall fine chemicals business, said the protein drug push will complement the firm's existing biotech expertise--now used to make cyclodextrins and the amino acid cysteine--as well as silicon chemistry and organic chemistry expertise, particularly in chiral alcohols and amines. "We are branding it as triple synthesis power," he said.

Although the press conference yielded no announcements in silicones, Wacker's largest division, a decidedly big project is already ongoing: a joint venture with Dow Corning to build a facility near Shanghai for fumed silica and siloxanes, the key raw material for silicones.

By itself, the joint plant will cost hundreds of millions of dollars. The partners then plan to independently construct their own facilities for downstream silicone products such as elastomers, adhesives, and resins--areas in which they will remain competitors. All told, investment by the partners will exceed $1 billion.

ACCORDING TO Peter-Alexander Wacker, raw materials made by the China joint venture will initially be converted into basic silicones for industries such as textiles and construction. One potential high-tech product, though, is a new organosilane now being made in a pilot facility in Burghausen.

Wacker is one of the top practitioners of silicon chemistry, along with firms like Dow Corning and General Electric. Its focus, however, is on polymers, and it has not historically been a big player in organofunctional silanes--silicon-based molecules that pair alkoxy groups with amino, epoxy, methacrylate, or other organic groups. Uses for organosilanes include coupling agents, cross-linkers, and polymer building blocks.

Rudolf Hager, senior manager for organosilanes and plastics, told the technical briefing that Wacker is breaking from that history with the help of new chemistry. In traditional organosilanes, the organic group is separated from the silicon atom by a three-carbon, or g, "spacer." But by using photochlorination technology practiced in the company's fine chemicals business, Wacker chemists were able to instead insert a single-carbon, or a, spacer.

This shorter spacer, Hager explained, increases the reactivity of the alkoxy groups by 10 to 20 times. When the organic side is an isocyanato group, the result is a molecule that is very reactive on both sides. In the pilot plant, Wacker is now producing hundreds of tons of such an a-spaced isocyanatosilane, which it calls Geniosil XL 42.

In one application, Wacker has reacted XL 42 with polypropylene glycol to create a silane-terminated polyether. Hager says this copolymer, Geniosil STP-E, fills the functional gap between silicones and polyurethanes by combining the elasticity of the former with the strength of the latter.

In another example of a-silane chemistry, Wacker is reacting an a-aminosilane with an isocyanate to create a spray construction foam ingredient with no free isocyanates. Hager said the foams used in the European construction industry are under regulatory scrutiny because they contain potentially hazardous free isocyanates. One brand of foam based on the Wacker organosilane is already on the market. Key to its performance, he said, is rapid cross-linking that only comes with a-spacing.

Although the China plant won't make high-end silicones at first, Peter-Alexander Wacker expects such products to quickly follow, because Chinese companies no longer want to be low-priced suppliers. "This is our chance," he said.

The big names in the chemical industry also see China as their chance, but Wacker's CEO claims he isn't concerned about finding a place there so long as his company stays focused on the chemistry it knows well. "We are used to having big guys around us," he said. "You can be smaller than the big guys in the industry if you supply specialized products at prices that are acceptable.

"We aren't going to go into commodity chemicals or plastics. We will stay in high-technology businesses where we solve the problems of our customers."


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