Wacker Chemie is getting out of the business of making silicon wafers for the solar market to focus on producing silicon instead, the company said Wednesday.

The German company announced the move four months after it opened a new wafer factory with its joint-venture partner Schott Solar. At the time, Wacker said it intended to expand the wafer manufacturing capacity to reach 1 gigawatt by 2012.

Wacker, which claims to be the world's second largest silicon supplier for the solar and chip markets, said it would rather concentrate on its core business of producing silicon. Schott Solar would rather concentrate on making solar cells and assembling them into panels.

Schott Solar would take over the wafer business from Wacker since most of the wafers already go to Schott Solar. The two companies formed the joint venture, Wacker Schott Solar, in 2007.

Focusing on its core business makes sense at a time when demand for silicon should remain strong over long term thanks government incentives in Europe, the United States and Asia are boosting solar energy demand.

"I think it's just a realization that the polysilicon business still retains the potential for higher returns than wafers, and Wacker is therefore choosing to focus its energy and capital on its core business," said Shyam Mehta, a senior analyst at GTM Research. "Since Wacker has no cell/module participation in the market, integration is of limited value to them anyways, compared to a cell/module manufacturer, for whom it provides lower inputs costs and improved logistics."

On the other hand, Wacker also needs to marshal its resources to navigate a downturn in the solar industry.

Some of its fellow silicon makers already have stumbled quite a bit (see Silicon Producer SilPro Teers on Bankruptcy and Hoku's Dilemma: What Happens When Your Customers Can't Pay?). Others are planning to expand their capacities (see Despite Solar Slump, Tokuyama Plans New Factory).

The prices of silicon have fallen quickly over the past year, prompted partly by the soft demand from project developers who couldn't line up financing (see Contract Silicon Price Falls 50%, Close to Spot Price). Solar panel prices also have fallen by 30 percent to 40 percent over the past year, if not more.

Solar panel makers also boosted their production in 2008 to take advantage of a booming market in Spain, only to see the country slashing its incentive program and the global financial market crumble at around the same time in late 2008 (see Solar Panel Glut Could Last Until 2012, Says Report).

Since then, many manufacturers have sought to renegotiate their silicon contracts.

Wacker's silicon division saw its sales increase to €269.1 million in the second quarter of this year, from €194.2 million in the same period in 2008.

But the second quarter figure fell short of the €315 million from the first quarter of 2009. Falling spot market pricing for the solar market was partly to blame, the company said.

Meanwhile, the Chinese government is taking steps to curb the expansion of the country's silicon production to stem oversupply. The government recently issued a statement that pointed to "redundant projects" in the silicon manufacturing sector and promised to fix that problem with measures such as restricting companies' access to capital and toughening environmental rules. 

The country's silicon production apparently has boomed despite a big fall in solar energy equipment prices, reported the Wall Street Journal. 

Image via Schott Solar.