Germany's Wacker Chemie, the world's No. 2 maker of polysilicon, cut its dividend for 2012 by nearly three quarters as profits tumbled and forecast falling earnings this year, blaming consolidation in the solar sector.

Prices of polysilicon, a key ingredient needed to make solar cells, plunged 47% last year due to global oversupply triggered by years of government incentives in Germany and other countries to encourage consumers to shift to solar energy. Those incentives are now being scaled back.

Wacker Chemie said on Thursday that earnings before interest, tax, depreciation and amortisation (EBITDA) totalled €787 million ($1 billion) for 2012, down 29% from the previous year, and said they would fall again this year.

"The solar sector continues to be dominated by production overcapacity and price pressures at each supply chain stage," Chief Executive Rudolf Staudigl said after the results announcement.

However, he said polysilicon prices remained at levels seen in the fourth quarter of 2012, suggesting the market may be stabilising.

The company said it would propose a dividend of €0.60 per share for 2012, down from €2.20 for 2011, although higher than the €0.52 forecast in a Reuters poll.

Oversupply has also led to bankruptcies among solar cell and panel makers. That has hurt Wacker Chemie as those manufacturers are the main customers of its polysilicon unit, which accounted for more than half of the group's 2012 core earnings.

"We believe the polysilicon market has changed fundamentally but is cyclical and probably at the bottom of its cycle," Citi analyst Andrew Benson said.

Trade dispute

Wacker Chemie said it expects sales this year to remain on a par with the €4.63 billion seen last year.

Analysts expect EBITDA to fall to €756 million in 2013 on sales of €4.75 billion, according to Thomson Reuters Starmine data.

The solar industry has been hit hard in the past three years as governments have radically scaled back subsidies to the industry.

Plunging polysilicon prices last year forced Hemlock Semiconductor, the world's largest polysilicon maker, and Norway's Renewable Energy to review production plans, reduce working hours or cut jobs.

Hemlock Semiconductor is a joint venture between Dow Corning, Shin-Etsu Handotai and Mitsubishi Materials.

Other peers, including South Korea's OCI and China's GCL-Poly Energy Holdings, were also hit.

Western polysilicon makers have also come under pressure from a trade dispute with China launching anti-dumping investigations against European solar-grade polysilicon exporters.