27 Nov 2017
First stage of planned €1 BN investment in production capacity completed amid rapid demand growth.
Osram says its new €370 million LED production site in Kulim, Malaysia, has started operations on time – almost exactly two years after the lighting giant spooked investors by saying that it would invest up to €1 billion to expand capacity there.
“We are both on schedule and within budget,” boasted Osram CEO Olaf Berlien during the new site’s official opening ceremony last week, adding that with the company’s LED business growing at a rate of nearly 20 per cent the additional capacity will quickly prove beneficial.
“Our investment in Kulim also attests to the technology shift and our transition to becoming a high-tech corporation,” Berlien said. “At the beginning of this decade, conventional lighting still accounted for 80 per cent of Osram's business. Today, two-thirds of our sales are based on optical semiconductors.”
The Kulim facility produces gallium nitride (GaN) devices using a 6-inch diameter wafer manufacturing process, with the chips' blue emission converted to white light using phosphor and aimed at general lighting applications.
Osram first revealed the Kulim expansion plans, as part of its “Diamond” growth initiative, during its November 2015 full-year results release. At the time, some investors appeared surprised by what they considered to be a risky move – with Osram’s stock price dropping in value by 30 per cent as a result.
But while it took more than a year for the stock price to recover, Osram’s market value has since risen sharply. Trading at around €71 on the Frankfurt stock exchange on November 27, it compared with around €38 immediately following the November 2015 announcement.
Significant further expansion is possible in Kulim if required. Osram says that it has invested €370 million during the first of up to three stages of building that would together represent a total spend of around €1 billion.
In a statement from the firm Aldo Kamper, CEO of Osram’s Opto Semiconductors business unit and also president of the Photonics21 representative group in Europe, emphasized the huge production capacity now on tap in Malaysia.
“With one week’s production we could completely retrofit the street lighting of the metropolises New York, Rio, Hong Kong and Berlin with LEDs,” Kamper said.
Osram has also calculated that to upgrade the entire world’s street lighting to the solid-state format, Kulim would have to produce LEDs for five and a half years.
In theory such upgrades offer huge potential energy savings of up to 80 percent, when compared with conventional street lights – although as last week’s widely reported study of the impact of new lighting technologies on the wider environment showed, there can also be some unintended and negative real-world effects.
Whatever the net environmental impact of the technology, as one of the key players in the sector Osram is now reaping the benefits of decades of investment in LED research and development.
It cites figures suggesting that the annual global market for LEDs used in general lighting will reach the €6 billion mark next year, of which approximately 6 per cent relates directly to street lighting.
The Germany-headquartered firm, whose main LED production facility is in Regensburg, expects demand to grow at an average growth rate of 7 per cent per year through 2020, while it believes the overall market for optoelectronic components – including general lighting – will be worth €17.5 billion in 2018.
In the medium term, Osram plans to produce LED chips in Kulim for higher-end applications like automotive lighting and video projection. The larger wafer format available at the Malaysian location should result in significantly reduced LED chip prices for those applications, and therefore more extensive market penetration.
Sales and jobs on the up
Osram adds that it is currently investing in the expansion of no fewer than six sites in its LED production network. In Regensburg, it is expecting to expand the current workforce of around 2500 employees with an additional 1000 hires.
The site is used to produce both premium LED chips and laser diodes, with the latter used in advanced car headlamp designs incorporating features like adaptive road lighting. Osram is also targeting new applications for its infrared diodes, for example sensors used in facial recognition, and proximity sensors in cars.
Osram is also reconfiguring its former light bulb manufacturing facility in Schwabmünchen, Germany, where it will now produce primary LED materials in dedicated clean rooms.
The company is planning to mirror that production in the US at its Exeter, New Hampshire, site, while in Wuxi, China, it will focus on assembling LED chips into complete LEDs packaged with primary optics.
In its most recent set of financial results, Osram reported a 9 per cent rise in annual sales, to €4.13 billion. That increase was powered largely by growth of the Regensburg-headquartered Opto Semiconductor business, where revenues jumped 19 per cent year-on-year, to €1.69 billion.
The firm’s workforce has also jumped by 7 per cent over the past year, with Osram now providing some 26,400 jobs in total.
With a new joint venture for automotive lighting with parts and tire giant Continental now in development, and sales expected to rise again in 2018, Berlien told investors earlier this month:
“Osram is in a great position thanks to its expertise in innovation, and it is setting its sights on attractive future markets.”