ams Osram announces strategic re-alignment of the group

31 Jul 2023

As part of its second quarter financial results – which were in line with company expectations.

ams Osram has announced a strategic re-alignment of the group as part of its reporting second quarter financial results on July 27th. Those results, ams stated, are “in line with the company’s expectation range”.

Aldo Kamper, CEO, commented, “Over the past months, we have completed a deep analysis of the company to determine the path forward. We have a very strong core, yet we need to take significant steps to improve our performance.”

The company is re-focusing its semiconductor portfolio on its profitable core in differentiated, intelligent sensor and emitter components. The non-core and lower performing portfolio with revenues of around €300 to €400 million, including amongst others passive optical components, will be “exited”, as ams puts it.

The automotive and specialty lighting business (Lamps & Systems) with its “expanding market leadership position in automotive lamps” will continue to contribute meaningfully to the group’s profitability, ams stated.

The company “will expand its leading positions in the relevant automotive, industrial and medical semiconductor markets. The group will continue to pursue specific opportunities in the consumer device semiconductor market in product segments where it can achieve sustainable differentiation through cutting-edge innovation. It will focus its internal manufacturing capability on only those platforms that enable it to sustain differentiation versus competitors.”

Investments in the core business such as high-performance LEDs and lasers, mixed-signal analog ICs and sensors will be strengthened further, the statement added: “The group will continue selected investments into disruptive, future growth areas, such as microLED, but pursue a more balanced resource allocation between emerging and established opportunities.”

ams’ “Re-establish the Base” program targets annual savings of €150 million by the end of 2025, approximately half of which is targeted to be realized by the end of 2024. The one-time costs of the program are estimated at €50 million.

Management and structural changes

Adjustments in the managerial setup will be introduced to strengthen the company’s ability to monetize its innovation power. This will mean forming two business Units (from previously three) in the Semiconductor segment – one dedicated to emitters, the other dedicated to sensor and analog mixed signal ICs. With the divisional entrepreneurship strengthened, the group moves away from a functional management model in the ams Management Board. As a consequence, the group’s Management Board will be reduced to CEO and CFO, effective January 1st, 2024.

ams stated, “A careful look at the prospects of each business line including some low-performing consumer businesses, revealed that the outlook required a significant reset. This led to non-cash impairment charges on goodwill of €1.3 billion. The outlook for our core business remains positive.”

The group expects to grow its revenues with a CAGR of 6-10% 2023 to 2026 from the reduced base which means the new semiconductor core portfolio in the Semiconductor segment in addition to the Lamps & Systems segment. At this revenue level and upon full implementation of its “Re-establish the Base” program, ams expects to realize an adjusted annual operating margin of approximately 15% by 2026 onwards.

CEO Aldo Kamper said, “As we rebuild around our core business, we will benefit from structural growth trends while making the company stronger in target markets with more differentiated offerings. He added, “Profitability and monetizing innovation is put at the center of our thinking, whilst keeping our passion for cutting-edge technology that helps make the world safer, simpler and more efficient. This is what I will stand for together with the management team.”

Q2 financial and business update

In the group’s second quarter results, revenues of €851 million and an adjusted operating margin of 5.9% were in line with its guidance. The statement noted, “Second quarter evenues came in essentially flat compared to the first quarter. Profitability improved slightly, coming in at the upper end of the guidance, but remained subdued especially in view of significant underutilization charges from its production and adverse product mix due to the seasonality in the Lamps & Systems segment.”

The Semiconductor segment, representing 71% of Q2 revenues, or €600 million, showed “mixed traction across the various end-markets,” the company stated, adding, “The automotive business showed normalizing order-patterns after almost two years of erratic behavior and inventory corrections in the wake of the various macro-economic shocks to the automotive supply chain.”

Industrial and Medical business performed better than in Q1, but still showed the typical mixed behavior during a macro-economic weak period with certain applications running well such as laser welding and others running very soft such as hyper-red LEDs for Horticulture lighting.

Consumer business showed signs of improvement with an 18% quarter-on-quarter increase due to higher sales from existing supply relationships. Overall, said ams, “the Consumer business remains challenging for the group compared to previous levels a year ago as the smart phone market has contracted, certain designs reach end-of-life, price pressure remains high and won designs are not yet launching until 2024.”

Of the Q2 results, Kamper said, “We were pleased to see some stabilizing trends in the Automotive LED supply chain lately. Despite better sales in certain Industrial and Consumer businesses, the macro-economic sentiment in these markets remains very challenging. We worked hard to improve our operational cash flow and will continue to work on improving our profitability.”

With a strengthening demand for its Automotive products, the ams expects third quarter revenues to improve to a level of €840 – 940 million. The adjusted EBIT is expected to come in at 5% to 8%.

‘Intelligent’ LEDs enable dynamic automotive interior lighting

Coincident with the business announcements, ams has also launched a novel LED-based automotive illumination technology, which it says will “greatly simplify the implementation of dynamic, color- and intensity-changing arrays of hundreds of RGB LEDs in car interior lighting.”

The new OSIRE® E3731i RGB LED features a digital core that enables low-latency communication over a standard serial bus interface with any microcontroller.

The company has also developed a new Open System Protocol running on the OSIRE E3731i. Using OSP, any microcontroller can transmit instructions to modulate brightness and color individually to each LED. OSP is available for use license- and royalty-free by any car, LED, lighting system or microcontroller manufacturer.

The manufacturer states, “By using the OSIRE® E3731i LED and OSP, automotive manufacturers can realize novel dynamic lighting effects in the car interior. Up to 1,000 LEDs can be connected in a daisy chain, controlled via one microcontroller.” Hermann Senninger, Senior Product Manager, commented, “Dynamic lighting promises to add value to cars by combining changes in color and brightness with pulsing, breathing or moving light effects, for decorative or functional purposes.