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29 Feb 2024
Stock price plunges in value after key customer unexpectedly cancels 'cornerstone' project.
Major LED and optical sensor manufacturer ams Osram says it will re-evaluate its strategy in the emerging area of microLEDs, after the unexpected cancellation of what it called a “cornerstone” project that was set to feature the technology.
The Austria-headquartered company’s stock price nearly halved in value following the announcement, which also calls into question the future of its giant new LED manufacturing facility in Malaysia - where the microLEDs were to be fabricated.
Financial charges associated with the decision will hit the company’s balance sheet by as much as €900 million when written down in its first-quarter filing for 2024, while this year’s pre-tax profits could be as much as €50 million lower.
In a brief statement ams Osram said that its management board had decided to “re-assess” its microLED strategy after having been informed of the unexpected cancellation of a cornerstone project for its microLED program.
“Discussions with the related customer are ongoing,” it added. “Following the cancellation of the cornerstone microLED project, the company will revisit the future use of its assets related to its microLED strategy, particularly the new 8-inch LED facility in Kulim, Malaysia.”
Smart watches and TVs
The new front-end LED fabrication facility in Kulim, which relied on a move to larger than normal semiconductor wafers to improve the cost profile of microLED production, was first announced back in 2022 - with ams Osram expecting to spend €800 million on the site.
Then in October 2023, as part of a series of refinancing decisions, the company agreed a sale-and-leaseback arrangement for the facility - excluding manufacturing equipment - designed to release proceeds of around €400 million.
While not identified in the firm’s statement, it is believed that Apple had been intending to use microLEDs made in Kulim in its smart watches.
In an assessment of the emerging microLED sector last year, analyst Eric Virey from Yole Intelligence reported that Apple and its supply-chain partners were investing more than $2 billion in smart watch display production.
“This includes €800 million by ams Osram alone for an 8-inch microLED chip fab,” Virey wrote, adding that success would give the sector a substantial boost of confidence and “jump-start” the supply chain for other applications.
However, the analyst also stressed that, at that point, microLEDs had only a small number of “champion” customers, among them Apple and Samsung.
“Failure of Apple’s production ramp or Samsung VD halting TV efforts could bring the industry to a halt,” he warned.
“Without TVs, watches, or smart phones to drive investments, smaller players will find it challenging to build supply chains at a meaningful scale for automotive and specialty displays alone. The situation is different for microdisplays, where more than 20 companies are competing.”
• Following the unexpected late-evening announcement on February 28, ams Osram’s stock price plummeted in value by more than 40 per cent on the “SIX” exchange in Switzerland.
Trading at around CHF 1.26 on February 29, the stock price now stands at a long-term low, having lost around 80 per cent of its value over the past year.
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