Signify sales dip among unprecedented supply chain disruption

Blindsided by supply chain difficulties that CEO Eric Rondolat described as the worst he’s ever seen, Signify’s third-quarter sales took a hit, although the company protected profits with price increases and cost cutting.

The revenue decline was particularly noticeable in connected lighting, as port closures and COVID-related factory disruptions among suppliers prevented the company from obtaining various components it needed to carry out Internet of Things (IoT) installations in the commercial market.

Separate from the supply chain challenges, Rondolat noted that the company has revamped its approach in one specific product area — ultraviolet C-band (UV-C) lighting for disinfection — a business that he implied has yet to hit its stride.

Across all product areas, Signify reported a 4.9% drop in company-wide sales for the quarter ended Sept. 30, to €1.64 million (US$1.9M) from €1.73M ($2M) in the same quarter last year. Net income rose 4.8%, to €94M ($109M) from €90M ($104M).

The company ended the quarter with what at first glance might look like a healthy order book, as new orders were up 90% over a year ago. But much of the increase represented orders that in normal supply chain times would have converted into invoices but remained as “orders” rather than sales throughout the three months.

The port closures and supplier stoppages that crimped third-quarter sales took Signify by surprise.

“I’ve worked for many, many years, I’ve never seen anything like it,” Rondolat told analysts on a phone call to discuss the results this morning. “We’ve gone through crises, but a crisis of that magnitude on the supply side, like what we have in seen Q3 — completely not anticipated — that was very, very tough to face.”

Rondolat described the dismal practicalities.

“We were supposed to receive a lot of components in July,” he told one analyst. “They were delayed, and they arrived in the back end of September. So even with trying to manufacture very quickly, we could not deliver on time.”

He did not specify which components in particular were hard to procure. A spokesperson clarified for LEDs Magazine in an email that “the biggest impact came from e-components (LED drivers, semiconductors, batteries, and downlight drivers), resins, and certain metals.”

The company felt the supply blow across its divisions, but the hit to the Digital Solutions division seemed in particular like a stomach punch. DS is the group that sells connected lighting — IoT lighting — to commercial and government enterprises. It is a flag bearer in the effort to transform the lighting industry into an IT endeavor that uses the lighting infrastructure to collect and analyze data via embedded sensors, communications chips, and Internet-to-cloud gateways.

As LEDs has observed many times, the industry’s IoT initiative has been an uphill struggle. In some good news today, Rondolat mentioned in passing that the market is now “educated” on the benefits of connected lighting. That was not the case early in the pandemic, when Signify was taking the opportunity of a worldwide general business and life slowdown to preach the IoT gospel.

But no sooner had customers and potential customers awakened to the IoT than the lingering logistics effects of the health crisis intervened to further stymie things.

Customers might now be educated about the IoT, but that does not seem to be the case with UV-C disinfection, a product area that Signify ramped up early on in the pandemic to fight the coronavirus.

Last April, Rondolat described the business as “a marathon, not a sprint,” noting that the home market was livelier than the commercial market. The marathon seems to still be running.

“It’s a pending assignment on our side to educate the market more,” Rondolat said on this morning’s call. The educational challenges prompted a joint effort between Signify and Honeywell.

Rondolat also described a change in which Signify is now emphasizing finished UV-C products over the OEM business of selling UV-C light sources to other manufacturers. It had been doing both, but as our earlier article noted, finished goods had been outperforming OEM. While making clear that finished products are now the priority, Rondolat did not provide details.

LEDs emailed Signify seeking further information and asking whether UV-C sales are underperforming expectations.

“For some quarters, we have been experiencing a switch in our demand, from UV-C lamps, to professional and consumer end products, resulting in strong growth rates for UV-C in our Digital Solutions and Digital Products divisions,” the spokesperson told us (Digital Products sells to the home market, and includes smart lighting brands such as Hue and WiZ). LEDs will try to learn more about these changes.

On a division by division basis, sales of all products (not just UV-C) for Digital Solutions declined 7.4% to €848M ($981M) from €916M ($1.06 billion) in the third quarter compared to the same quarter a year ago, as income from operations (EBIT) plunged 20.3% to €40M ($46M) from €50M ($58M).

Digital Products sales grew by 2.1%, to €588M ($681M) from €575M ($666M), with the implication being that the troubled supply chain capped the growth. Also, the boost that the division had enjoyed in previous quarters from pandemic related stay-at-home behavior appears to have softened but not vanished. EBIT nudged up by 0.5%, to €72M ($83M) from €71M ($82M).

Sales of Conventional products — non-LED bulbs including units like home fluorescents but also the UV-C mercury vapor tubes that Signify provides on an OEM basis — tumbled 13.3% to €202M ($234M) from €233M ($270M), as income fell 8% to €32M ($37M) from €35M ($41M).

For the full-year outlook, Rondolat said Signify is sticking with the low end of its earlier guidance, which ranged from 3–6% growth in comparable sales and an EBITA margin of 11.5–12.5%. Fourth-quarter and year-end results are scheduled for late January.

Rondolat cautioned that the guidance assumes no further deterioration in the supply chain. Given the surprise unraveling in the third quarter, some analysts might find that worrying.

“The situation is so fluid, and so unpredictable,” Rondolat told one analyst. “We never thought that what happened in Q3 would happen.”

“Today, I don’t have complete visibility on some of the components I’m expecting for Q4,” he told another. “So the problem is, it’s difficult for us to confirm an order for a customer, when we don’t have confirmation of the components.”

The theme sounded loud from start to finish of the analysts’ call.

“The major issue we have is the uncertainty in the supply chain,” Rondolat said as the questions drew to a close.

Editor's note: Signify financials are reported in Euros; conversions to US dollar amounts are current to the exchange rate at time of publication.

MARK HALPER  is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

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