Ams CEO: Osram’s Digital business “not strategic to us”

The CEO of Osram’s new owner ams today strongly indicated that Osram could exit many of the businesses in its Digital group, which include IoT, horticultural, entertainment, and architectural. On a third-quarter results call with analysts, ams boss Alexander Everke described Digital as “not a strategic asset for us,” and said ams will act swiftly to “make portfolio choices.”

Everke’s pronouncement came a half day after a freshly ams-flavored Osram supervisory board wasted no time in dismissing Osram chief technology officer Stefan Kampmann, whose duties had included developing the technologies for Osram’s push into connected Internet of Things (IoT) lighting.

The action came as both companies reported quarterlies amid the pandemic economy. While ams’ sales swung up, Osram’s fiscal year fourth quarter declined, pulled down by its worst performer, Digital.

On an Osram analysts’ call, Osram CEO Olaf Berlien singled out entertainment lighting as one Digital area that has tanked during the pandemic, with theaters and cinemas around the world curtailing activity.

Berlien also pointed out several times that Digital’s horticultural operations, which include Austin, TX-based lighting company Fluence, has performed well.

But it is uncertain what Digital operations ams will retain, if any. Premstaetten, Austria-based ams is an optical sensor company that is intent on leveraging Osram’s chip-level photonic specialties.

As LEDs Magazine reported over a year ago, ams has from the beginning of its takeover quest considered IoT lighting as “non-core,” and could well dump it. We subsequently reported that while IoT could go, horticulture could stay.

Ams had till recently put off such decisions because it had not secured strong enough ownership of Munich-based Osram to enable such actions, even though it took governing control in July.

But in a big step toward action this week, ams gained approval to “dominate” Osram under German law.

Domination must still clear a registration process in Germany, which both companies hope happens by early next year.

Then ams will be in a position to start exiting Digital businesses as it sees fit, via sale or other means. Osram refers to the Digital group as DI.

Asked by an analyst today about plans for “the struggling businesses within Osram — things like Digital, where you’ve expressed the possibility of an exit,” ams’ Everke expressed a readiness to jettison.

“We clearly see that DI is not a strategic asset for us moving forward and the intention obviously is after the domination agreement is registered that we act timely on all the matters that we indicated where there are synergies, and we make portfolio choices,” Everke responded. “This applies for DI.” It also applies for the portion of an automotive headlamp joint venture with Continental which is returning to Osram following the breakup of that initiative, Everke said, in response to the analyst.

If ams were to dump IoT lighting, it would mark a departure from what many general lighting enthusiasts hope could be the industry’s savior. Big lighting companies can no longer profit from simply selling bulbs, luminaires, and replacements now that long-lasting LEDs have deprived the industry of that century-old model.

So companies like Osram have been attempting to outfit luminaires and lighting networks with Internet-connected sensors and communication chips that turn lighting systems into critical data collectors and analyzers.

But progress across the industry has been slow.

Osram’s centerpiece IoT initiative, Lightelligence, has all but faded away, and the executive who had been in charge of it, Thorsten Mueller, left sometime around August 2019.

Mueller had been brought in by the now dismissed CTO Kampmann, who joined Osram in July 2016 from Robert Bosch GmbH to coordinate research and development in IoT lighting and other areas.

But yesterday, soon after three ams-nominated members officially joined the Osram supervisory board, the board let Kampmann go by removing him from Osram’s three-person management board, which still includes Osram CEO Berlien and chief financial officer Kathrin Dahnke.

His official departure date has not been set. Osram said it will not replace Kampmann but will “downsize” the management board from three members to two, and that “it is foreseeable that the areas of responsibilities for technology will be reorganized within the combined company” — a reference to the combination of ams and Osram under the domination arrangement.

The drama of Kampmann’s severance and the future of Digital came as Osram reported a 20.1% nominal decline in revenue for the fourth quarter ending Sept. 30 to €739 million (US$877M) from €924M ($1.1 billion) in the same period last year. The drop was 17.7% on a comparable basis. The company lost €89M ($105M) after tax, a big improvement over a whopping €213M ($253M) loss in last year’s fourth quarter.

The quarterly decline was particularly pronounced in Digital, where nominal sales tumbled 38.3% to €165M ($196M) from €268M ($339M). The comparable decline was 35%. The Digital sector lost €7M ($8M) on an adjusted EBITDA basis, compared with an €11M ($13M) profit a year ago. Free cash flow was a negative €30M ($35M), compared to a positive €18M ($21M) last year.

CEO Berlien sounded upbeat about both the Automotive and Opto Semiconductor (OS) group, as the company noted that profit margins improved in both. Berlien pointed out that the car market in general is picking up as people choose cars over public transportation because they perceive them as safer modes against the virus. He also expressed optimism in chip areas such as mini LEDs and eventually micro LEDs, which he said will have a strong future in display technology, including inside of cars.

The margin improvement did not stop an overall drop in the quarterly figures, however, as Automotive nominal sales fell 13.6% (12% on a comparable basis) to €395M ($469M) from €497M ($590M) a year ago, adjusted EBITDA dropped 17.7% to €22M ($26M) from €27M ($32M) and free cash flow was a negative €37M ($44M) compared to a positive €37M for 2019’s fourth quarter. In OS, nominal sales fell 16.9% (14.3% on a comparable basis) to €320M ($380M) from €385M ($457M), and adjusted EBITDA dropped 6.1% to €68M ($81M) from €73M ($87M). Although free cash flow declined 40%, to €70M ($83M) from €116M ($138M), it was still positive, unlike in Digital and Automotive.

For the full fiscal year 2020, Osram reported a pandemic-struck 12.3% decline in nominal sales (13.8% on a comparative basis) to €3.04B ($3.61B) from €3.46B ($4.11B) in 2019, registering an after tax loss of €267M ($317M), which was an improvement over 2019’s staggering €407M loss. Free cash flow for the year was down 17%, to €12M ($14M) from €17M ($20M).

Osram stuck with an earlier forecast for 2021.

“For the 2021 fiscal year, Osram expects comparable revenue growth of between six and ten percent, an adjusted EBITDA margin of 9 to 11%, and free cash flow in the neutral to low positive double-digit million euro range,” it stated. “This forecast is based on the assumption that the effects of the COVID-19 pandemic will be overcome in the course of the fiscal year 2021. Any economic consequences of a worsening pandemic situation are therefore not reflected in the forecast values.”

Meanwhile, ams, which is on a calendar year and reports in US dollars, combined its sales with Osram’s and recorded a jump in third quarter sales ending Sept. 30 to $1.4B (€1.18B) from $679M (€571M) in the same quarter a year ago. It showed a net loss of $143M (€120M) compared to a profit in 2019’s third quarter of $166M (€139M).

The company makes a variety of optical related sensors including lasers. It targets consumer and other sectors. It makes imaging sensors for phones, and develops virus-detecting chips as well, among many other products.

*Editor’s note: ams reports financials in USD while Osram reports in EUR. Currency is provided at the latest valuation as of 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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