May 10, 2023

ams Osram sees continued subdued demand trends and seasonal effects in second quarter

First quarter revenues of EUR 927 million and adj. EBIT margin of 5.4% in line with guidance range
Continued difficult market environment with lower sequential and year-on-year volumes in major product areas
Last remaining disposals closed for full completion of planned disposals and portfolio re-alignment following acquisition of OSRAM
Meaningful sequential increase of capital expenditures driven by investment into industry-first
8” LED front-end fab, in line with plans for 2023 as expected peak level year
Expected second quarter revenues of EUR 800-900 million incl. sequential deconsolidation effects (EUR 880-980 million on comparable portfolio basis) and expected adj. EBIT margin of 3-6% reflect subdued demand in important markets, seasonal effects, continued reduced production volumes, and meaningful deconsolidation effects

ams OSRAM reports first quarter financial results in line with the company’s expectation range.

Aldo Kamper, CEO of ams OSRAM, commented: “I am excited to return to the optical world and am impressed with the progress of our combined company over the last years. Our broad and deep technological competence combined with a highly motivated team is an excellent basis for further innovation and market penetration. We have now completed all communicated disposals of businesses outside of our strategic focus areas and our synergy creation remains on track.

However, our markets continue to be demanding and unfavorable demand trends are impacting our business which is reflected in our first quarter results and our outlook. I will work closely with the management team in the upcoming months to define the way forward to address the currently unsatisfactory financial performance and unlock the potential that our business inherently has.”
Aldo Kamper, CEO of ams OSRAM

Key Developments

ams OSRAM delivered first quarter revenues and adj. operating margin in line with its guidance and reflecting the continued difficult market environment. The demand situation in important product areas remained unfavorable, particularly due to macro-economic trends, creating a negative impact on profitability. At the same time, ams OSRAM benefitted from seasonal strength in the automotive aftermarket and saw stabilizing trends in automotive inventory adjustments at the end of the quarter.
- The consumer business showed a very muted performance given both year-on-year and sequential volume weakness while several industrial markets saw the expected lower sequential demand.
With the last closings in March and April, ams OSRAM has completed all communicated disposals of businesses outside of its strategic focus and concluded the planned portfolio re-alignment following the acquisition of OSRAM. Including proceeds received in the first and current quarter, ams OSRAM expects a cash inflow from disposal proceeds of high double-digit EUR million in 2023.
- For all disposal transactions since 2021, expected total proceeds amount to close to EUR 600 million. As a result of the last closing, second quarter revenues will reflect a final significant sequential deconsolidation effect of around EUR 80 million
At the end of March, ams OSRAM had achieved EUR 305 million of synergies and savings from its integration programs, against one-time integration costs of around EUR 190 million so far. The synergy creation continues to progress as planned and ams OSRAM is confident to realize the remaining expected synergies towards its target of EUR 350 million by the second quarter 2024
ams OSRAM recorded a strong sequential increase in capital expenditures in the quarter as it invests significantly into manufacturing capabilities for the long-term. These expenditures were in line with plans and particularly driven by its industry-first 8” LED front-end facility under construction in Malaysia. Construction of the facility continues to progress on schedule.
- The completion of the building, build-out of the support infrastructure and equipment deliveries over the course of the year will drive further substantial expenditures in 2023. ams OSRAM currently expects total capital expenditures for 2023 of slightly below EUR one billion, making 2023 a significant peak level year for capital expenditures compared to the last as well as next few years
As communicated, Aldo Kamper became CEO of ams OSRAM on 1 April 2023 after Alexander Everke had stepped down as CEO as of 31 March 2023

Quarterly Financial Summary

EUR millions (except per share data)	Q1 2023	Q4 2022	QoQ	Q1 2022	YoY
Revenues	927	1,177	-21%	1,246	-26%
Gross margin adj.1)	29.3%	28.5%	+80 bps	33.1%	-380 bps
Operating income adj.1)	50	86	-42%	126	-60%
Operating margin adj.1)	5.4%	7.3%	-190 bps	10.1%	-470 bps
Net result adj.1)	6	29	-81%	102	-95%
Diluted EPS adj.1)	0.02	0.11		0.39
Diluted EPS adj. (in CHF)1)2)	0.02	0.11		0.40
Operating Cash Flow	162	201	-19%	147	11%
Net debt	1,940	1,717	13%	1,853	5%

1) Excluding M&A-related, transformation and share-based compensation costs, results from investments in associates and sale of businesses
2) Earnings per share in CHF were converted using the average currency exchange rate for the respective periods

First quarter group revenues were EUR 927 million (EUR 940 million excluding quarter-on-quarter disposal-related deconsolidation effects), 21% lower compared to the previous quarter and 26% lower compared to same quarter 2022, influenced by deconsolidation effects. Adjusted[1] group gross margin for the first quarter was 29%, unchanged from the fourth quarter and down from 33% for the same quarter 2022.

The first quarter adjusted¹ group result from operations (EBIT) was EUR 50 million or 5% of revenues compared to EUR 86 million or 7% for the fourth quarter 2022 and EUR 126 million or 10% of revenues for the same period 2022 (unadjusted: EUR -90 million or -10% of revenues for the first quarter).

First quarter adjusted¹ group net result was EUR 6 million compared to EUR 29 million for the fourth quarter and EUR 102 million for the same quarter 2022 (unadjusted: EUR -134 million for the first quarter). First quarter adjusted1¹diluted earnings per share[2] were EUR 0.02 or CHF 0.02 (EUR -0.51 or CHF -0.51 unadjusted).

First quarter group operating cash flow amounted to EUR 162 million while group free cash flow was EUR ‑139 million given sequentially higher capital expenditures of EUR 302 million. Group net debt was EUR 1,940 million on 31 March 2023, translating into a group leverage of 2.5x net debt/adjusted¹ EBITDA. Cash and cash equivalents reflected the mentioned capital expenditures and stood at EUR 861 million on 31 March 2023.

Business Overview

The Semiconductors segment provided 59% of group revenues and showed an overall subdued performance in the first quarter. The semiconductor business saw sequential and year-on-year reductions in volumes across different markets which resulted in underutilization in manufacturing. Together with product mix effects, these were the main drivers of a meaningful impact on segment profitability. Mitigation and cost reduction measures were able to partly compensate for this impact.

The semiconductor automotive business declined moderately on a sequential basis in line with company expectations. Expected inventory adjustments in the downstream automotive supply chain continued during the quarter but stabilized at the end of the quarter. The segment’s consumer business saw very muted results as shipment volumes for different consumer lines showed a strongly negative sequential and year-on-year development. This reflected lower year-on-year volume demand in the global smartphone and mobile device markets, largely due to macro-economic trends and their impact on consumer spending habits.

The smartphone business across regions saw sequential seasonal and product mix effects, the China and Android markets remained subdued in the first quarter and the company’s wearables business saw meaningfully weaker quarter-on-quarter volumes. The segment’s industrial and medical business showed a mixed performance in the quarter. This reflected sequentially reduced demand in certain industrial markets including LED industrial and outdoor lighting and horticulture solutions while other industrial and medical lines offered more supportive contributions.

Significant development and industrialization efforts continue for ams OSRAM’s leading smallest structure size microLED technology as planned. These activities will remain a key area of R&D spending and investment as ams OSRAM moves along its path to realize high volume manufacturing of this next generation display technology in its new 8” LED front-end facility.

The Lamps & Systems (L&S) segment contributed 41% of group revenues in the quarter and showed a robust overall performance. Pro-forma first quarter L&S segment revenues for the remaining business after completion of all communicated disposals, i.e. deconsolidation of all disposals including the last disposal closed in April, were 35% of same basis group revenues or EUR 292 million. Segment profitability in the quarter benefitted significantly from high shipment volumes and seasonal demand strength in important product lines as well as from positive disposal-related margin effects.

The L&S automotive business including legacy traditional lighting recorded strong results which were particularly driven by the automotive aftermarket business. The aftermarket business benefitted from seasonal strength in the latter half of the winter semester, which spans the fourth and first quarter of each year, despite macro-economic trends affecting certain regions. The other businesses of the L&S segment offered supportive contributions in light of mixed demand trends in certain markets.

Outlook

For the second quarter, ams OSRAM sees a continued demanding situation in major markets as global macro-economic trends are impacting market dynamics on a broader basis.

In the company’s automotive markets, demand is expected to stabilize further while meaningful positive momentum will need to solidify. Order momentum still appears inconsistent whereas the aftermarket business will be influenced by summer seasonality. The company’s consumer business continues to be impacted by reduced levels of customer demand. This is due to ongoing weaker year-on-year volumes for smartphones and certain consumer devices given macro-economic impacts on consumer spending. Historically, the smartphone market has also shown seasonal effects in the second quarter which typically result in a seasonally stronger second half compared to the first half of each year.

The company’s industrial and medical business is seeing a trend towards stabilization of order momentum when compared to the beginning of the year. However, current quarter demand for industrial and medical lines remains mixed. Given these dynamics, ams OSRAM expects continued reduced production volumes in the second quarter which continue to result in reduced utilization levels in the company’s manufacturing and a negative impact on profitability.

ams OSRAM therefore expects second quarter group revenues of EUR 800-900 million including quarter-on-quarter disposal-related deconsolidation effects (i.e. sequentially flat at the midpoint of EUR 880-980 million revenues excluding deconsolidation effects) and an adj. operating (EBIT) margin of 3-6%. These expectations are based on currently available information and exchange rates and reflect revenue deconsolidation effects for the second quarter, including from closing the Digital Systems Europe/Asia disposal, which reduce expected second quarter revenues by around EUR 80 million on a comparable portfolio basis.

Furthermore, the expectations include disposal-related deconsolidation effects on a year-on-year basis with a second quarter revenue effect of around EUR 150 million.

Taking into account current macro-economic and market trends, ams OSRAM remains cautiously optimistic to benefit from an improving demand environment in the second half of the year, based on current information and exchange rates.

Additional selected financial information for the first quarter 2023 is available on the company website. The first quarter 2023 investor presentation is also available on the company website. ams OSRAM will hold a conference call on the first quarter results on Tuesday, 2 May 2023 at 9.30am CEST. The conference call will be available via webcast.

More information available here