ams OSRAM Reports Solid Q1 Results

PREMSTAETTEN, Austria, and MUNICH, Germany — ams OSRAM delivers solid Q1 revenues of EUR 847m, adj. EBIT margin of 5.2%, restructures microLED development, works on exiting 8-inch factory SLB, on track for positive FCF (after interest) in 2025.

“The industry dynamics in our LED markets have changed with cancellation of the microLED cornerstone project. We adjust our strategy accordingly and continue to strengthen investments in the soon biggest LED market segment – automotive – which is to grow structurally for years to come. We intend to step out of the 8-inch factory and focus our microLED development on automotive needs for accelerating our path towards delivering truly positive free cash flow in 2025. We showed year-on-year growth in Q1 on a like-for-like basis in a difficult environment driven by structural growth in automotive and some cyclical recovery. The promising mid-term growth prospects of all our core businesses that we are focusing on in automotive, industrial, medical, as well as selected consumer applications, are intact.” said Aldo Kamper, CEO of ams OSRAM.

Q1/24 financial update

ams OSRAM announces revenues of EUR 847 million for the first quarter 2024, at the midpoint of the guided range of EUR 800 – 900 million, a EUR 61 million – seasonal – decrease compared to the previous quarter. On a like for like basis (without portfolio or currency effects), revenues improved by around 5% year-on-year compared to the clean base of EUR 817 million in Q1/23. The main drivers for this year-on-year increase are the automotive and consumer semiconductor businesses, whilst industrial business remains weaker than a year ago.

The adjusted EBIT (adjusted earnings before interest and taxes, i.e. operating margin adjusted for special, non-operational effects) margin came in slightly below the midpoint of the guided range of 4% – 7%, namely at 5.2%. This is a consequence of the stop of the cornerstone microLED project, as less related research & development expenditures could be capitalized. The adjusted EBIT amounted to EUR 44 million. Without the capitalization effect, adjusted EBIT would have come in EUR 11 million higher – above the mid-point of the guided range.

The adjusted EBITDA came in at EUR 124 million, i.e. at a 14.6% adj. EBITDA margin. Adjusted depreciation & amortization of EUR 77 million does not include microLED related charges and amortization of intangible assets arisen from purchase price allocations (PPA), but are related to previous, ordinary investments into PPE and capitalized R&D. Adjusted EBITDA is considered a key metric, representative of the cash flow performance of the underlying businesses.

Restructuring of microLED development and exit of Kulim 8-inch-wafer factory

On February 28th, 2024, ams OSRAM announced that a lead customer had stopped the cornerstone microLED development project. The company initiated restructuring its microLED-related development activities in both Malaysia and Germany to a remaining minimum core development for mainly proprietary use in future automotive products, such as advanced, high-pixelated forward lighting solutions. In total, more than 500 employees at the respective sites combined are affected. Some freed-up resources are reallocated to further strengthen the company’s market leadership position in the automotive LED market, which is poised to soon become the single largest segment in the LED market according to latest market research. This new view of the market also suggests that the superior features of advanced, high-performance microLED based displays will primarily play a role in several smaller applications that also will scale slower and later than previously expected.

In case a new lead customer commits in a timely manner to fund dedicated developments for specific applications, the company may continue a more substantial microLED development in an essentially cash flow and EBIT neutral manner.

The stop of the cornerstone project will incur one-time cost of around EUR 700 million, at the lower end of the previously indicated range of EUR 600 to 900 million. The company booked EUR 513 million of non-cash impairment for equipment and capitalized project-specific research & development expenses and EUR 119 million of transformation costs for adjusting its microLED strategy, such as cancellation fees and deinstallation cost in Q1/24. For the remainder of the year, potentially up to EUR 70 million of further transformation costs may come due when adjusting the development set-up for microLED, which includes restructuring measures.

With the cancellation of a significant share of equipment orders and related charges, outstanding CAPEX for the project will be reduced by around EUR 120 million in 2024/25. This leads to reduction of CAPEX for PPE (property, plant, and equipment) to around EUR 450 million (including capitalized R&D and some carried over PPE accounts payable from 2023) and underpins the target for 2025 to reach the target CAPEX to sales ratio of around 10%.

The company is also pursuing to exit the Sale-and-Lease-Back (SLB) contract for its state-of-the-art Kulim-8-inch factory to a new lessee with high priority. The intended exit is being pursued in close alignment with the SLB investors. With this step the company intends to reduce its long-term debt by around EUR 400 million (booked under ‘other liabilities’), significantly reduce its net-debt position and eliminate the lease payments.

For 2025, the company expects upon implementation of these decisions significant improvements of cash flow of more than EUR 100 million and adjusted EBIT of around EUR 100 million, respectively, which is to be seen in comparison to a continuation of the cornerstone project according to the previous plan.

Re-establish-the-Base – non-core semiconductor portfolio

The company announces the following steps when it comes to the exit of the non-core semiconductor portfolio (with 2023 run-rate of around EUR 300 to 400 million) that was announced in Q2/23.

CMOS Imaging Sensors
ams OSRAM decided to optimize and focus its CMOS Imaging Sensor business on medical and industrial applications for growth and profitability. Development activities that had been targeting future consumer applications will be restructured. One affected site will be restructured and one development site closed. One-time transformation costs are estimated around EUR 4 million. Therefore, revenues in the order of EUR 50 million to EUR 100 million per annum will remain part of the group and its long-term planning.

The company is also making good progress in divesting the Passive Optical Components assets.

Furthermore, the optimization of other structural costs is progressing as planned according to the ‘Re-establish-the-Base’ program.

Semiconductor business update

With strengthening the end-to-end responsibility of ams OSRAM’s Business Units beginning Q4/23, the business is being steered along relevant KPIs for those Business Units. Consequently, and in line with our efforts to increase transparency, the company will report revenues and adjusted profitability KPI for EBITDA along these lines. With that, the semiconductor business is now being reported in the segments OS (‘Optical Semiconductors’) and CSA (‘CMOS Sensors and ASICs’).

Optical Semiconductors segment (OS) 

Revenues for optical semiconductors stood at EUR 345 million in Q1/24. Adjusted EBITDA stood at EUR 67 million, representing an adjusted EBITDA Margin of 19.3%.

The profitability is still impacted by underutilization charges, high research & development expenses before adjusting the microLED development structures, and significantly less capitalization of research and development charges due to the cancellation of the cornerstone microLED project.

CMOS Sensors and ASICs segment (CSA)

Revenues for CMOS sensors and ASICs came in at EUR 233 million in Q1/24. Adjusted EBITDA stood at EUR 5 million, representing an adjusted EBITDA Margin of 2.2%.

The currently unsatisfactory profitability of CSA continues to be impacted by loss-making non-core businesses. In the context of the ‘Re-establish-the-Base’ program, the CMOS Imaging Sensor business will be restructured and optimized for structural growth in medical and industrial applications as described above. On top, the company is making good progress in divesting the Passive Optical Components assets.

Furthermore, the industrial and medical business that we continue to focus on is still experiencing an inventory correction in the supply chain and because of this significantly below normal run-rates with associated underutilization.

Semiconductors industry dynamics

Revenues from the two semiconductor business units represent 68% of Q1/24 revenues, or correspondingly EUR 578 million. End-markets continued to show a diverse pattern.

Automotive: 
Automotive business performed well in spite of the anticipated normalization of sales in China. A strong 13% year-on-year increase could be recorded. Both Automotive sensor and emitter businesses performed well along demand from new and existing platforms. The design-win momentum continues as well, supporting our mid-term growth ambitions.

Industrial & Medical (I&M): 
Business showed a mostly prolonged weakness in industrial and medical end-markets with some exceptions. Whilst inventory correction in industrial capital goods and medical markets is in full swing, some early stabilization in certain regional mass markets could be noted. Infrastructure-related industrial markets showed relatively stable development.

Consumer:
Revenues from shipments to personal Consumer device applications have shown for the first time since many quarters a year-on-year increase of 15% on the back of strong business with Android based smart-phones. Other parts of the Consumer business stabilized as well.

Lamps & Systems segment (L&S) 

The Lamps & Systems segment represented 32% of Q1/24 revenues, or correspondingly EUR 268 million.

Adjusted EBITDA in Q1 came in at EUR 60 million or 22.5% adjusted EBITDA margin on the back of a favorable product mix and a positive EUR 13 million one-off effect (inventory revaluation) that together drove the strong underlying profitability in Q1. In terms of industry dynamics, both automotive and industrial & entertainment markets, business performed as expected.

Automotive:
Aftermarket sales came in again as strong as seasonally expected. The company typically sees its strongest demand in Q4 and Q1 when high halogen bulb replacement rates can be expected in Europe and North America. Q4 to Q1 dynamics was in line with normal seasonal patterns.

Specialty Lamps:
Industrial and professional entertainment markets continued to show weak demand.

Comments on additional key financial figures

The adjusted net result came in at EUR -35 million in Q1/24 after EUR -16 million in Q4/23, primarily driven by lower gross profit in line with revenue decline and higher operating expenses.

Consequently, first quarter adjusted diluted earnings per share came in at EUR -0.04, lower than the EUR -0.03 in the previous quarter, as in Q4/23 the average share count stood at 456,490,225 after completion of the rights issue on December 7th, 2023. However, in Q1/24, the net number of shares (excluding company held treasury shares), i.e. 987,522,245, were considered.

The IFRS net result stood at EUR -710 million in Q1, dominated by the impairment taken on microLED related equipment and capitalized R&D in view of the revised microLED strategy.

For this, the diluted IFRS earnings per share came in at EUR -0.72, after EUR -0.18 in the fourth quarter.

With this quarter, the operating cash flow includes net interest paid. Operating cash flow stood at EUR 55 million in the first quarter, which was impacted by raw materials inventory build-up for ramping new products in H2 and a higher level of trade receivables in the lamps business.

Cash flow from investments into PPE, or CAPEX, improved significantly to EUR -120 million from EUR
-222 million in the previous quarter and was substantially lower than a year ago.

Free cash flow – defined as operating cash flow including net interest paid minus cash flow from CAPEX plus proceeds from divestments – came in at EUR -60 million in Q1. Both year-on-year and quarter-on-quarter a significant improvement can be noted driven by much less investments in PPE.

Tagged with ams OSRAM, financial, lightED