The shift in the lighting market toward semiconductor-based technologies is creating new growth opportunities. To this end, Osram will invest around €3 billion ($3.2 billion) in new technologies and applications by 2020. Of this amount, approximately €2 billion ($2.15 billion) will be spent on research and development in order to further strengthen Osram’s technological leadership and to expand into new markets. Additionally, Osram has planned another €1 billion ($1.1 billion) for the construction of a new LED chip plant in Malaysia. This is to unlock additional growth potential, in both the dynamic, technology-driven general lighting markets and niche markets, where Osram is already in a good position today. “With a focus on profitability, flexibility, and entrepreneurship, following a phase of strategic realignment, we are now launching the ‘Diamond’ innovation and growth initiative. This means we are switching the focus to sustainable growth, benefitting even stronger from the potential offered by semiconductor-based technologies,” said Olaf Berlien, Chief Executive Officer of OSRAM Licht AG.
“Diamond” comprises several strategic measures. In a first step, Osram will invest around €370 million ($399 million) in its Opto Semiconductors (OS) segment for a new LED chip plant in Kulim, Malaysia. Since further expansion measures are already being planned, the company expects to invest a total of around €1 billion ($1.1 billion) there by 2020. The additional production capacity and its technological leadership will enable Osram to significantly increase its market share in the fast growing general lighting markets. This market segment is the largest in the area of opto semiconductors, with a current volume of around €5.7 billion ($6.14 billion). Given average annual growth rates of 7.5 percent, it offers the company the greatest potential until 2020.
Osram is also planning additional investments in the Specialty Lighting (SP) segment to facilitate the broad-based rollout of new technologies in the market and to realize further growth potential. It intends specifically to strengthen the activities with innovative lighting modules. Another cutting-edge technology in the field of automotive lighting is organic light-emitting diodes (OLEDs). This technology is also about to be rolled out for broad-based use in rear lights of vehicles. Osram expects the market for laser and OLED applications in the automotive sector to amount to around €1.1 billion ($1.2 billion) in 2025.
In the recently created Lighting Solutions & Systems (LSS) segment, Osram will roll out many different measures in the coming years. Following the announced review of the luminaires and solutions business (LS), Osram aligns this segment towards profitable growth. In this area, especially, the market entry and the range of integrated solutions offered are to be improved. Osram is also shifting the focus on expanding the electronics and software expertise. Over the next two years, new capacities for electronic ballasts and light management systems will be created for this purpose.
Significant increase in research quota to strengthen technology leadership
In line with the announced innovation and growth initiative, Osram will increase its research and development budget significantly. Despite consolidation and focusing measures, Osram has kept its research quota at a constantly high level of just over six percent of revenue over the past years. After the initiated carve-out of the general lighting lamps business, the increased research expenditure will account for approximately 9 percent of revenue by FY 2016.
“Investments in research and development have paid off for the company in the past by taking it to a clear number one position in the automotive sector and leading to groundbreaking applications with opto semiconductors. Through the intended increase in research intensity, Osram wants to further strengthen its technical expertise for semiconductor-based technology and extend its market position,” said Chief Executive Officer Olaf Berlien.
“Diamond” promotes growth and sustained enterprise value
The “Diamond” innovation and growth initiative will increasingly focus the company on balanced growth and add value for employees, customers, and shareholders. In addition to high-revenue areas that hold large growth potential for the company, lucrative niche areas, where Osram is already in a good position, will continue to make a valuable contribution to overall returns. Against this backdrop, the company has set the following targets, to be achieved in FY 2020:
- Osram aims to achieve revenue of between €5 billion ($5.4 billion) and €5.5 billion ($5.93 billion). After the carve-out of the lamps business, this would correspond to an average annual growth rate of 8 percent.
- Earnings before interest, tax, depreciation, and amortization (EBITDA) of between €0.9 billion ($0.97 billion) and €1 billion ($1.1 billion). This would correspond to an average annual growth rate of around 9 percent.
- In addition, the company aims to generate earnings per share of around €5 ($5.39), which would be equivalent to an average annual increase rate of around 25 percent compared with fiscal 2015. The announced share buyback program is included in this target.
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