Osram Sees Semiconductor Production Costs Drop on Lighting

  • Semiconductor revenue share from segment to double by 2020
  • Osram sees midterm semiconductor op margin of 15% on average

Osram Licht AG said boosting the share of semiconductor sales from the global general lighting market will help reduce the overall cost of producing chips for light-emitting diodes at a planned new factory in Malaysia.

The world’s second-biggest lighting company last month unveiled a plan to spend 3 billion euros ($3.3 billion) on research, development and a new LED-chip plant in the southeast Asian nation. Investors criticized the strategy for shifting Osram’s focus away from lucrative specialized lighting niches, and the shares have fallen 28 percent since the announcement. Shares were up 0.5 percent to 37.605 euros at 11:30 a.m. in Frankfurt.

“General lighting has lower profitability, but we think that we can make this up with synergy effects,” Aldo Kamper, head of Osram’s Opto Semiconductor division, said on Monday at a factory in Regensburg, Germany.

Osram’s Opto plans to more than double the proportion of semiconductor sales used in outdoor products and other general lighting applications to about a third of revenue by 2020, he said. Increasing production of LED chips will help reduce manufacturing costs and keep the semiconductor operating margin at about 15 percent on average in the medium term.

Lights on the Pulse

Opto Semiconductor’s earnings before interest, taxes and amortization in the year through September amounted to 18 percent of sales.

The plan comes as Munich-based Osram prepares to divest its traditional lighting business in the next year to focus on services and products for cities and vehicles. Opto Semiconductors, which Osram will retain with units focusing on lighting solutions and specialty components, supplies LED chips to other Osram divisions as well as to carmakers and technology companies such as Fitbit Inc. The fitness-tracker maker’s devices use Osram LEDs to measure wearers’ heartbeats.

The global general-lighting market for LED semiconductors will grow 7.5 percent annually to 8.2 billion euros by 2020 from 5.7 billion euros today, according to estimates by research company IHS.

While profit margins in that end market are lower than for the more specialized automotive or electronics industries, the higher sales volumes will enable Osram to reduce the manufacturing cost for LED chips, Kamper said. This will generate higher profitability from sales to customers in the more specialized markets.

(Adds shares in second paragraph.)
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