Osram Cuts 7,800 Jobs as Traditional Bulb Sales Decline

Osram AG, the world’s second-biggest lighting company, will cut an additional 7,800 jobs to safeguard earnings amid a faster-than-expected decline in sales of traditional bulbs.

The lay-offs will help Osram save 260 million euros ($349 million) in annual costs through 2017, the Munich-based company said in a statement yesterday. The new cuts add to an older plan to scrap 8,700 positions by the end of this fiscal year. The company had 35,108 employees as of Sept. 30.

Osram was spun off last year from Siemens AG as Europe’s largest engineering company divests units with profitability or growth potential it deems inadequate. Amid a shift in the lighting industry toward light-emitting diodes, which are smaller, more energy-efficient and have longer lifespans than traditional bulbs, Osram cut its full-year earnings target May 28, saying revenue would remain flat or at best increase moderately.

“We have always stressed that the transformation of the lighting market will also continue after 2014 and that it will require additional capacity adjustments,” Chief Executive Officer Wolfgang Dehen said in the statement. The company needs a cost structure that is appropriate to the size of the company, he said.

Tumbling Sales

Adjusted earnings before interest, taxes and amortization increased 9.5 percent to 104 million euros in the third fiscal quarter, Osram said in a separate e-mailed statement. The average estimate of five analysts surveyed by Bloomberg was 100 million euros. Revenue tumbled 5.9 percent to 1.2 billion euros, with sales in the classic lamps division falling 14 percent.

“This will raise the question of the ongoing restructuring level needed at Osram in the future,” Morgan Stanley analysts including Lucie Carrier and Ben Uglow said in a note to clients. “This is also symptomatic of the significant challenges faced by the company.”

The stock gained as much as 2.9 percent in Frankfurt trading today and was up 1.5 percent as of 9:04 a.m., valuing the company at 3.6 billion euros. Before today, the stock has dropped 17 percent this year.

Dutch rival Royal Philips NV in June said it will merge some lighting units into a 1.4 billion-euro standalone company to share research and development costs with outside investors, echoing the move by Siemens to spin off Osram.

Replacement Rates

As replacement rates decline because of the longer lifespan of LEDs, Osram and Amsterdam-based Philips are seeking to stabilize revenue with multi-year contracts to install complex lighting systems for whole cities from Washington D.C. to Amsterdam and equip buildings such as Paris’ Notre Dame cathedral with luminaires.

Osram’s earlier job cuts program had sought 1.2 billion euros in savings by the end of this fiscal year, which runs through Sept. 30. The savings had totaled 760 million by the end of June, with 118 million euros of cost cuts realized in the three preceding months.

Of the job cuts announced yesterday, 1,700 will go in Germany and 6,100 elsewhere, affecting traditional lighting manufacturing jobs as well as sales and administrative functions. The program will cost about 450 million euros, Osram said.

Since this second round of cuts “is likely to involve more white-collar workers, we could imagine that the savings might be even higher,” Frankfurt-based Deutsche Bank analyst Uwe Schupp said in a note to clients. “The flip side is that we think that cash costs are higher this time, but this simply means that buy-backs have become less likely now.”

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