Osram Counts on Growing Service Sales Amid Lighting Upheaval

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Osram Licht AG, the world’s second-biggest lighting company, will rely more on its service and maintenance business to provide a steady stream of revenue as the market for lighting moves away from traditional light bulbs.

Services such as maintaining a city’s street-lighting network or managing complex sports stadium lighting systems already generate a “high double-digit million” dollar figure in sales, Osram Chief Financial Officer Klaus Patzak said in an interview at Bloomberg’s Frankfurt bureau.

“It’s mostly in the U.S., but this is a multi-billion dollar industry,” the executive said. “From this you can grow over many years at a double-digit percentage rate.” Osram’s total sales fell 2.8 percent to 5.1 billion euros ($5.5 billion) in the 12 months through September.

Munich-based Osram in January hired former ThyssenKrupp AG manager Olaf Berlien as chief executive officer to succeed Wolfgang Dehen, who had underestimated the demise of traditional light bulbs and who announced more than 15,000 job cuts as the company was spun off from Siemens AG.

Light-emitting diodes, which are less labor intensive to manufacture and have a longer lifespan, are hurting the old light bulb business, but they’re also key to new lighting systems in products such as luxury cars and artifical sunlight used in health-care therapies.

The shares jumped 6.1 percent, or 2.51 euros, to 43.63 euros as of 11:36 a.m. in Frankfurt. That extends the gain this year to 33 percent, valuing Osram at 4.6 billion euros.

Besides services and maintenance, Osram is counting on the automotive industry for growth. Demand for car lighting helped Osram stave off the decline in traditional sales and boost profits last year, according to Patzak. About 60 percent of the

1.1 billion euros in sales at the Opto Semiconductors unit, which makes LEDs and components, came from the automotive and industry sector, he said.

Automotive Boost

Demand from the car industry, which accounts for about 30 percent of total revenue, is also helping to stabilize sales of more traditional lamps as many entry-level vehicles still use halogen lamps, he said.

Osram is competing against bigger rival Royal Philips NV for long-term maintenance and service contracts. Washington’s transit authority in 2013 awarded Philips, which has been selling light bulbs since 1891, a contract to upgrade 13,000 lighting fixtures in parking plots, along with a 10-year maintenance deal.

Philips and Osram are also battling to demonstrate their ability to provide entire lighting solutions by illuminating iconic historic sites.

Sistine Chapel

Osram announced in 2013 it would design and equip the Vatican’s Sistine Chapel in Rome with new lighting systems sporting 7,000 LEDs. Philips’ response came five months later, with an order to equip Paris’ Notre Dame Cathedral with 400 luminaires.

Osram announced its first dividend in November, offering shareholders 90 euro cents per share after posting full-year operating earnings which more than trebled to 310 million euros. The shares have gained about 24 percent this year, valuing the company at 4.3 billion euros.

CEO Berlien started a strategy review after his appointment, the results of which will be presented by June 21. Analysts at Bankhaus Lampe said Feb. 3 that a spin-off of the Opto Semiconductors and Specialty Lighting units could offer more value to shareholders.

While Patzak declined to comment on the possible findings of the strategy review, he said Osram will need to analyze which offerings are worth sustaining and which are not.

“We are looking at the individual markets in which Osram is active,” Patzak said. “From the strategy review, we will extrapolate a capital allocation, and from the capital allocation will come a decision on whether or not to use our available debt and cash.”