Osram reveals 3bn euros investment plan to drive expansion
Osram has earmarked 1 billion euros for the construction of a new LED chip plant in Malaysia. The investment package will seek 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 euros in the company’s 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 about 1 billion euros there by 2020. The Kulim plant will represent the largest and latest 6-inch LED chip production site worldwide. The additional production capacity and its technological leadership will enable Osram to increase its market share in the fast growing general lighting markets. The market segment is the largest in the area of opto semiconductors, with a current volume of around 5.7 billion euros. Given average annual growth rates of 7.5 percent, it offers the company the greatest potential until 2020. Through economies of scale and synergies, Osram can also reduce its cost position in other market activities such as automotive lighting as well as applications for mobile devices, in which Osram already has a strong presence.
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. For many years, the company has been the global leader in automotive lighting and intends to strengthen the activities with innovative lighting modules. Osram claims to be currently the only company in the world offering laser modules for headlamps ready for series production. Another cutting-edge technology in the field of automotive lighting is OLEDs. The 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 euros in 2025.
In the Lighting Solutions & Systems (LSS) segment, Osram will roll out many different measures in the coming years to realize intelligent, technologically demanding lighting solutions. Following the announced review of the luminaires and solutions business (LS), Osram is aiming to align the segment towards profitable growth. In this area, especially the market entry and the range of integrated solutions offered are to be improved. Given the increasing importance of complex lighting solutions, 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.
In line with the announced innovation and growth initiative, Osram will increase its research and development budget. By doing so, the company intends to promote in particular the development of smart city applications, wireless lighting control as well as laser and OLED technology. Despite consolidation and focusing measures, Osram has kept its research quota at a constantly high level of just more than 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 1 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.
Under the banner of the ‘Diamond’ innovation and growth initiative the company has set the following targets, to be achieved in FY 2020:
- Osram aims to achieve revenue of between 5 bn and 5.5 bn euros. After the carve-out of the lamps business, this would correspond to an average annual growth rate of eight percent.
- Earnings before interest, tax, depreciation, and amortization (EBITDA) of between 0.9 bn and 1 bn euros. This would correspond to an average annual growth rate of around nine percent.
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