ams OSRAM Braces for Automotive Downturn, Eyes Long-Term Growth

ams OSRAM, a leading provider of semiconductor-based optical solutions, is feeling the heat from the muted demand in the automotive sector. The company's Q1 FY2023 results reflected the challenging market conditions, with revenue down -26% YoY to $1.2B (EUR 927M) and adjusted EBIT margin dropping to 5.4% (-470 bps). The Automotive end market, which accounts for 50% of overall revenue, was particularly affected.



The company's Semiconductors segment, which includes products for the automotive sector, saw a revenue decline of -31% YoY to $602M (EUR 547M) and a decrease in operating profitability to -3% EBIT margin. CEO Aldo Kamper acknowledged the noticeable underutilization in manufacturing and implemented mitigation and cost reduction measures in Q1. However, he expressed dissatisfaction with the current financial performance and emphasized the need for further optimization adjustments.

ams OSRAM expects ongoing subdued demand trends in the automotive sector for the rest of the year, leading to guidance for Q2 FY2023 revenue in the range of $880M to $990M (EUR 800M to EUR 900M) and an expected operating profitability in the range of 3% to 5% adjusted EBIT margin. The company remains cautiously optimistic for the second half of FY2023, based on benefitting from trends that point to an improvement in the automotive sector.



To mitigate the impact of the weak automotive market, ams OSRAM has implemented several strategic measures. The company's strategic efficiency program, "Re-establish the Base," aims to focus the company on its profitable, structurally growing core. The program targets EUR 75 million run-rate savings by the end of FY2024 and EUR 150 million run-rate savings by the end of FY2025 compared to 2023 actuals. As of Q3/24, the company has realized already EUR 85 million savings, reaching the EUR 75 million run-rate savings mark earlier than anticipated.

Additionally, ams OSRAM has been sharpening its focus on structural growth in its semiconductor core markets. Based on this year's semiconductor core revenues (excluding approx. EUR 200 million of non-core business which is being exited), the company intends to grow its semiconductor business with a CAGR between 6% and 10% until 2026.

Furthermore, the company has been expanding its leading positions in the relevant automotive, industrial, and medical (AIM) semiconductor markets. This strategic focus on AIM markets helps ams OSRAM to mitigate the impact of the weak automotive market by diversifying its revenue streams and targeting more resilient market segments.

In conclusion, ams OSRAM is facing headwinds from the muted demand in the automotive sector, but the company is taking proactive measures to mitigate the impact and position itself for long-term growth. By focusing on its core semiconductor business, optimizing costs, and expanding into structurally attractive markets, ams OSRAM is well-equipped to navigate the current challenges and capitalize on future opportunities.