ams OSRAM (SIX:AMS, OTCPK:AMSSY) released results for Q1 FY2023 with revenue and operating margin within the guidance range, but reflecting continuing difficult market conditions. Q1 revenue was $1.2B (EUR 927M), down -26% YoY versus Q1 FY2022. Q1 FY2023’s adjusted EBIT margin was 5.4%, down from Q1 Y2022’s adjusted EBIT margin of 7.3% (-470 bps).
While these Q1 FY2023 results were within guidance range, there are not a lot of positives in the outlook for ams OSRAM. Leading his first ams OSRAM earnings call, new CEO Aldo Kamper noted it was “partly a coming home or coming back” (Kamper previously spent 20 years at OSRAM in management roles, most recently as CEO of OSRAM’s semiconductor business.) He noted his support for the ams OSRAM strategy: “there’s a strong industrial logic for this combination, creating a European-based heavyweight in the semiconductor-based optical solution space.”
Capital expenditures were significant in Q1 FY2023 at $332M (EUR 302M), 33% of quarterly revenue, as the company builds an “industry-first” 8-inch LED front-end facility in Malaysia. FY2023 is expected to be a CapEx peak compared to the prior and future years. Total CapEx for FY2023 is currently expected to reach $1.1B (EUR 1.0B). Based on this planned-for high CapEx in Q1 FY2023, free cash flow for the quarter was negative at -$153M (EUR -139M). Group debt leverage increased to a factor of 2.5x EBITDA “as expected.”
The company also completed in Q1 FY2023 the last two planned disposals identified through the portfolio realignment following ams’ acquisition of OSRAM Licht in 2020. Three other disposals were closed during FY2022 with all five of the disposals labelled as “businesses outside of strategic focus areas” with the total combined proceeds for all disposal transactions since 2021 estimated at $660M (EUR 600M). The flip side of the proceeds from disposal is the deconsolidation effect – the lost opportunity for chunks of previous revenue (for Q1 FY2023, the impact is around $80M (EUR 73M) and for Q2 FY2023 is estimated at $88M (EUR 80M).
| Performance by Business Segment | Q1 FY2023 Revenue | % Change vs Q1 FY2023 Revenue | Q1 FY2023 EBIT % | Q1 Prior Year EBIT % |
| Semiconductors
|
$602M
(EUR 547) |
-31% | -3% | 13% |
| Lamps & Systems
|
$418M
(EUR 380M) |
-17% | 17% | 6% |
| ams OSRAM Group Total | $1.2B
(EUR 927M) |
-26% | 5% | 10% |
For full year 2022, ams OSRAM’s two business segments split the total group revenue 70% for Semiconductors and 30% for Lamps & Systems. In Q1 FY2023, the Semiconductors segment brought in 59% of revenue, while Lamps & Systems segment in Q1 brought in 41% of revenue, and substantially improved profitability. In his earnings call comments, CEO Kamper noted that within the Semiconductor segment there was a “noticeable underutilization in manufacturing in the quarter, which in turn had significant impact on the operating profitability of the segment.” Stating that there had been an implementation of mitigation and cost reduction measures in Q1, CEO Kamper added “while I’m still building my full understanding of our business and its levers, I’m not satisfied with our current financial performance.”
Questioned during the analyst Q&A on the earnings call, CEO Kamper provided additional color on the significant profitability improvement in the Lamps & Systems(L&S) business comes mainly from better performance of the ongoing L&S business along with the “positive mix effect by the sales of disposals of the less performance business” (some of the disposals were legacy lower-margin businesses.) He also pointed to factors within the L&S automotive aftermarket business – strong volumes, good price and quality, “as well as overall good execution of the team.”
ams OSRAM also reports group revenue by end market split: for Q1 FY2023, the end market split was Automotive at 50% of overall revenue, Industrial and Medical at 34% and Consumer at 16%.
With a relatively short time in the CEO seat, Kamper has his work cut out for him as he “will work very closely with the management team in the next months to fine tune our plan and to see where we can make further optimization adjustments to really have a very targeted, pointed way forward that helps us deal with the current demand situation…while still supporting the long-term trends that I strongly continue to believe in, given our technological capabilities.” He added later: “the good part is we have almost too many choices, not too little choices. It’s a very pleasant problem to have in that sense, but still, it requires stringency and consequence.”
Looking ahead to Q2 FY2023, ams OSRAM expects ongoing subdued demand trends, seasonal effects, reduced production volumes and continued impact from deconsolidation – leading to guidance for revenue in the range of $880M to $990M (EUR 800M to EUR 900M), with expected operating profitability in the range of 3% to 5% adjusted EBIT margin. The company is cautiously optimistic for the second half of FY2023 based on benefitting from trends that point to an improving demand environment.
Go Deeper
ams OSRAM Press Release – Q1 FY2023 Results: https://ams.com/documents/4390887/9965237/Ad-hoc_2023_eng+Financial+results+Q1+2023+f.pdf/f9f6e636-21d9-0c0f-4e87-c2f5fc960cde?t=1683001022137
ams OSRAM Q1 FY2023 Investor Presentation: https://ams.com/documents/4390887/9966093/Conference+call+presentation+ams+OSRAM+Q1+2023+f.pdf/05b1ca18-5e5e-e5bb-7b95-28db32fa9c9c?t=1683001094320
ams OSRAM FY2022 Annual Report (dated April 27,2023): https://ams.com/documents/4390887/7195804/ams+OSRAM+ENG+Annual+Report+2022.pdf/41e30a76-ed35-2d2c-7933-6f1512453b17?t=1682601137245