BULB BUSINESS

Bright Lights, Big Deal

ARCHIV - ILLUSTRATION - Der Schriftzug von Osram spiegelt sich in einer Glühlampe der Firma, aufgenommen am Dienstag (29.03.2011) in Straubing (Niederbayern). Das erste Mal nach dem endgültigen Abschied von Siemens präsentiert Osram am Dienstag mit den Zahlen für das Geschäftsjahr 2012/13 eine eigene Bilanz. Foto. Armin Weigel/dpa (zu dpa-Vorausmeldung: «Osram präsentiert erste eigene Bilanz» vom 11.11.2013) +++(c) dpa - Bildfunk+++
Traditional lightbulb maker Osram wants to move into the future with LED lighting.
  • Why it matters

    Why it matters

    Energy-efficient LED bulbs are the future in lighting. The market is shrinking for companies that make conventional incandescent bulbs, halogen lights and fluorescent tubes.

  • Facts

    Facts

    • Osram aims to focus on special and automotive lighting, from complex lighting solutions to optic semiconductors.
    • Experts say selling its bulb business could improve Osram’s pre-tax margin from between 10 to 13 percent.
    • Osram’s bulb division employs 8,500 people worldwide, many of them at German factories in Berlin and the Bavarian cities of Augsburg and Eichstätt.
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    Audio

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The transformation in the lighting industry is evident at the Augsburg factory of Munich-based manufacturer Osram.

A few years ago, workers there made 150 million fluorescent tubes annually. Now, two of four production lines in the long gray factory halls sit idle, with just 70 million tubes finished each year.

For lighting manufacturers like 97-year-old Osram, the market for conventional incandescent bulbs, halogen lights and fluorescent tubes is steadily shrinking. The future belongs to long-lasting and energy-efficient LED bulbs.

That’s why Osram’s chief executive, Olaf Berlien, wants to get out of bulb manufacturing completely and concentrate on industrial lighting. Now he seems to have found a buyer.

The German company is close to accepting a bid for its bulb business from Chinese lighting giant MLS, according to industry sources. They say Mr. Berlien could announce the deal when presenting quarterly figures on Wednesday.

Osram is still negotiating with a financial investor, but MLS seems to be the clear favorite. Officially, both firms declined to comment. But in recent weeks, MLS announced “an imminent decision.”

“Selling the bulb business is without a doubt the right step in preparing the company to face the future.”

David Vos,, Barclays Analyst

 

With the sale, Mr. Berlien would come closer to his goal of turning Osram into a technology company. It would focus primarily on special and automotive lighting, from complex lighting solutions to optic semiconductors.

The 2020 target is for Osram to have sales of €5 billion ($5.5 billion) and pre-tax profits of €900 million.

“Selling the bulb business is without a doubt the right step in preparing the company to face the future,” said David Vos, an analyst at Barclays in London.

Experts at Deutsche Bank say the sale would immediately improve Osram’s EBITA margin (earnings before interest, tax and amortization) from 10 to 13 percent.

Mr. Berlien no longer has to fear internal opposition, either. Chief financial officer, Klaus Patzak, who more or less openly torpedoed the strategy, has left the firm. His successor Ingo Bank, who worked for Dutch-based Philips Lighting for almost 20 years, will scarcely be inclined to oppose his boss.

Last November, when Mr. Berlien announced Osram would build a chip factory in Malaysia for €1 billion, the company’s share price fell by around 20 percent. Since then it has recovered a large part of those losses.

While things are going well for Mr. Berlien, his employees in the bulb business are getting nervous.

The bulb division employs 8,500, many of them at German factories in Augsburg, Berlin and Eichstätt in Bavaria. The workers are used to suffering: During several rounds of cuts in recent years, Osram has laid off 10,000 worldwide.

Wage commitments and labor contracts are binding until 2018. But it’s uncertain what the intermediate future will bring under a new owner. The Osram purchase agreement doesn’t include a guarantee of employment, sources say, as was the case with German robotics maker Kuka, in its recent purchase by Chinese appliance giant Midea.

In the executive suites of Osram, however, there is no doubt that the Chinese company will prove to be a good owner. Sources say that from the very beginning, Osram sought a buyer with experience in the lighting industry that could “develop the bulb business in a responsible manner.”

MLS has experience in any case. The company was founded in 1997 in Zhongshan and is the LED market leader in China, with more than $1 billion in sales and 10,000 employees. It is the parent company of Forest Lighting, the U.S. LED maker based near Atlanta.

Despite declining growth, excess capacity and tough competition, MLS was able to increase its sales by 9 percent in January.

It is also on a course of expansion. In July, the publicly listed company announced the acquisition of a Chinese LED manufacturer for the equivalent of €200 million, or about $220 million. Shortly before, it bought a company from Hong Kong.

Acceptance of its bid in Munich should make it easier for MLS in European and U.S. markets. It can be expected to continue using the Osram name. The takeover would make it the world’s third-largest producer of LED bulbs.

Willi Sattler, head of the workers’ council in Augsburg, is already voicing clear demands to the probable purchaser. It should “above all invest in the production of LED bulbs,” said the workers’ representative.

The LED share of Osram’s bulb business is currently 30 percent, after growing by 30 percent in 2015.

Mr. Sattler can already glimpse a bit of the future: Osram is currently testing LED bulb manufacturing on the idle fluorescent-tube production lines of its Augsburg factory.

 

This article originally appeared in weekly business magazine WirtschaftsWoche. To contact the authors: matthias.kamp@wiwo.de

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