Technology Shift

Osram CEO Sees the Light

Osram light picture alliance dpa
Osram views LED technology as a bright future.
  • Why it matters

    Why it matters

    • The task for Olaf Berlien and Osram is to convince investors that the company’s new strategy is effective in the long term.
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  • Facts

    Facts

    • When Mr. Berlien’s new strategy was announced last fall, critics said it was too risky.
    • Osram’s stock price fell to almost €35 back then but has since stabilized at about €46.
    • The multinational lighting manufacturer has sold its traditional light-bulb business and is focusing on more future-orientated sectors such as special applications of light-emitting diode, or LED, technology.
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    Audio

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Few chief executives of German companies were under as much pressure over the past 12 months as Olaf Berlien. When the head of the Munich-based multinational lighting manufacturer Osram presented his new strategy around this time a year ago, he saw the company’s share price drop by 30 percent. In an unparalleled act, Siemens, a large shareholder, publicly withdrew its trust at the annual shareholders’ meeting.

Now Mr. Berlien can breathe at least some sigh of relief. Business is going well. An Osram spin-off specializing in traditional incandescent bulbs was recently sold to a Chinese consortium.

“All in all, we’re doing quite well at the moment and are headed for our second record year in a row,” Mr. Berlien told Handelsblatt, claiming his strategy has been confirmed. “We are strengthened by the fact that the path we’ve taken and our timetable are in order.”

In the last quarter, Osram increased sales by 11 percent to €1.44 billion. And operating income, adjusted for special factors, improved by 13 percent to €145 million.

Even so, Mr. Berlien is making slight adjustments, sources close to the company told Handelsblatt. He is considering whether to redirect investments into areas showing particularly strong growth.

Premium components are one of them. These include chips for iris recognition in cell phones and virtual reality glasses. Profit margins in the premium sector are higher than with the chips segment in general, which most recently had operative margins of more than 22 percent.

According to sources, Mr. Berlien is also planning additional investments in its factories in Wuxi, China and Regensburg, Germany.

These plans follow the €1 billion ($1.11 billion) investment he announced last year in a new LED chip factory in Malaysia.

Not everyone is happy with these investments. Siemens, which spun off Osram in 2013 but still owns a 17.5 percent stake in the company, are among those investors who consider the new course to be too risky. They view the chips business, especially for lighting, as highly volatile, compared to LED special applications and the automotive segment.

olfaf berlien matthias balk dpa
Mr. Berlien is praying that he can keep most shareholders happy with his new strategy. Source: Matthias Balk/DPA

 

Mr. Berlien appears determined to move ahead despite his critics. He is investing €370 million in the first construction phase of the LED factory plan in Malaysia, which is underway and is scheduled to open in late 2017.  But he has indicated that part of the planned €1 billion investment there could go to the expansion in Regensburg and Wuxi.

As for the partial redirection of funds, Mr. Berlien noted that Osram “has clearly evolved: Today, we react quickly to market changes.”

Siemens intends to divest itself of its remaining 17.5 percent stake. The fall in the share price after Mr. Berlien’s change of strategy came at an inopportune time. The controversy grew heated when Mr. Berlien, in an interview with Handelsblatt, said that the Siemens representative on the supervisory board supported the new strategy.

In past months, the stock price has recovered slightly. After the new strategy was announced last year, it fell to almost €35. In the meantime, it has stabilized around €46.

In the last quarter, Osram increased sales by 11 percent to €1.44 billion. And operating income, adjusted for special factors, improved by 13 percent to €145 million. Income after taxes sank – among other things, because of the spinning off of the traditional bulb business – from €68 to €28 million. Mr. Berlien recently raised his forecast for the year across the board.

Demand is strong for premium LED components. According to the industry service Digitime, Samsung will include iris recognition in its Galaxy-Note-7 smartphone using Osram infrared LED technology, which the company pioneered.

 

 

Axel Höpner is head of the Handelsblatt office in Munich, focusing on the state of Bavaria’s companies, including Allianz and Siemens. To contact the author: hoepner@handelsblatt.com

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