Ams Osram delivers cost savings ahead of plan

Ams Osram has reported delivering cost savings ahead of plan with positive free cash flow (FCF) of €12m in FY24, Q4 revenues and profitability above mid-point of guided range, and expectations for FCF exceeding €100m in 2025.

“Our turnaround is in full swing. Focusing on the core portfolio in our semiconductor business proves right. This semi core grew approx. 7 percent compared to 2023, driven by a strong rebound in sensors for mobile devices based on new product ramps and a resilient auto business. Savings from our ‘Re-establish the Base’ (RtB) strategic efficiency program are ahead of plan, measures supporting the upsized target are already detailed out. We delivered positive FCF in 2024 and expect margin expansion and a positive FCF exceeding €100 million in 2025 even though markets remain volatile.” said Aldo Kamper, CEO of Ams Osram.

Q4/24 figures are: revenues of €882m, 17.0 percent adjusted EBITDA margin (each above mid-point of guided range); run-rate savings of €110m from ‘Re-establish the Base’ (RtB) program.

The full year figures for 2024 are: revenues €3.43bn and 16.8 percent adj. EBITDA margin; free cash flow (incl. net interest paid) €12m positive after €-332m in FY23; semi-core portfolio with ~7 percent growth year-on-year; strong cash position of €1.1bn; and roughly €5bn life-time-value new semiconductor business won.

On 27 July 2023, the company announced its strategic efficiency program ‘Re-establish the Base’, which aimed at focusing the company on its profitable, structurally growing core, initially targeting around €150 million run-rate savings by end of FY25 compared to FY23. On 7 November 2024, the company extended the program to 2026, upsizing the savings target to around €225 million run-rate savings by end of 2026.

In 2023, the Group reported free cash flow (incl. interest paid) of -€332 million driven by high CAPEX levels associated with microLED developments. In 2024, this improved coming in at a positive €12 million despite transformation cost for the adjustment of the microLED strategy after the cancellation of the cornerstone project in February 2024, believed to be with Apple around the microLED version of the Apple Watch.

At the time, Ams Osram said it would need to revisit the future use of assets related to its microLED strategy, particularly its new 8-inch LED facility in Kulim in Malaysia, which was part of €1 billion investment started in 2022. It consequently closed the Kulim factory and reduced its overall micro LED program.

In Q4/24, the company says it recorded a net gain of approx. €29 million related to the change in its microLED strategy.

In summary, total cost for adjusting the microLED strategy came in at €576 million in FY24, significantly lower than initially expected. Within that number, there were impairment charges of €490 million and transformation costs of €86 million.

Opto Semiconductors segment (OS)

Revenues for opto-electronic semiconductors decreased by €31 million to €350 million in Q4/24 compared to €381 million in Q3/24.

The company says it continues to receive non-refundable engineering payments (so called ‘NRE’) for the development of LED technologies from certain customers on a currently recurring basis.

CMOS sensors and ASICs segment (CSA)

Revenues for CMOS sensors and ASICs slightly decreased by €8 million to €258 million in Q4/24 compared to €266 million in Q3/24 due to the typical seasonal softening in demand for components for consumer handheld devices.

Semiconductors industry dynamics

Revenues from the two semiconductor business units represented approx. 70 percent of Q4/24 revenues, or €608 million, compared to €629 million a year ago. End-markets continued to show different cyclicality in the fourth quarter.

Automotive: The automotive business came in slightly better than expected against the backdrop of an inventory correction in the semi supply chain. Momentarily customers order on very short notice, reflecting a higher level of uncertainty at the carmakers. The company benefited from order backlog and ramping new sensor products resulting in a 3 percent quarter-over-quarter increase. The year-over-year decline of 14 percent is in line with these inventory adjustments due to demand uncertainties seen by Tier-1 and OEM customers, compared to the all-time high revenue in Q4/23.

Industrial & Medical (I&M): The business showed a mixed performance, showing a seasonal (horticulture) and cyclical (industrial automation & mass market) 14 percent quarter-over-quarter decline. Revenues came in 10 percent lower than a year ago. However, the company believes that segments with weak demand seem to have bottomed out.

Consumer: With the ramp of new products and healthy overall demand for consumer portable devices, the consumer segment showed a healthy 20 percent year-over-year increase in revenues. Quarter-over-quarter, the typical seasonal regression set in with an 8 percent quarter-over-quarter decline.

Lamps & Systems segment (L&S)

The Lamps & Systems segment represented approx. 30 percent of Q4/24 revenues, equaling €275 million. A typical, strong quarter-over-quarter increase of 18 percent, in line with the aftermarket’s seasonal demand pattern. The slight year-over-year reduction of 3 percent comes mainly from discontinued OEM products.

Automotive: The automotive aftermarket business was in full swing in Q4/24. The OEM business came in as expected.

Specialty Lamps: Lower demand and partially inventory corrections in industrial and professional entertainment markets are continuing, nevertheless revenues improved a bit quarter-over-quarter.

FY24 Strong Design-Win performance in Fiscal Year

The company says it continues to win meaningfully new business across a wide customer base underpinning its structural growth targets in its core semiconductor business. The combined figure came in close to €5 billion, supported by wins across all segments of its core semiconductor portfolio. The largest contribution came from automotive.

First quarter 2025 Outlook

The company expects muted demand for its automotive semiconductor products in Q1/25 reflecting the persisting uncertainties and corrections in the global automotive supply chain. The demand from industrial and medical markets also remains muted, although first small signals might indicate that the weakness has reached its bottom. The business with its semiconductor products for consumer handheld devices will go into its typical strong seasonal decline.

Looking at the L&S segment, the automotive aftermarket halogen lamps business will come in slightly lower – in line with its typical, seasonal demand pattern.

As a result, the group expects first quarter revenues to land in a range of €750 – 850 million. In line with fall-through and further savings from the ‘Re-establish the Base’ program coming into effect, the company expects adj. EBITDA to come in at 16 percent +/-1.5 percent. The EUR/USD exchange rate is assumed to be 1.05.

FY 2025 commentary

The company expects a "meaningfully stronger second half" mainly due to product ramps and to some extent, market normalisation.

Furthermore, the company expects improving profitability driven by its ‘Re-establish the Base’ program even in case of moderate revenue development, CAPEX spendings of less than 8 percent of sales (including capitalised R&D and expected investment grants, e.g. from the European Chips Act), and a positive free cash flow (incl. net interest paid) exceeding €100 million due to improved earnings, lower CAPEX and similar operating NWC in FY25.