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Osram Announces €3 Billion Investment Program

'Diamond' growth initiative to invest in R&D and a new Malaysian LED chip plant by 2020

Osram has announced that it will invest around €3 billion in new technologies and applications by 2020. Of this, around €2 billion will be spent on R&D to expand into new markets. Another €1 billion will be for the construction of a new LED chip plant in Malaysia. 

"With a focus on profitability, flexibility, and entrepreneurship, following a phase of strategic realignment, we are now launching the 'Diamond' innovation and growth initiative. This means we are switching the focus to sustainable growth, benefitting even stronger from the potential offered by semiconductor-based technologies," said Olaf Berlien, CEO of Osram Licht AG.

'Diamond' comprises several strategic measures. In a first step, Osram will invest around €370 million in its Opto Semiconductors (OS) segment for a new LED chip plant in Kulim, Malaysia. Since further expansion measures are already being planned, the company expects to invest a total of around €1 billion there by 2020. The new plant will represent the largest and latest 6-inch LED chip production site worldwide, according to the company. 

Osram says that the additional production capacity and its technological leadership will enable it to significantly increase its market share in the fast growing general lighting markets. This market segment is the largest in the area of opto semiconductors, with a current volume of around €5.7 billion. Given average annual growth rates of 7.5 percent, it offers the company the greatest potential until 2020. 

Through economies of scale, Osram says it can also reduce its cost position in other market activities such as automotive lighting as well as applications for mobile devices, in which Osram already has a strong presence.

Osram is also planning additional investments in the Specialty Lighting (SP) segment to enable a broad-based rollout of new technologies in the market and to realise further growth potential in areas such as automotive lighting. For example, Osram is currently the only company in the world offering laser modules for headlamps ready for series production. Another new technology in the field of automotive lighting is organic light-emitting diodes (OLEDs) , which is also about to be rolled out for broad-based use in rear lights of vehicles. Osram expects the market for laser and OLED applications in the automotive sector to amount to around €1.1 billion in 2025.

In the recently created Lighting Solutions & Systems (LSS) segment, Osram will be focusing on intelligent, more technologically demanding lighting solutions. Given the increasing importance of complex lighting solutions, Osram is also shifting the focus on expanding the electronics and software expertise. Over the next two years, new capacities for electronic ballasts and light management systems will be created for this purpose.

In line with the announced innovation and growth initiative, Osram will increase its research and development budget significantly. By doing so, the company intends to promote in particular the development of smart city applications, wireless lighting control as well as laser and OLED technology. 

Osram has kept its research quota at just over six percent of revenue over the past years. After the initiated carve-out of the general lighting lamps business, the increased research expenditure will account for approximately 9 percent of revenue by FY 2016.

"Investments in research and development have paid off for the company in the past by taking it to a clear number one position in the automotive sector and leading to groundbreaking applications with opto semiconductors. Through the intended increase in research intensity, Osram wants to further strengthen its technical expertise for semiconductor-based technology and extend its market position," said CEO Olaf Berlien.

According to the company, the 'Diamond' innovation and growth initiative will i focus the company on balanced growth and add value for employees, customers, and shareholders. In addition to high-revenue areas that hold large growth potential for the company, lucrative niche areas, where Osram is already in a good position, will continue to make a valuable contribution to overall returns. Against this backdrop, the company has set the following targets, to be achieved in FY 2020:

Osram aims to achieve revenue of between €5 billion and €5.5 billion. After the carve-out of the lamps business, this would correspond to an average annual growth rate of 8 percent.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) of between €0.9 billion and €1 billion. This would correspond to an average annual growth rate of around 9 percent.

In addition, the company aims to generate earnings per share of around €5, which would be equivalent to an average annual increase rate of around 25 percent compared with fiscal 2015. The announced share buyback program is included in this target.

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