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5. OSRAM Licht AG Business Report FY ended Sep. 2017

OSRAM Licht AG Business Report FY ended Sep. 2017

Factors
1) Net Sales
-The Company’s net sales increased by 9.1% over the previous year to EUR 4,128 million in the fiscal year ended September 30, 2017. Excluding currency effects and changes in scope, the Company’s net sales increased by 8.1%. The increase in sales was driven by strong demand in the Opto Semiconductors and Specialty Lighting business units, which was partially offset by decreased sales in the Digital Systems and Lighting Solutions business units.

2) Specialty Lighting
-In the fiscal year ended September 30, 2017, the Specialty Lighting business unit’s sales increased by 8.3% over the previous year to EUR 2,312 million. Excluding positive scope effects of 1.8% due to acquisitions and negative currency translations effects of 0.2%, the unit had organic growth of 6.7%. Sales increased across all operating regions, particularly in the APAC and EMEA regions. The increase in sales was driven by increased demand in LED-based products, particularly in the automotive industry.

3) Opto Semiconductors
-Sales in the Company’s Opto Semiconductors business unit in the fiscal year ended September 30, 2017 totaled USD 1,685 million, an increase of 18.9% over the previous year. Excluding negative currency translation effects, the business unit had sales growth of 19.1%. Sales increased across all operating regions, driven by demand for LED components and infrared components.

Acquisitions

-In July 2017, the Company acquired a strategic equity investment in LeddarTech Inc., Quebec, Canada. LeddarTech develops its own software applications for LiDAR technology as the basis for autonomous vehicles and driver assistance systems. Its optical sensor technology complements our semiconductor products. The investment strengthened the Company's position in the autonomous driving sector.

-In February 2017, the Company acquired the operating business of Maneri-Agraz Enterprises, a provider of energy-efficient lighting solutions located in Houston, U.S. The acquisition has given the Lighting Systems business unit service business greater access to the commercial and industrial sectors in South and Southwest U.S.

-In October 2016, the Company completed the purchase of Novità Technologies, a manufacturer of automotive LED lighting modules located in Hendersonville, U.S. By acquiring this company, the Company strengthened its Specialty Lighting business unit's position in the market for automotive LED lighting modules.

Restructuring

-The Company announced that the sale of Ledvance to a Chinese consortium was successfully completed on March 3, 2017. The final selling price is approximately EUR 500 million. The Company additionally expects license income of as much as EUR 100 million over the coming years for the use of trademark rights. Ledvance combines traditional general illumination with modern, ground-breaking lighting technologies. (From a press release on March 3, 2017)

Recent Developments

-The Company’s Japanese subsidiary, Osram Ltd., announced its aim for continuous growth of its semiconductor business, including LED luminous devices for headlights at a press conference in Tokyo. The Company will market its luminous devices for both LEDs and ADAS systems such as driver drowsiness detection systems and sight line direction detection devices for head-up displays (HUD). Demand for the Company’s luminous devices in car headlights is expected to rise sharply. The Company’s marketing representative projected that general halogen lamps currently used in luxury models will gradually be replaced by LED lamps, and the ratio of LED lamps will reach 50% in 2023. (From an article in the Nikkan Jidosha Shimbun on January 7, 2017)

Contracts

-The Company has cooperated with Jaguar Land Rover and Varroc Lighting Systems to put SMARTRIX car lighting on the road. First-generation SMARTRIX systems have been integrated in the new Jaguar E-PACE. Co-developed with Varroc Lighting Systems, the Company’s matrix modules provide Advanced Driving Beam functionality, ensuring optimum night-time visibility regardless of weather conditions. The primary benefit of the new SMARTRIX module is a long-life silicon lenses that enable a small and compact design. (From a press release on September 21, 2017)

-In the fiscal year ended September 30, 2017, the Company had approximately 2,600 employees working in research and development.

R&D Facilities

-The Company announced that Berlin is a suitable location for future autonomous driving business. Over the coming years, the plant is set to be transformed into a high-technology center. This transformation follows the Zukunftskonzept OSRAM (Future Concept OSRAM) strategy to sustain growth. (From a press release on July 26, 2017)

R&D Activities

-The Company’s Opto Semiconductors business unit announced that it is coordinating the newly established FLINGO (Functional Inorganic Layers for Next Generation Optical Devices) project, with four partners from industry and research. The project will work to develop new materials and processes to improve the efficiency and durability of LEDs. The German Federal Ministry for Education and Research is sponsoring the project through January 2020 as part of the M-ERA.NET EU initiative to improve European competitiveness. During the project, deposition methods for thin films such as atomic layer deposition, spray pyrolysis, and the sol-gel process for manufacturing high-quality LED light sources are being investigated and combined. Other members of the FLINGO project include the Fraunhofer Institute for Silicate Research, which will provide knowledge of new inorganic layer systems used as the matrix for sensitive converter materials. Uninova from the New University of Lisbon will contribute its manufacturing expertise for the highly transparent and conductive layers required for p-contact in the LEDs. Finnish thin film technology company Picosun Oy is developing atomic layer deposition (ALD) processes and new materials to ensure conformal coating of even heavily structured surfaces. The Institute for Applied Research at Vilnius University provides knowledge in the analysis and development of non-destructive material properties. The Company will ultimately transfer the new thin layers and layer systems to its LEDs to test them for their mass-market suitability. (From a press release on February 9, 2017)

Product Development

World's first hybrid LED
-The Company announced that it has developed an Eviyos prototype, the world’s first hybrid LED. The Eviyos prototype is the first integrated hybrid LED in which a μ-structured light emitting chip and individual pixel control is combined in a single component. Eviyos illuminates surroundings in high-beam quality, ensures other road users and drivers themselves are not blinded either by direct glare or reflected glare from road signs. Eviyos is not only compact and powerful but also energy-efficient thanks to the precise control and dimmability of the individual pixels. At its planned launch at the start of 2020, Eviyos will form a separate product family offering a wide range of possible applications. (From a press release on September 25, 2017)

SMARTRIX Modules for lighting system
-The Company announced that its new SMARTRIX modules with innovative silicone lenses enable vehicle lighting systems to be extremely small and compact. First-generation SMARTRIX modules from the Company will appear on the roads in the fall of 2017. The Company looked for a new material for the lenses and developed the SMARTRIX modules which are equipped with lenses made of silicone as this material emerged as the best alternative to plastic. The lenses offer properties such as long life and high resistance to heat and radiation, and are also less expensive than glass lenses. In addition, silicone lenses can be attached directly to the LEDs, making the product much smaller overall. Headlight designers have much greater freedom as a result and can more easily follow the trend for narrow low-profile headlights. (From a press release on August 29, 2017)

New headlamp modules
-The Company is the exclusive lighting supplier for Oasis, the latest concept vehicle from Rinspeed, which will be launched at CES 2017. Osram supplied five Multi-LED modules for each headlamp. Depending on the performance desired, low and high beams can be achieved using six to 10 of the Multi-LED modules. The Oasis vehicle features two auxiliary forward lighting LED projection modules; provide a high-quality source of illumination at night to safely guide drivers down the road, and communicate with the outside world. (From a press release on January 5, 2017)

Energy-efficient laser lighting for headlights
-At CES 2017, the Company presented energy-efficient laser lighting for headlights. The headlights using laser technology double the best high beam range previously available, from 300 to 600 meters. Energy-efficient laser lighting is available on Osthe BMW i8, the BMW 7 series, the Audi R8 and R8 LMX. (From a press release on January 4, 2017)

Advanced pixel headlights
-The Company showcased advanced pixel headlights at CES 2017, which was developed with partners. The system’s core consists of a tiny LED matrix chip with more than 1,000 individually controllable pixels. A headlight comprising several such LED chips enables driving with permanently glare-free full beams. An onboard camera can recognize oncoming vehicles and pedestrian traffic, and automatically dim the high-resolution LED chips to ensure that the head areas of oncoming drivers, pedestrians, and cyclists are not blinded. This provides the driver with the best possible light at night, with no adverse effects for other traffic users. The Company expects to bring this technology to the commercial market by 2020. (From a press release on January 4, 2017)

Four-channel laser for lidar sensor
-At electronica 2016, the Company's Opto Semiconductors business unit is showcasing a four-channel laser that advances lidar systems for autonomous or semi-autonomous driving. The prototype laser has an extremely short pulse length and four parallel output channels. Thus, it offers completely new options for detecting objects and a unique vertical detection zone. This laser technology will be used for the first time in scanning lidar sensors based on micro-electromechanical systems. Such solutions do not need any mechanism to redirect the laser beam, and thus are less susceptible to wear and tear. (From a press release on November 7, 2016)

-In the past fiscal year, the Company increased its capital expenditure on intangible assets and on property, plant, and equipment by more than 50% to EUR 537 million. The bulk of the spending was accounted for by property, plant, and equipment. Most of the investment was in the Opto Semiconductors business unit, where it was used to expand capacity for manufacturing LED chips.

Investments in Germany

-The Company will convert its facility in Schwabmunchen, Germany, a site which used to produce pre-materials for light bulbs, into a facility for LED pre-materials. This transformation follows the Zukunftskonzept OSRAM (Future Concept OSRAM) strategy to sustain growth. (From a press release on July 26, 2017)

Investments outside Germany

-The Company's largest current project is the construction of an LED chip factory in Kulim, Malaysia. The groundbreaking ceremony took place in March 2016. The project is expected to open in the first quarter of fiscal year 2018. The Company is also increasing manufacturing capacity at the plants in Regensburg, Germany; Penang, Malaysia and in Wuxi, China.