A long hangover from earlier supply chain problems plagued the OEM business at Signify and helped prompt the recent reorganization in which the lighting giant stripped out OEM activities from its professional and consumer divisions and created a division to house them alone.
That’s how CEO Eric Rondolat explained some of the OEM woes and remedies to analysts when, on a quarterly financial results call last week, they asked him to elaborate on the OEM moves, which are related to the elimination of 1,000 jobs the company announced last week.
OEM provides components such as LED drivers, ballasts, connectors, and modules that Signify and other vendors build into luminaires.
It has been a drag on Signify’s earnings for several quarters including the fourth quarter of 2023, when the company reported a nominal sales decline of 12.3% to €1.73 billion and a 31.5% fall in net income to €59 million for the three months ending Dec. 31, 2023.
In an enough-is-enough move, Signify in December established the OEM group to help mitigate damage that OEM was causing other divisions, and to help focus OEM improvement efforts. The shift is part of a larger restructuring intended to save €200 million and including what Signify said last week would be 1,000 layoffs from the company’s central organization. Signify is also in the midst of shutting down some factories.
Last week, CEO Rondolat elaborated on some of the specific difficulties that have undermined OEM operations, emphasizing that OEM is still recovering from the prolonged supply chain challenges associated with the pandemic and COVID recovery period.
Bloated shelves
“If the inventory should be around 6 weeks, in the past quarters, the inventory of our customers went up to 21 weeks, which is explaining the delay that we have in resuming a different level of sales,” Rondolat explained. “Those inventories were brought up at at a time when components were not available, and there was panic movement from these customers to buy as many products as they could because they were fearing to be in a shortage situation.”
The Signify boss said that while things have been improving, they are not yet back to normal.
“We’re back to 8 weeks, but we’re still not at the level which would be closer to 5 to 6 weeks,” Rondolat told one analyst. “At the end of the day, there’s still some de-stocking.”
In some geographies, the inventory levels among OEM customers need to reduce to 4 weeks, he added, noting that overall it could take until the third quarter for things to fully recover.
“It will depend on the market traction,” he said. “At this point in time, let's say that if the market situation doesn't dramatically change, probably we're talking about Q2 to Q3 lead time to have a situation going back to normal.”
Rondolat emphasized that the company is committed to a strong OEM enterprise.
“The OEM business is very interesting for us because this is one essential element to provide quality of light, also one essential piece of technology in the whole chain to be able to manage connectivity,” he said. “And it is a domain in which we have strategic competitive advantage. And we sell outside of Signify, but also within Signify we use these products for all our professional business.”
Rondolat revealed that Signify lost OEM market share in the Americas, explaining that “one of our customers had decided to in-source.”
Layoffs ongoing
On a related note, he said the organizational changes and the associated costs “will be implemented through 2024 with the majority being achieved by Q2.”
The company will start reporting under the new structure of four divisions — Professional, Consumer, Conventional, and OEM — once it reaches agreements with labor representatives (Rondolat referred to them as “social partners”) on the restructuring and layoffs. That should happen either this quarter or in the second quarter, he said. Until then, it will continue reporting as three divisions — Digital Solutions (which is changing its name to Professional), Digital Products (which is changing its name to Consumer), and Conventional.
Some of the 1,000 job losses have already happened, and all should be completed by the second quarter, he said, adding that the company expects to get about two-thirds of the anticipated €200 million savings this year.
Restructuring costs such as employee termination benefits and impairment of assets and inventories were €83 million in the fourth quarter and €167 million for the year.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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