![The Apple Watch (pictured) is the possible jilting product in ams Osram’s micro LED write-down. [Used under Unsplash license: https://unsplash.com/license]](https://img.ledsmagazine.com/files/base/ebm/leds/image/2024/03/65e21fe6e1d3ad001e1395c4-simondaoudi2wfoa040m8gunsplash.png?auto=format,compress&fit=max&q=45&w=250&width=250 "The Apple Watch (pictured) is the possible jilting product in ams Osram’s micro LED write-down. [Used under Unsplash license: https://unsplash.com/license]")
Ams Osram suffered a huge body blow this week as it lost the customer it was relying on for its micro LED business. The cancellation, almost certainly by Apple, prompted a planned write-down of up to €900 million ($975 million) and a possible micro LED exit.
Leaving the business would be a staggering turn of events for a company that has heavily invested in a modern factory in Kulim, Malaysia, with aspirations of eventually churning out micro LEDs in an economically efficient manner using 8-inch wafers — yielding more bang for the buck than more common 6-inch wafers.
The nearly $1 billion Kulim plant expansion has pushed ams Osram’s capital expenditures to well above the company’s normally hoped for levels. It has been a strain on finances for some time, so much so that last November the Premstaetten, Austria–based company sold and leased back the factory.
It’s hard to overstate the importance that ams Osram has placed in recent years on the role that micro LEDs will eventually play in the company’s future. It has banked on the 8-inch process giving it an advantage over micro LED rivals, something which it has used to justify the massive expenditures.
In November 2022, the company assured financial analysts that it had lined up a strategic customer that had agreed to make substantial pre-payment.
Ams Osram has never revealed the name of that customer. But this week, it announced that the customer “unexpectedly cancelled” the project.
The customer is believed to be Apple, which had planned to use micro LED–based displays on Apple Watches, according to the MacRumors website. Apple today uses OLED displays. (Simply put, micro LEDs are very small LEDs and are single points of light; OLEDs are patches of material that light up in response to a current.) MacRumors cited an analyst at Counterpoint Research who explained that Apple was concerned that micro LEDs would not add enough value and would be costly.
End of the line?
Whatever the reason, ams Osram is now reconsidering its commitment to micro LEDs.
“The management board of ams Osram AG has decided to reassess the micro LED strategy of the company after having been informed of the unexpected cancellation of a cornerstone project for its micro LED program,” the company said in announcing the breakup. “Discussions with the related customer are ongoing. Following the cancellation of the cornerstone micro LED project, the company will revisit the future use of its assets related to its micro LED strategy, particularly the new 8-inch LED facility in Kulim.”
LEDs Magazine asked the company if it might withdraw from the micro LED business.
“There is no final decision yet,” a spokesperson replied. “As soon as there are results and decisions, we will give an update. I can’t tell you the timeframe. The process has now started. I don’t think it will take too long.”
In a possible indication that ams Osram had decided it has had enough of micro LED development and expenses, it said that as a result of the measures it takes, “the cash flow profile of the company is expected to be positively impacted in the next 24 months.” It specifically cited “lower CAPEX” (capital expenditures) as a reason for anticipated cash flow improvement.
Write-down coming this quarter
Financial repercussions will appear in the form of a write-down that the company will take for its ongoing first quarter, which ends on March 31.
“Based on a first, preliminary estimation, ams Osram expects to record non-cash impairment charges on micro LED related assets and goodwill of EUR 600 to 900 million in the first quarter of fiscal year 2024,” the company said in its announcement.
Ams Osram also cut its “mid-term” (2026) forecast for compound annual revenue growth to 6–8%, from what had been 6–10%. The reduction of only 2 percentage points at the top end reflects confidence the company has in core markets, such as the automotive sector for LEDs, and what the spokesperson said is a strengthening in the industrial and medical sectors.
First quarter sales will not be affected by the micro LED development. But profits will be. ams Osram said that they will decline in the first quarter because of “lower capitalization of R&D expenses and lower subsidies.” It said that adjusted EBIT for 2024 would be €30 million to €50 million less than previously anticipated.
As LEDs Magazine noted three weeks ago, the company’s timeframe for anticipating significant revenue from micro LEDs seemed to have slipped from 2025 to 2026. CEO Aldo Kamper downplayed that suggestion.
“A quarter back or forth, or even a year back or forth doesn’t make [the decision for] technology in itself different,” he told LEDs at the time. “It is in our mind an important addition for the LED space in terms of technology capability and application spaces for our technology, and therefore we are heavily engaged in this.”
Three weeks ago, he also described micro LED development as a “headwind.” With this week’s announcement, the headwind has accelerated to hurricane force.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
*Updated Mar. 13, 2024 for link correction.
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