Ams Osram said it is indeed vacating the $1 billion Malaysian factory that was to have powered its future with micro LED production, and that it will scale way back on its overall micro LED program, limiting activity for now to making the chips in Germany for its own automotive goods.
CEO Aldo Kamper told analysts on a call today that the company is seeking an entity to take over the lease at the micro LED factory in Kulim, Malaysia, where construction began in 2022 with a planned cost of nearly $1 billion. The site sits next to the €370 million factory for more conventional LEDs that opened in 2017.
While the 2017 plant remains operational, the micro LED plant does not, following the February cancelation by a micro LED customer — believed to be Apple — of what Kamper calls a “cornerstone” contract. The loss of that contract prompted the Premstaetten, Austria–based LED, laser, and sensor maker to announce a reevaluation of its plans for micro LEDs, a product area that was to have driven a large share of revenue starting in 2025 or 2026.
Today’s announcement of minimized micro LED activity is the result of that reevaluation.
The plant has been a huge financial drain pushing capital expenditures well above normal levels. Signs of strains had emerged last fall when ams Osram sold and leased back the vital plant in a complicated arrangement that CFO Rainer Irle said at the time would raise €400 million, while allowing ams Osram to buy back the plant within ten years.
The company today announced a hit of around €700 million ($748 million) for the change of direction; it had earlier said the amount would be between €600 million ($641.3 million) and €900 million ($961.9 million). It recorded most of the €700 million in the first quarter ending March 31, with €513 million ($548 million) showing as “impairment costs” and €119 million ($127.2 million) as “transformation costs.” The impairment was non-cash, “for equipment and capitalized project-specific research and development expenses,” and the transformation costs were for “adjusting its microLED strategy, such as cancellation fees and deinstallation cost in Q1/24,” the company stated in a press release. Another €70 million ($74.8 million) could come due through 2024, it noted.
Job losses
CEO Kamper told analysts that the micro LED climb down “affects more than 500 employees at both Regensburg and Kulim combined.” Regensburg is the German site where limited development and production will continue for use in the company’s Eviyos pixelated headlights and for other possible automotive uses. Some of the 500 will lose their jobs; others will take on new assignments internally.
Kamper also said that the company “will reduce net debt by €400 million ($427.4 million) when a new lessee steps into the contract.” It’s not clear whether this is in addition to the €400 million from the November sale and lease back.
Simply put, micro LEDs are very small LEDs. They were to have featured as a display technology for phones, smartwatches, TVs, AR/VR glasses, automotive, and other things. But as French research outfit Yole Group has pointed out, other already established technologies such as OLED are better suited for many of those categories such as TVs, phones, and smartwatches.
It is believed that Apple was going to use the ams Osram micro LEDs for smartwatches, which currently use OLED.
Ams Osram will still not confirm that the “cornerstone customer” that ditched the contract was Apple.
Yole, the research group, had reported that ams Osram would exit Kulim while keeping Regensburg functioning, a move that ams Osram today confirmed.
Staying in house
CEO Kamper said that the Regensburg activity would focus on internal use.
“We have decided we will scale down our micro LED development activity significantly, and focus on small-scale core development activities that serve our own proprietary needs,” he told analysts, giving Eviyos as an example.
Market observers like Yole give micro LEDs a chance of succeeding in AR/VR and in automotive displays. (Even in these areas, OLEDs could give micro LEDs a battle, as suggested by OLEDWorks’ recent collaboration with the U.S. Army).
But Kamper acknowledged that adoption in those segments “will take a long time,” and noted that they “only promise a fraction of the volume that had been anticipated for personal handheld devices.”
He did not rule out still selling micro LEDs for use outside of the company orbit, claiming that it is in discussions. He provided no details other than to say that a deal could happen “if and only if they are willing to contribute to development under reasonable contractual terms.”
The deal with presumably Apple came together under Kamper’s predecessor as CEO, Alexander Everke. The arrangement included substantial pre-payments of a publicly undisclosed amount. Ams Osram has not elaborated on the state of those payments.
Kamper joined as CEO a little over a year ago.
The micro LED talk dominated today’s first-quarter earnings report in which revenue fell 9% to €847 million ($905.2 million) from €927 million in the same quarter a year earlier. The company reported a €35 million ($37.4 million) loss compared to €6 million in net income a year ago.
On a positive note, sales of LEDs in the automotive sector remained strong, as they were last quarter.
LEDs Magazine will report more on the first-quarter results in a separate article.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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