The falling giant and the rising star – A Christmas tale by Yole Développement

After several months of uncertainties, the Austrian sensor company ams finally acquired enough shares to take over the world’s second largest lighting company, Osram, approvals pending. Yole Développement has followed the emergence of VCSEL and 3D sensing applications in general for the last three years. 3D Imaging & Sensing 2018, due to be updated in 2020VCSELs – Market and technology trends 2019 and LiDAR for Automotive and industrial applications 2019 are the latest reports depicting the Market & Technology background for this takeover.

For those who haven’t been following, here’s a short recap of the ams-Osram acquisition bid.

  • Back in July, US buyout groups Bain Capital and Carlyle Group teamed up to make a joint €35-a-share bid for Osram.
  • That flushed out a surprise counter bidder, ams, which swooped in with a bid that was 10% higher at €38.50-a-share.
  • And money talks! The board of Osram made a peculiar recommendation, reluctantly advising shareholders to accept ams’ bid, while simultaneously criticizing its ability to integrate the acquisition or extract €300m of promised synergies.
  • This created an opening for Bain, which wanted to outbid ams. But its partner, Carlyle, however didn’t. Undeterred, Bain replaced it with rival Advent International. The pair then dangled the prospect of making a new takeover bid with a “meaningful” premium in front of Osram’s board. What that was, no one knew.
  • Osram shareholders got excited and enough of them joined the ams offer to succeed.

Now that the tale has finally reached to its conclusion, let’s ask ourselves why ams has such a sustained desire to acquire Osram. Indeed, looking at total revenue figures of both companies, it’s like a Christmas tale in which the rising star is acquiring the falling giant.

2016-2019 estimated revenues for Osram and ams

  201620172018 2019 est.
Osram (B€) 4.2 € 4.1 € 3.8 € 3.5 €
YoY growth rate (%)  -2.4% -7.3% -7.9%
Osram ($B) – For comparison $4.6  $4.6  $4.5  $3.9
ams ($B) $0.6  $1.2  $1.6  $2.1
YoY growth rate (%)  118% 33.3% 31.3%

But looking only at total figures would be too restrictive. It’s worth highlighting that the opto-semiconductor business of Osram, Osram OS, is doing well. Its historical growth is much more in line with the positive trend at ams, from 1.4B€ in 2016 to 1.7B€ in 2018 at over 10% average annual growth rate.

Coming back to the reason behind Osram’s acquisition by ams, at Yole Développement, we see three main explanations the move from ams:

  • Reinforcing ams’ leading position in the 3D sensing market, and gain critical mass before any potential future new Chinese giant may emerge.
  • Pursuing its vertical integration strategy in optical sensing, while getting access to other valuable Solid State Light (SSL) sources such as LED and laser diodes.
  • Widening its access to the automotive industry, and preparing for the new growth driver/killer application related to ADAS and autonomous vehicles.

Let’s focus first on ams’ core business: 3D Sensing. Indeed, the company is likely to reach $2.1M revenue in 2019, with an average annual growth rate of over 30% since 2017. Such a positive trend is mostly driven by 3D sensing applications, whose share in ams’ revenue has been increasing every year and should exceed 50% this year. And we are still at the start of this 3D sensing illumination market, having reached a size of $1.8B in 2019 and being set to be worth $5.7B in 2024, expanding at a compound annual growth rate (CAGR) of 27%, according to our 3D Imaging & Sensing 2020 report coming soon.

With the acquisition of Osram, which is also involved in the VCSEL business for 3D sensing following the acquisition of Vixar, ams is obviously reinforcing its VCSEL manufacturing and design activities. In this way it will maintain its leading position ahead of current competitors both at the device level, like  Lumentum, and the module/sensor level, including STMicroelectronics, Himax and AAC. Additionally, there is a threat of seeing any Chinese player emerging in this field backed up by government incentives and strong smartphone manufacturers. This threat is being stirred up by the current China/US geopolitical tensions. As such, it is a credible narrative that every major semiconductor company has to take into account, even the newest.

Let’s continue with ams’ vertical integration strategy. Back in 2016, when acquiring Heptagon and its optical micro device expertise, ams had started to position itself as a sensor solution provider able to capitalize on all possible sensing modalities. Additionally, Heptagon was having a huge role to play in 3D imaging and brought ams up to speed in this race. Then, in 2017, propelled by the emergence of the 3D sensing market, ams acquired the VCSEL manufacturer Princeton Optronics and expanded its value chain in the compound semiconductor field.

But optical sensing is only a tip of the photonic iceberg which is at the heart of several megatrends including smart automotive, mobile, AR/VR and 5G. These megatrends are likely to represent strong growth drivers in the mid-long term. In this field, Solid State Lighting (SSL) sources will represent strategic technological building blocks, as well as optical components. Osram is one of the only players involved in all key SSL sources, including UV/IR/Visible LEDs, EELs, and VCSELs. ams will therefore have a real advantage as able to fully customize its modules/systems to a wider range of “smartening” markets.

Market-wise, Osram represent also an opportunity to reinforce ams’ position in the automotive industry. Osram is making over 50% of its revenue from automotive lighting, from LED devices, lamps and systems. It has strong experience, culture and connections with key Tier-1 car part manufacturers and carmakers. Additionally, the company is strongly positioned in several emerging applications related to Advanced Driver Assistance Systems (ADAS) and 3D sensing as a supplier of light sources for Driver Monitoring Systems and LiDAR. This further reinforces synergies with ams and could position the new components as a strong one stop shop for photonic components.

Last but not least the Osram acquisition allows ams to gain critical mass in the European semiconductor scene. The new company will reach a combined $6B revenue in 2019, comparable to the other big European players such as Infineon, NXP or ST. By balancing the consumer activities located in Asia with automotive and industrial activities in Europe, this is an elegant solution to limit risk exposure on the international scene. Osram was not cheap to buy for ams but how do you build a $6B industrial company in three years? Now at least we know. Thank you Mr Everke. We hope the new scaled up company will “live happily ever after”.

About the authors:

Pierre Cambou - Yole Développement

Pierre Cambou has been part of the imaging industry since 1999. He first took several positions at Thomson TCS, which became Atmel Grenoble in 2001 and e2v Semiconductors in 2006. In 2012 Pierre founded Vence Innovation, later renamed Irlynx, to bring to market an infrared sensor technology for smart environments and interactions. He has an Engineering degree from Université de Technologie de Compiègne and a Master of Science from Virginia Tech. Pierre also graduated with an MBA from Grenoble Ecole de Management. In 2014 he joined Yole Développement as Principal Analyst, Imaging at Yole Développement (Yole).

Pars Mukish holds a master degree in Materials Science & Polymers (ITECH – France) and a master degree in Innovation & Technology Management (EM Lyon – France). Since 2015, Pars has taken on responsibility for developing SSL and Display activities activities as Business Unit Manager at Yole Développement (Yole). Pars is part of the Photonics, Sensing & Display division at Yole. Previously, he has worked as Marketing Analyst and Techno-Economic Analyst for several years at the CEA (French Research Center).

As part of the Photonics, Sensing & Display division at Yole Développement (Yole), Pierrick Boulay works as Market and Technology Analyst in the fields of Solid State Lighting and Lighting Systems to carry out technical, economic and marketing analysis. Pierrick has authored several reports and custom analysis dedicated to topics such as general lighting, automotive lighting, LiDAR, IR LEDs, UV LEDs and VCSELs.
Prior to Yole, Pierrick has worked in several companies where he developed his knowledge on general lighting and on automotive lighting. In the past, he has mostly worked in R&D department for LED lighting applications. Pierrick holds a master degree in Electronics (ESEO – Angers, France).

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3D Imaging & Sensing 2018

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