Q3-2020-results

ams reports third quarter ams revenues near top end with profitability towards top end of expected ams range ...

2020/11/06

Selected financial information for the third quarter 2020

German version

ams reports third quarter ams revenues near top end with profitability towards top end of expected ams range; resilient ams consumer business compensates for still lagging ams Automotive and Industrial demand; high volume ramps and positive consumer momentum in ams business drive further robust expected growth in fourth quarter despite Covid-19 with ams revenues of USD 650-690 million, up 19% sequentially at midpoint, and strong ams adjusted EBIT margin of 24-27%; OSRAM shareholders approved DPLTA paving way for planned full integration of OSRAM

Selected financial information for the third quarter 2020

Premstaetten, Austria (6 November 2020) -- ams (SIX: AMS), a leading worldwide supplier of high performance sensor solutions, reports third quarter results with revenues and adjusted operating (EBIT) margin for its ams business near or towards the top end of the guidance range, as previously announced. The ams consumer business remained resilient during the third quarter while the ams Automotive and Industrial businesses started to show signs of improving demand. For the fourth quarter, ams expects continuing positive momentum for its ams business based on meaningful ramps in the consumer market with expected revenues for the ams business of USD 650-690 million and an adjusted operating (EBIT) margin of 24-27%.

As the majority shareholder, ams is now fully consolidating OSRAM Licht AG (OSRAM) as of the beginning of the third quarter. Financial results presented below therefore include OSRAM financial results where reference is to group figures, otherwise reference is to the ams business.

Third quarter consolidated group revenues were USD 1,428 million, up 192% sequentially from the second quarter and 111% up nominally compared to the same quarter 2019 due to consolidation effects. In the ams business, third quarter revenues were USD 564 million, up 15% sequentially from the second quarter and near the top end of the published expectation range for ams. Adjusted group gross margin for the third quarter was 27% (excluding acquisition-related, one-time restructuring and share-based compensation costs) compared to 44% for the ams business only in the same quarter 2019 (21% including acquisition-related, one-time restructuring and share-based compensation costs, 42% for the ams business only in the same quarter 2019).

The adjusted group result from operations (EBIT) for the third quarter was USD 60 million or 4% of revenues (excluding acquisition-related, one-time restructuring and share-based compensation costs), decreasing from USD 187 million for the ams business only in the same period 2019(USD -94 million or -7% of revenues including acquisition-related, one-time restructuring and share-based compensation costs, down from USD 154 million for the ams business only in the same period 2019). In the ams business, the adjusted result from operations (EBIT) for the third quarter was USD 128 million or 23% of revenues (excluding acquisition-related, one-time restructuring and share-based compensation costs) which was towards the top end of the published expectation range for ams.

Adjusted group net income for the third quarter was USD 11 million (excluding acquisition-related, one-time restructuring and share-based compensation costs), compared to USD 199 million for the ams business only for the same period 2019 (third quarter 2020: USD -143 million including the aforementioned costs). Adjusted group basic/diluted earnings per share for the third quarter were CHF 0.09/0.06 or USD 0.10/0.06 based on 260,621,033/265,484,088 shares or CHF -0.37/-0.39 or USD -0.40/-0.43 including the aforementioned costs (third quarter 2019: CHF 2.30/2.24 or USD 2.46/2.40 based on 81,059,682/82,981,954 shares for the ams business only; all weighted average).

Group operating cash flow for the third quarter was USD 84 million while group free cash flow for the third quarter was USD 1 million.

ams’ business performed strongly in the third quarter 2020 in spite of the continuing impact of Covid-19 on regional economies and global end markets. In its ams business, ams achieved third quarter results near or towards the top end of the published expectation range for ams. The strong quarter-on-quarter revenue growth for the ams business resulted from continued resilient demand in the ams consumer business driving robust volumes for ams consumer solutions. Fully consolidating OSRAM as the majority shareholder, ams has included OSRAM as a separate reporting segment in the group financial information.

The domination and profit and loss transfer agreement (DPLTA) for OSRAM which ams concluded in September was approved by OSRAM shareholders in an Extraordinary General Meeting on 3 November 2020. Following the widely expected shareholder approval, ams regards implemen­tation of the DPLTA around year-end 2020 as a possible timeline. Based on the DPLTA ams will be able to drive and accelerate the integration and alignment of both companies’ businesses in the most efficient way. ams will unite the complementary strengths of ams and OSRAM in order to create a strongly profitable combined company within the next years. During the quarter ams has also taken three seats on the Supervisory Board of OSRAM as planned and intends to eventually increase ams representation to four seats. Before implementation of the DPLTA, OSRAM remains a majority-owned independent listed subsidiary of ams.

In its ams business, consumer solutions continued to contribute the largest share to ams’ results for the quarter. ams’ leading position in optical sensing is built on the broad ams portfolio for 3D sensing including VCSEL (Vertical Cavity Surface-Emitting Laser) illumination, high quality display management including behind-OLED (BOLED) sensing, micro-scale proximity sensing, spectral and bio-sensing, and other optical applications. Continuous significant R&D investments allow ams to drive innovation in new optical technologies.

ams is a major player in 3D sensing technologies where its industry-leading system know-how and high value IP offer an unmatched platform to serve all architectures, structured light (SL), time-of-flight (iToF/dToF), and active stereo vision (ASV). Shipping 3D sensing products to leading smartphone OEMs for front-facing and world-facing applications, ams has built its strong position focused on 3D illumination for SL, iToF and ASV. Here ams continues to leverage its advanced optics expertise and leading VCSEL technology. At the same time, ams is driving the expansion of its 3D offering, including by integrating high performance NIR image sensing, to create 3D solutions in different technologies.

For world-facing 3D ams continues focused development in its ams business for 3D dToF technology, an advanced ToF architecture that offers clear advantages for longer distances in world-facing and AR-oriented applications. ams leverages its leading 3D system capabilities developing a full ams dToF solution that includes VCSEL illumination, high performance SPAD sensing and related software and algorithms. High performance 3D systems in this area will be an innovation focus for ams going forward. ams sees increasing market interest to explore AR-related applications on the basis of full 3D and dToF technology and expects these applications and dToF to emerge as an attractive 3D market in the next years.

At the same time, for front-facing 3D ams is developing front-facing 3D sensing technology in its ams business for face authentication that is invisible behind the display and eliminates bezel-placed components from the device front. This cutting-edge approach leverages ams’ singular expertise in behind-OLED (BOLED) light emission and sensing together with its deep 3D system know-how. The highly innovative BOLED 3D technology includes VCSEL illumination, 3D NIR sensing, software and algorithms and ams continues to progress towards demonstrating ams BOLED 3D in ASV early in the first quarter. In a following step ams plans to explore BOLED 3D sensing architectures that support SL.

Overall, early market feedback supports ams’ view that both dToF and BOLED 3D technologies are able to offer volume opportunities for the coming years.

ams’ BOLED light and proximity sensing solutions continue their success in the Android market which has already shown strong adoption of ams’ innovation in display management. Forming the basis for its BOLED 3D developments ams realized light and proximity sensing behind the OLED display to remove related components from the device face. Supporting major Android OEMs ams advances its BOLED light sensing roadmap as part of ams’ display management portfolio. Ultra small-scale integrated light and proximity sensing solutions are also receiving increasing market attention. In combination ams serves leading consumer OEMs with a range of display management solutions in high volume in its ams business.

Going forward ams expects sophisticated camera enhancing technologies to offer attractive adoption opportunities as camera-related features will drive key value propositions for smartphone users. This includes areas such as automatic white balancing (AWB), laser-detect autofocus (LDAF) / 1D ToF, wide-range flicker detection and AR-oriented camera support functions. As an example, ams’ innovative AWB solution uses accurate spectral sensing analysis to open a new way of boosting picture quality and natural color expression and is seeing additional market traction. In audio sensing which includes ams’ portfolio of active noise cancelling solutions results matched expectations as customer traction confirms ams’ strong position in high performance digital and hybrid noise cancelling.

In the ams business, the automotive, industrial, and medical areas recorded a more positive overall performance in the third quarter. Compared to the first half this development reflects a decreasing total impact from the Covid-19 pandemic with signs of improving demand in non-consumer markets. The ams automotive business performed in line with expectations. ams saw more signs of recovering demand and better order trends in the third quarter as automotive production volumes are improving. In its ams business, ams continues to invest in automotive R&D and focuses on differentiated applications in safety, driver assistance/ autonomous driving, position sensing, and chassis control.

For 3D LIDAR, a core automotive sensing technology going forward, ams supports illumination in multiple programs for Tier 1 system suppliers. Based on ams’ high power VCSEL technology, ams offers high count automotive-qualified VCSEL arrays that enable advanced scan/non-scan LIDAR architectures. ams works in close partnership with LIDAR technology leader IBEO as a key supplier for their advanced true solid state LIDAR. During the quarter IBEO announced a further program win for their LIDAR system at Chinese volume OEM Great Wall Motors which is based on high power ams VCSEL arrays. Besides this partnership, ams sees increasing supplier interest in VCSEL-based solid state LIDAR versus other architectures given the design and performance advantages of the technology. Optical in-cabin sensing (ICS) is an expanding emerging area in automotive sensing. New interior comfort and safety functions such as monitoring are receiving growing attention from OEMs and Tier 1 suppliers. ams continues its development for first secured ICS projects including illumination and sees increased interest to assess 3D technology and ams’ 3D solution capabilities for upcoming applications.

In the ams business, the industrial product lines performed well in line with expectations in the third quarter. This development reflects a still muted but less visibly impacted demand environment as reduced industrial investment appears to improve. Supported by ams’ leading position in industrial and factory automation, HABA, industrial imaging and other manufacturing applications in its ams business, the industrial lines in the ams business continue to benefit from ams’ extensive portfolio and customer base for high performance sensing which includes global shutter imaging for automation and machine vision.

The medical product lines in the ams business showed a positive performance in the third quarter. The portfolio in the ams medical business is built around leadership in medical imaging for CT, digital X-ray, and mammography as well as products for miniature camera endoscopy. ams is expanding this portfolio with its highly innovative use of spectral sensing in medical lateral flow testing (LFT). ams’ unmatched solution optically analyzes LFT results with very high accuracy at the point-of-care. Without the need for high cost dedicated lab equipment the solution is able to support fast robust diagnostics at attractive cost, creating a new growth opportunity for the coming years. In ams’ partnership with European medical test provider Senova production of an integrated LFT test kit for Covid-19 antibody identification is starting in the current quarter. Good traction continues to build for ams’ digital LFT solution given its advantages in a large scale testing market for different in vitro diagnostic applications. For Covid-19 related testing ams is in advanced discussions with a North American partner and in contact with government authorities in Europe. To follow the Covid-19 antibody test kit ams is in later stage development of a Covid-19 antigen test solution targeted at identifying current infections.

In manufacturing operations, ams is safeguarding volume production in its ams business across its locations despite Covid-19 related challenges and restrictions, and focuses on fully aligning with customer demand. In its ams business ams implements comprehensive measures to protect the health of its employees and its manufacturing capabilities on a worldwide basis. ams’ Singapore manufacturing continues its strong operational performance in line with higher capacity utilization as ams supports large scale product ramps in the second half. At the same time, ams is managing investment requirements for its ams business to keep total capital expenditures for its ams business on a limited scale and expects this to continue in the current quarter.

At the end of October ams successfully placed a EUR 760 million 7-year convertible bond with inter­national institutional investors. The issue served to secure comprehensive funding to implement the DPLTA with OSRAM as well as subsequent steps in order to realize the full integration of OSRAM. In line with ams’ long-term funding strategy and prudent balance sheet management, the issue complements the term profile of existing debt and maximizes ams’ financial flexibility going forward.

ams’ financial outlook for the fourth quarter 2020 only comprises the ams business given the financial guidance structure provided by OSRAM, as previously mentioned. For the fourth quarter 2020, ams confirms the previously announced expectation of further robust sequential growth for the ams business despite continued effects from the Covid-19 pandemic impacting economies and ams’ markets globally. Based on currently available information and the definition above, ams expects strong fourth quarter revenues for the ams business of USD 650-690 million, up 19% sequentially and up 2% year-on-year at the midpoint. High volume ramps for smartphone sensing solutions and good consumer end demand in the ams business are driving this expected growth in the ams business while the ams non-consumer businesses in Automotive, Industrial and Medical see positive demand trends taking hold and pointing towards recovering volumes in several end markets.

ams also expects profitability in the fourth quarter to increase meaningfully quarter-on-quarter for the ams business resulting in an expected ams adjusted operating (EBIT) margin of 24-27%. This positive outlook for the ams business in spite of the ongoing Covid-19 pandemic and related impacts demonstrates the strength of ams’ portfolio and operational management. The expectations above assume no further unforeseen negative effects from the Covid-19 pandemic that would result in a meaningful negative impact on ams’ business.

The quarterly report for the third quarter 2020 including additional financial information is available here.