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Ladies and gentlemen, welcome to the ams Half Year 2020 Results Conference Call. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. [Foreign Language]At this time, it's my pleasure to hand over to Alexander Everke, CEO; Mr. Ingo Bank, CFO; and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.
Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's conference call on our second quarter and first half results. Please note that for the financials discussion, there is a presentation available on our website in the Investor section at ams.com in the Presentations tab. And now I would like to turn over to Alex to run you through the developments of our business.
Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our second quarter and first half 2020 conference call this morning. Before I discuss our business and recent developments around OSRAM, let me welcome and introduce Ingo Bank as CFO on his first ams earnings call. Good morning, Ingo. Following my comments, Ingo will review our financial results in more detail. Now some key figures to start with. Our second quarter revenues came in at $460 million, at the midpoint of our guidance range and up 13% year-on-year. Our adjusted EBIT for the second quarter was $90 million. That is an adjusted EBIT margin of 20%, at the top end of our guidance. With these results, we not only achieved a record second quarter for revenues and EBIT margin, but we also recorded the best first half in the history of ams. And we did so despite the continuing effects from the unprecedented and ongoing COVID-19 situation. We would again like to thank all ams employees worldwide for enabling this success at the time of a global pandemic. With the safety and well-being of our staff as our key priority, we continue appropriate safety measures around the globe and work closely with customers, suppliers, authorities and partners to limit the effects related to COVID-19. Before I look at the developments in our business, I want to update you on the acquisition of OSRAM and our way forward. As the key development for ams in the second quarter, we are proud to have successfully closed the acquisition of OSRAM on the 9th of July. Following the closing, we own 69% of OSRAM shares at a transaction value of around EUR 2.7 billion. As of today, we have further increased our holdings to around 71% of OSRAM shares. Prior to the closing and shortly afterwards, we successfully placed a multi-tranche bond issue of around EUR 1.25 billion equivalent 5-year senior notes. This was a combination of EUR 850 million and USD 450 million in total. The debt issue served to secure a long-term financing structure for the acquisition in line with our planning. In addition to that, our intention is to use future excess cash flow from operations to support increasing our OSRAM shareholdings further. The closing was a vital milestone for this highly strategic and transformative acquisition, which will now combine the complementary strengths of ams and OSRAM. We are bringing together 2 leaders in their respective areas and are fully convinced of the outstanding technology, market, earnings potential of this combination. All at ams are welcoming OSRAM's worldwide employees into the new global team for the combined company and realigning all necessary steps to start integration of both organizations. With ams and OSRAM now coming together, we have defined a vision for the combined company: To create the uncontested leader in optical solutions. To achieve this vision, we will focus on the 3 areas of sensing, illumination and visualization, where we will offer exciting solutions for innovative applications. We look forward to building an outstanding technology platform delivering strong profitability and growth. This encompasses bold technology investment in innovation and ongoing smart transformation of the company in line with our vision. We have declared the intention to pursue a domination and profit and loss transfer agreement, or DPLTA, for OSRAM and are driving towards implementing this step. As we are keen to realize this agreement in a timely manner, we are already engaged in required preparations. Based on these and our current assessment, we regard an implementation of the DPLTA broadly around year-end 2020 as a feasible time line following required approvals. We will provide further information on the time line and the steps involved as this information becomes available. On the basis of the DPLTA, we will be able to drive and accelerate the integration and alignment of ams' and OSRAM's businesses in the most efficient way, with the goal to build a strongly profitable combined company over next years. Notwithstanding the DPLTA process, we are now starting to work closely with OSRAM on the basis of our majority share ownership, taking first steps towards a successful integration of the 2 companies. These include joint initiatives to prepare the future organizational and business structure, align joint customer-facing marketing and sales activities and set up combined financial management and reporting. At the same time, we are in the process of realizing ams' representation on the Supervisory Board of OSRAM, where we plan to take a total of 4 seats. In this context, OSRAM will remain an independent majority-owned listed subsidiary of ams until additional steps, such as a DPLTA, are concluded and implemented. As we move towards the combination and integration of the 2 companies, we are making profitability, earnings growth and cash flow generation the primary focus of ams for all our business as well as the combined company. We will, therefore, drive our strategic positioning and portfolio in strong alignment with these target metrics. Let me now look at the development of our business. Our business showed a very good performance in the second quarter and first half of 2020 against the backdrop of the continuing impact of COVID-19 on economies and end markets worldwide. Our consumer solutions once more provided the largest contribution to our overall results in the second quarter and first half. Leading in optical sensing, our strong market position is based on a full range of optical sensing solutions. As a key player in 3D sensing, we leverage an extensive portfolio and industry-leading system know-how and address all architecture, structured light, time-of-flight, direct and indirect and active stereo vision. Building on our advanced VCSEL and optics capabilities, we offer high-performance 3D illumination for front-side and world-facing use. We are shipping high-volume 3D sensing products to the leading smartphone OEMs, with the Android market contributing attractively in the first half. Here, we serve several platforms with different VCSEL 3D illumination solutions for world-facing iToF sensing. These camera enhancement systems have become successful in the market as they allow OEMs to offer significantly improved picture quality. We are extending our 3D sensing focus and offering through the targeted integration of high quantum efficiency near-infrared image sensing for specific architectures, where our road map enables full 3D solution designs.In display management, behind-OLED light and proximity sensing is continuing their adoption in major Android platforms. Across our full display management portfolio, we are shipping very high volumes of differentiated sensing solutions to top consumer OEMs. Our unmatched behind-OLED technology makes light and proximity sensing invisible by measuring from behind the OLED display, thereby eliminating bezel-placed components. Leading Android OEMs have been driving penetration of the technology, which is becoming a common entry on high-end feature lists. Against this backdrop, we are realizing the expanding multi-generation BOLED road map for the coming years. We focus on innovation in optical sensing through ongoing significant R&D. We already introduced innovative technology for camera automatic white balancing earlier this year. Here, our highly accurate spectral sensor opens a new way of boosting mobile camera performance. Precise spectrum analysis of the light environment drives significantly better picture quality and natural color expression. This delivers outstanding results and measurable benchmark improvement for OEMs. The solution is shipping in high volume into a first flagship platform, and we expect broader adoption of the technology going forward. We are pursuing a development road map for direct time-of-flight 3D technology, a more complex time-of-flight architecture that offers important advantages for longer distances. We see high performance direct time-of-flight illumination and systems that build on our industry-leading 3D illumination and sensing expertise as a focus of innovation for the next years. This is driven by our view of direct time-of-flight emerging into an important 3D area, while market interest in future world-facing application is growing. We also continue development activities to create front-facing 3D sensing technology for face authentication behind the display, thereby making it invisible and eliminating visual components from the device face. Leveraging our singular behind-OLED know-how and 3D system capabilities, which are built around VCSEL illumination, near-infrared sensing, software and algorithms, we plan to demonstrate behind-OLED 3D technology using active stereo vision around year-end this year. Later on, we plan to explore potential architectures for behind-OLED 3D sensing related to structured light. All in all, we see direct time-of-flight and behind-OLED 3D technology as very attractive opportunities for the coming year. Audio sensing performed in line with expectation based on our strong position in high-performance digital and hybrid noise canceling technologies. Looking out into the next years, we see a number of new optical sensing opportunities and potential applications, which we are pursuing across the top smartphone OEMs. These are based on our strong relationships and high level of engagement at each of these customers. To give you some idea here, this includes the area of direct time-of-flight, behind-OLED light sensing and behind-OLED 3D, like for example, also the highly innovative technology opportunity for the camera space. So we are working to bring new and better solutions to customers, driven by our focus on high-value innovation and differentiating capabilities. I will now turn to the automotive, industrial and medical business, or our nonconsumer business, which as a whole recorded a muted performance in the second quarter and first half. This was in line with expectations due to the continued impact of COVID-19. In Automotive, global demand weakness and lowered automotive production remained apparent in order trends and volume requirements, so our business performed along expectations. We navigate through this challenging environment looking forward to a more significant strengthening of automotive production globally. In 3D LIDAR, we continue R&D for illumination in several programs at different Tier 1 suppliers, where our high-power VCSEL arrays enable advanced LIDAR architectures. Beyond this, we are seeing ongoing good market traction in LIDAR from our partnership with LiDAR technology leader IBEO in Germany. Our internal VCSEL production, where a ramp-up continues through this year, is already fully automotive qualified, offering further differentiation in the VCSEL market. The emerging area of optical in-cabin sensing, or ICS, shows positive momentum as OEM and Tier 1 suppliers are highly interested in new in-cabin comfort and safety applications such as monitoring. We are developing products for the first secured ICS projects, including a 3D time-of-flight application and see further opportunities around active stereo 3D capability. Our industrial business also showed a continued subdued performance in the second quarter. This reflected ongoing weak demand in industrial markets due to COVID-19 impacts worldwide. As we progress towards recovery of demand, our broad customer base and leading position in industrial and factory automization, HABA, global shutter imaging and other industrial sensing remain supportive factors for our industrial business.Our medical business continued to perform well in the second quarter, in contrast with automotive, industrial and medical markets. In light of the COVID-19 pandemic, we have been fulfilling demand for broader deployment of CT scanners that help clinical COVID-19 diagnostics through medical imaging. Driving innovation, we note positive momentum for our recently announced new use of spectral sensing in medical lateral flow test or LFT. Here, we enable fast diagnostics by optically analyzing LFT results at the point-of-care with very high accuracy. We have announced a partnership with the European medical test provider, Senova, for an integrated LFT test kit for COVID-19 antibody testing. This incorporates our spectral sensor, and we are advanced towards first production runs in the second half. We hold a strong technology position in spectral sensing on the basis of our unmatched technology. I'm excited to confirm that we are already exploring several additional partnerships in medical testing for different LFT applications. You may recall that LFT is a well-established medical testing method that is used for a variety of bacteria, viruses and medical parameters. We, therefore, see a meaningful growth opportunity in this area for the coming years. In manufacturing operations, we have maintained volume production in all locations despite the continued COVID-19-related restrictions and challenges. We continue detailed measures to safeguard employee health and production capacity worldwide. This makes us fully aligned with customer requirements and able to support evolving customer demand. Our Singapore manufacturing showed a strong operational performance through the first half, and we expect this to continue as capacity utilization increases with expected higher production volumes in the second half. Before I come to the outlook for our business, we have taken note of the OSRAM fiscal year Q3 results that came out this morning. We are encouraged by OSRAM's view that the past quarter has marked the low point in the automotive business and that they anticipate their revenue trends to reverse in future. We are also glad to see that OSRAM is continuing to actively pursue its cost reduction programs, as we would clearly expect in the current situation. So the focus on returning to positive numbers and cash generation needs to be top priority. Let me now turn to the outlook of -- for our business. For the third quarter 2020, we expect very good growth for the ams business despite the ongoing COVID-19 pandemic impacting economies and our end markets on a sequential basis. This growth will be driven by volume ramps for smartphone sensing solutions, while our automotive and industrial business continues to show limited demand and provide muted contribution to results. Let me briefly comment on the consolidation and presentation of OSRAM. We will be fully consolidating OSRAM as of the beginning of the third quarter 2020 and intend to include OSRAM as a separate reporting segment. Going forward, we plan to continue our practice of providing a financial outlook for the current quarter. Given the current financial guidance structure of OSRAM, however, our financial outlook for the third quarter 2020 only comprises the ams business. So based on available information and the above-mentioned definition, we expect third quarter revenues for the ams business of $530 million to $570 million, up 20% sequentially at the midpoint. This positive outlook encompasses strength in our consumer business, compensating for ongoing demand weakness in the majority of our nonconsumer business. Despite this situation, we also expect strong profitability for the third quarter with an expected adjusted operating margin of 21% to 24%, which underlines the excellent operational performance of our business, including manufacturing. Let me add to that. While the COVID-19 pandemic and its effects are ongoing, we expect second half revenues to be higher than our strong first half. And so I would see the fourth quarter to be clearly stronger than the third quarter this year based on information we see today. To me, the development of our business demonstrates that we are able to manage the current situation well despite its challenges. Please note that the mentioned expectations assume no further unforeseen negative effects from the COVID-19 pandemic that would result in a meaningful negative impact on our business. With this, over to you, Ingo, for more details on our financials.
Thank you, Alex, and good morning to you on the call. It's my pleasure to welcome you to my first earnings presentation as the CFO of ams. I'll provide you with an overview of our financials for the second quarter and the first half of 2020. Please note that you will find the financials starting on Page 23 of our investor presentation available on our website in the Investor section. So let's get right into it and starting with Page 24, looking at the top line development. As Alex mentioned, our second quarter group revenues came in at USD 460.3 million, the highest second quarter in the history of the company, demonstrating the strength of our technology portfolio despite the challenges of a demanding COVID-19 environment for our industry and the world economy. This revenue level translates into a year-over-year growth of 13% when compared to the same quarter a year ago. The underlying driver of this increase was a strong consumer business based on solid smartphone volumes and consumer ramps. You see this is also reflected in the revenue breakdown into key markets, where the ongoing strength in our consumer business more than offset the muted demand in the automotive and industrial markets given COVID-19. Revenues for the first half of 2020 were USD 961 million, a growth of around 22% compared to the first 6 months of 2019. On Page 25, towards the right-hand side, you see our total backlog. We stood at USD 250 million at the end of June, pretty much unchanged compared to the USD 255 million at the end of Q1 2020. As you all know, this reflects the typical situation of significant intra-quarter business playing a meaningful role for our total revenues, particularly on the consumer side. Moving to gross profit on Page 26. Our second quarter 2020 adjusted gross margin came in at 39.8%, a strong 240 basis points year-over-year increase compared to the second quarter 2019. For the first 6 months, the company's adjusted gross margin was at 39.6%, up 460 basis points from the same period last year. The improvement in the gross profit reflects current capacity utilization paired with productivity improvements in our manufacturing processes in Singapore. Moving now to Page 27. R&D spending in the second quarter was USD 68.3 million or 15% of revenues. This was in line with our expectations, also representing a meaningful decrease from USD 75.4 million in Q2 of last year. Our continued strong R&D spending supports a range of platform developments and major product opportunities, including new optical sensing technologies for consumer and automotive, industry and medical, examples being LIDAR, behind-OLEDs, direct time-of-flight and ICS. Let me also point out that whilst there will always be quarter-to-quarter variations in R&D spending, our targeted full year corridor remains to be 12% to 14% of revenues. When we move further down in our P&L, SG&A expenses were USD 65.2 million, equaling 14% of revenues, compared to USD 46.5 million in the second quarter last year. The increase compared to last year largely reflects the transaction-related expenses with respect to the OSRAM acquisition. We continue to pursue efficient spending on overheads, targeting lower relative SG&A costs in the future once the transaction-related costs have cleared out. Page 28 shows our adjusted EBIT for the second quarter, which was USD 90.1 million or 19.6% of revenue, the top end of our guidance for the quarter. This profitability level is a very strong improvement from the USD 49 million or 12% of adjusted EBIT margin in Q2 of last year, largely driven by the improvement in adjusted gross margin pointed out to above. It is also a historic high for the company in a second quarter. Let me now turn to net result and earnings per share. Please turn to Page 29. To allow for a consistent presentation of the company's financials, we are also showing from this second quarter 2020 onwards the net result and earnings per share on an adjusted basis, in other words, excluding acquisition-related and share-based compensation expenses. A reconciliation to the IFRS basis of presentation is included on Page 22 of our half year report for your reference. This way of presentation better aligns with the performance measures of adjusted gross profit and adjusted operating profit or adjusted EBIT that we have just discussed. The adjusted net results for the second quarter came in at USD 56.8 million, up from USD 52.2 million in the same period in 2019. The company's net financing result in the quarter was driven by fees related to the OSRAM transaction and slightly higher interest expenses when compared to the same period in 2019. It came in with minus USD 32.1 million. Adjusted basic and diluted earnings per share were CHF 0.21 and CHF 0.20, respectively, and USD 0.22 and USD 0.20. This compares to CHF 0.66 and CHF 0.61, respectively, USD 0.65 and USD 0.60 in the second quarter last year. Let's now look at the balance sheet and the cash flow of the company to complete the picture on the financials. I'm on Page 30 now. Cash and cash equivalents stood at USD 2.3 billion at the end of the quarter compared to USD 825 million at the end of the first quarter. This change mainly resulted from the successful completion of the equity rights issue at the beginning of the quarter. Let me also quickly touch on other key balance sheet items now. Our trade receivables stood at USD 121 million at the end of June, down from USD 142 million at the end of the first quarter. Our DSO was at 35 days, very similar to the last quarter. Inventories were USD 246 million, stable when compared to the end of the first quarter, reflecting our efficient approach to managing our overall supply chain. Moving to the liability side of the balance sheet now. Net liquidity stood at approximately USD 56 million as per the end of the second quarter 2020. As per the end of June, ams' current debt stood at approximately USD 1 billion, while non-current stood at approximately USD 1.2 billion. Earlier in this month of July, we successfully placed a multi-tranche issue of around EUR 1.25 billion equivalent 5-year senior notes with international investors, comprising EUR 850 million and $450 million notes in total. The debt issue served to secure a financing structure for the acquisition, in line with our planning. Given that the placement closed in July, it is not yet reflected in our Q2 2020 financials. Based on our net liquidity position at the end of the second quarter, there is no meaningful key figure available for the computation of leverage as of the end of the second quarter 2020.Our operating cash flow was again robust in Q2, more than doubling to USD 106.2 million from USD 49.7 million in the same quarter last year, largely driven by the improved operational profitability of the company. I'm very pleased to see that a very good cash flow generation is continuing into 2020, as we expected. On Page 31, you can see that our CapEx spend in the second quarter was USD 20 million, significantly below last year's second quarter of USD 47 million. This development is the result of mainly 2 key aspects: Firstly, the completion of our major CapEx cycle last year; and secondly, a responsible way to manage investment requirements for our business in the current economic environment, balancing the need of strong liquidity management with the requirement to continue to invest into future growth and innovation. For balance of the year, we expect capital expenditures to continue to be limited, in line with our planning. For the sake of completion, let me also add that we have successfully concluded our share repurchase program in the second quarter, comprising 5% of the issued share capital. The objective of the share buyback was to rebuild treasury stock to service obligations on the long-term employee incentive plans. This was following the rights issue given that under Austrian corporate law, treasury shares are not entitled to subscription rights in the context of a rights issue. We used the EUR 1.65 billion proceeds from the April rights issue in the meantime as funds for paying the consideration of the [ tenured ] OSRAM shares that we received at the closing of the OSRAM takeover on July 9. Following the closing, we owned 69% of OSRAM shares at a transaction value of around EUR 2.7 billion, excluding treasury shares held by OSRAM. As of today, we have increased our holdings to around 71% of OSRAM shares through additional market purchases. We are in a position to buy additional shares going forward and plan to use future excess cash available from operations to support further increases of our OSRAM shareholdings. And with that, I would like to thank you for your attention and open up the floor for questions.
The first question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux.
Can you hear me? Yes, one question on your guidance for Q3. Sorry for the phone. It shows it has a limited seasonality as compared to the past. What are the reasons behind that? Do you see inventory correction among your large OEM? Or is there any delay in the ramp of some specific project for some customers? So any clarification there will be quite helpful. And second one is on the DPLTA that you expect to come by the end of this year. So based on that, when do you expect to see the first synergies coming in? Are you still comfortable to reach the EUR 300 million of synergies 3 years after the completion of the acquisition despite that the DPLTA is coming about 6 months after the deal?
Yes. Thanks for the question. Let me answer your first question. Ingo takes the second one. Related to Q3, there is -- we cannot talk about specific customers or projects, but there is an understanding in the market that there is a certain delay for certain platforms. I think it's also very important to understand that this year with COVID-19, it's not comparable to any year before that. We also have mentioned that we clearly see a very challenging market situation in the industrial and on the automotive business. And lastly, I can say that in the consumer space, we also recognize different forecast behaviors from the majority of our customer base. And certainly, I would see a stronger fourth quarter compared to the third quarter, which underlines a bit what I said in the beginning of my answer.
Yes. Maybe on the second part of the question on the synergies, we feel very confident about the synergies and the level that we communicated earlier. We have been able to do some work in the meantime together with OSRAM actually to further underpin the improvement opportunities that we've seen before, and they were more than confirmed in those discussions. So -- and timing-wise, we also don't see this possible DPLTA being somewhat a bit later, maybe as some have assumed, to be anything that would sort of not help us realize the synergies in the time that we originally foresee. So the plan is still the same.
The next question comes from the line of Robert Sanders with Deutsche Bank.
My first question was just around the Board seat representation that you now have at OSRAM. I was just wondering how you arrived at the number. And going forward, will you appoint management? So will you suggest management appointees into OSRAM? Or is that something you'll do following the DPLTA? And I have a second question.
Yes. Rob, thanks for the question. Alex here. So we stated that we want to bring up to 4 members to the Supervisory Board. We've announced now the first 3, which is basically Hans-Peter Metzler, a former Infineon executive; Thomas Stockmeier, COO of ams; and Johann Eitner, a former Supervisory Board member of ams and works council member. This was a decision to take these 3 gentlemen first, but we will add a fourth position to [ the force ].
Got it. And just my second question would just be an update on the VCSEL market. I noticed your research now puts you at larger than Lumentum in that market. Given what's happening in world-facing, what are the opportunities there? Can you piggyback on other companies' success like Sony's as well as your own? Is that something that you think will be a big growth driver in the next couple of years?
Yes. Well -- so world-facing is a large opportunity for us, and that certainly includes VCSEL for the illumination part. And so we have no -- not seen any difference towards our previous statements. And what is -- clearly, what our perspective is that direct time-of-flight, we consider as the strongest technology for applications we foresee for the future, driven by a much longer distance capability for world-facing applications.
The next question comes from the line of Jürgen Wagner with MainFirst.
Actually, I have 2. And first, you mentioned you want to control OSRAM by the end of the year. What size of restructuring charges we then have to expect in Q4? And the second question, coming back to your Q3 guidance. Looking at operating leverage, you basically added 100 million sales in past years when you added similar size of revenues, your operating leverage was higher. What is the reason for that?
This is Ingo speaking. So as far as the synergies are concerned, we would expect to start implementing some of those, as we've defined with OSRAM as to what extent it will lead or not lead to restructuring expense. So I think it's a bit too early to call that out. We're still early in the process as far as that is concerned. I think it's also important to note that if you look at the OSRAM numbers, that they are running ahead of their program. They have taken restructuring charges also this year. So there are ongoing activities as we speak. As far as the -- your question on the operating leverage is concerned, I think if you look at the increment from the second to the third quarter, I think you will find that properly reflected also in our guidance. As we said, please also note that overall, the share of automotive, industry and medical is a bit lower to compare to the past. But on a sequential basis, I think that you will find that the leverage is still working for us. And therefore, we believe that the range we've given you of 21% to 24% is representative of how we see volume developing.
Next question comes from the line of Achal Sultania with Crédit Suisse.
Two questions. First, if I may, on the back-facing 3D sensing approach. I know you have a lot of patents around different areas. So can you give us some color as to what is that you are seeing the highest adoption as of now from your key customers for the world-facing 3D camera? Is it VCSEL? Is it the top sensor? Is it packaging? Is it some algorithm? Any color on that would be really helpful. And then secondly, on the structured light approach. Alex, you mentioned that obviously, you've been working to try to bring that technology under the glass. We know that there are multiple vendors involved in supplying the whole solution for structured light today. So even if you put your chip under the glass, we still need to see all other chips from different vendors being put under the glass. So where are we on that? And how closely are you working with other parts of supply chain to make sure that, that whole technology, the dot-projector, the camera receiver, all of that can fit under the glass for structured light in the future?
Yes. Thanks for the questions. So certainly, we see world-facing based on time-of-flight technology evolving. We see quite some interest there. We see interesting use cases coming up. One, certainly, what we mentioned before already, is related to camera enhancement to create a better picture quality. I think AR/VR will also step up in the near future. This is for us, today, predominantly illumination-based and in certain areas also [indiscernible] related to behind-OLED. Certainly, as you correctly said, this is a complex topic. That's why it takes quite some while to develop it. We are certainly frontrunner in this area based on our system competencies. And certainly, we work with other companies and partners together because the whole solution as a whole has to work. But it's too early to give you details about the content and the methodology for that. But we are convinced we are on the right path to find a solution which is addressable for customers. And we consider this as a multistage approach as behind-OLED 3D application.
The next question comes from the line of Adithya Metuku with Bank of America.
So I have 3 questions. Firstly, just on the ASV BOLED, the behind-OLED 3D sensing solutions. Just looking at your 4Q '19 transcript, it looks like you had said that you'd have a demo ready in 6 months. And reading the release today, it sounds as if you're now talking about the end of the year when you'd have a demo ready. Has something changed here in terms of your road map? Or am I reading too much into it? It seems to me like it's delayed by 6 months, but if you could let us know on that.Secondly, just a follow-up on the previous question. You -- I just wondered if you could give us a sense for where you stand versus competitors when it comes to direct time-of-flight on the [ rear ] 3D sensing applications. Are there any big solutions within the whole module where you're particularly strong? And the reason I ask is you had the recent teardown of the tablet that came out in March. We didn't see any solutions from you. So any color there would be very helpful. And then a question for Ingo, just on OSRAM. What is the funding situation here, if you could update us? If you decide to get 100% by the end of the year, have you got bridge loans, et cetera, lined up? Any color here would be very helpful.
Yes. Thanks for the questions. Alex here. Let me answer the first 2 questions and give you the last one. On the development of active stereo vision behind-OLED space, no change in our plan. As we mentioned, we have very early development. We have a very clear concept how to bring this technology behind the OLED. We still consider to have a demonstrator available by end of the year and then start discussion with customers based on this demonstrator to design future developments potentially with customers and for their projects. On time-of-flight, certainly for us, the strongest engagement is on the illumination side, but we also have a road map to have a broad solution in this space. And it's always a decision of which projects we pick based on capabilities and resources we have available. But we are very confident that we are very strongly positioned with the technology for future applications.
Yes. And maybe to your second question on the funding situation. So I think the recent bond placement was, first of all, an important step to establish a longer maturity funding structure supporting this type of transaction. The first next step, we're now looking into the refinancing of the OSRAM net debt position, and we are working with the company on that as we speak. As far as the DPLTA is concerned, maybe point out 2 things. First of all, I still have a bridge at my disposal, and I have a number of other market options. So that we're looking into. But I think it's also important to understand that if you look at historical precedence that the likelihood of investors putting all their shares -- minority investors putting all their shares to you at the moment of registration of a DPLTA is very, very unlikely. If you look at -- we've looked at precedents in the history, and there's hardly been any case actually where a significant amount of shares were then basically traded in. In any case, we will be sort of setting up a funding environment that will sort of also cater for this. But now -- for now, the most important fact is the refinancing of the net debt of OSRAM and the rest of the preparation to go into a DPLTA.
The next question comes from Andrew Gardiner with Barclays.
Just another one now on the 3D architecture development, both related to direct time-of-flight and the below-screen developments you've mentioned. You talked about sort of the work you're doing and the sort of the customer interest. I'm just wondering if you can give us a better sense as to timing as we stand here today. When do you think you would be ready in terms of a direct time-of-flight solution or, say, structured light below screen? When would you be ready when a customer's calling for this type of technology?
Yes. So as mentioned before, direct time-of-flight, we consider as a very important technology. It's in development. We are already engaged in the illumination part, and we consider a road map to bring complete solutions in the next years to come on the market. On the structured light behind-OLED, this is a technology we're looking after we brought the technology for active stereo vision behind-OLED, which is, as I mentioned before, end of the year as a demonstrator. Related to the structured light, that will be the next step. This is more complicated, more complex. But we have already the concept and ideas how to achieve this. And that's why we're also talking about this, that we have the ability -- we believe we have the ability to bring this to the market. So there are basically 2 technologies, active stereo vision and structured light, that can offer competencies to bring this functionality behind the OLED screen. But this is certainly, when you talk about active design wins with customers, a process over the next years.
So is that next years sort of a couple of years?
Yes. It's not for next year.
The next question comes from the line of Andreas Müller with ZKB.
One was really on the timing basically of integration costs and synergies. Can you outline again the EUR 400 million and the EUR 300 million, how that will be disbursed over maybe this year already to next year to 2022? That's the first question.
Yes. So I mean, as we said, the first priority now is to get into finalizing all the work that is necessary to enter into a DPLTA. Once you've done that, we can basically start also executing a number of the plans that we have, in the meantime, put together with OSRAM on realizing synergies and the like. And in terms of phasing of these synergies, I think we've always said that we would see a lot of the synergies being realized, a big part or so, in the first 2 years. And that phasing assumption has not changed. As far as the EUR 400 million is concerned, I think that was an estimate at the very beginning of launching the transaction. And I would assume that to be extremely conservative. And again, this is something we are now going to reassess in the next couple of quarters and months to come. But I would not consider the EUR 400 million as the reference that I would take. I think it's substantially lower than that.
Okay. And maybe the follow-up on the CapEx plans. I mean, currently, you're running an extremely low at ams. That's going to be the case probably for this year. But for next year, how do you see it? And can you give a hint, what's the combined CapEx plans? At what level we should model next year for the combined basis?
Yes. Maybe I think we should not -- we should both not forget that both companies, OSRAM and ams, has just completed a major CapEx cycle, us here in Singapore and OSRAM, for a large extent, in Malaysia. So therefore, CapEx levels should come back to what is kind of expected to be from the normal to support tooling and specific investments for specific projects with customers. And that's why we've also said -- I said in my prepared remarks that we would expect CapEx to be lower this year than about a year ago. And for next year, we are still making the plans together with OSRAM, and we will tell you what they will be. But for now, I think it's too early to make a statement here.
Okay. And my last question is on the overlaps. One is high-power VCSEL. You've got that from OSRAM but also from the ams side. I mean, are there plans to run it parallel probably for different end markets? Or is there -- do you have far too high capacity there? What are the other plans on that field or the overlaps, in general, maybe?
Yes. Alex here. So on the VCSEL side, and as you correctly said, this is one of the small overlaps related to the transaction. There are a lot of opportunities. These are different technologies. So what we acquired from the Princeton acquisition, we have done is a more high-power part than the VCSEL acquisition, what OSRAM has done. But in the VCSEL area, we see so many opportunities. And to find very good designers is not easy in this market. So bringing both teams together makes a lot of sense. The portfolio -- the breadth of portfolio will be much larger. We have the opportunity, as on the ams side, to have a wafer fab, which is a VCSEL wafer fab, which is automotive qualified, which OSRAM does not have. This is foundry base business on the OSRAM side. So putting both teams together and create a very strong VCSEL portfolio with internal manufacturing and very competent designer makes a lot of sense. So we don't see it as an overlap. We see it as an addition to strengthen our VCSEL business.
The next question comes from the line of David O'Connor with Exane.
Maybe firstly, Alex, if I can go back to your Q4 commentary. You mentioned it was going to be up quarter-over-quarter. When I look on the last 2 years, Q4 seasonality has been plus 2% quarter-over-quarter. So the strength you're seeing into Q4, is that along the lines of this typical seasonality? Or are you talking about something more substantial, where you can see revenues grow H2 '20 versus H2 '19? That's my first question, and then I have a follow-up for Ingo.
Yes. So we obviously cannot give a specific guidance on the fourth quarter. But it's very clear to us that we see a stronger Q4 compared to Q3. I think in this business, it's very hard to compare the years -- the previous year with this year. COVID-19 is a very different situation. As you also know, the structure of our business is also evolving with having more Android business into our portfolio. The automotive industrial market this year is certainly different to last year. It's very hard to compare that. But what I can say is that we see the guidance for the third quarter we have given, and we see a stronger Q4 based on what we have said on Q3. And this is also in line what we mentioned before that, even though with COVID-19, we have seen -- or we expected a stronger second half compared to the first half.
That's helpful. And then maybe as a follow-up, if I could touch on the OSRAM divestment. You've talked about already digital divestments. And also recently, some mention of automotive AM division, as you mentioned, as a possible divestment. Can you just help us understand the plan for the OSRAM auto, that's the AM segment there? And I have another question on OSRAM as well.
Yes. So first of all, to clarify one thing, we have seen the same articles in the press that we would have the intention to sell the automotive business. That's not our intention. I think in multiple calls, we explained that automotive is very strategic to us. We gave even clear examples where the sensor business from ams and automotive can create integrated solutions. So there, we could not confirm anything that we have seen in the press to that statement. What is true is -- and we also mentioned that we don't see a strategic rationale behind the [ Continental ] joint venture, certainly looking at that one together with the OSRAM guys. In [ certain ] digital, we also are very clear that at least the majority of the business we don't consider as a core for the new combined entity. And we are working with the OSRAM teams on the next steps to address this topic.
Okay. That's quite helpful. And maybe one last one, if I could just squeeze one in quickly. I thought it was interesting in the presentation, you talked about accelerating the micro-LED process development. Just wondering why now are you accelerating the investment there in micro-LED? Have you hit a certain milestone internally with customers? Or have the product time lines being pulled in by customers? Any color around that acceleration would be helpful.
Yes. So obviously, I can't go in details there. But what I clearly can say is the micro-LED technology is superior, what we've seen now on the OSRAM side. It's very clear to us that the micro-LED business is a very compelling technology for future applications. We clearly see applications emerging into smaller screen displays like for AR or watches, but we also see a path and interests to look at larger displays. And that's certainly a technology which is extremely exciting and we would consider as a good growth opportunity, especially if you combine with our sensor capabilities. And that will be completely unique in the market where we don't see any competitors out there today who is capable of combining micro-LED displays with sensors.
Ladies and gentlemen, this concludes our question-and-answer session for today. I would like to thank you again very much for joining us this morning for this results conference call, and we look forward very much to talking to you again after our third quarter results. Thank you very much, everybody, and have a good day.
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