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Ladies and gentlemen, thank you for standing by. I'm Mia, your Chorus Call operator. Welcome and thank you for joining the OSRAM Licht AG Conference Call on the Second Quarter 2018. Throughout today's recorded presentation all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Andreas Spitzauer. Please go ahead.
Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations of OSRAM, and I want to welcome you to OSRAM's conference call for our Q2 2018 results. As a reminder, the conference call will be recorded and is available in our homepage, www.osram-group/investorrelations.com. You can find today's presentation there as well. It is now my pleasure to turn over the call to Dr. Olaf Berlien, the CEO; Ingo Bank, the CFO; and Dr. Stefan Kampmann, the CTO of OSRAM. Please go ahead, Olaf.
Yes. Thank you, Andreas. Ladies and gentlemen, welcome to our conference call. As usual, I would like to start by giving you a brief overview. A look at the first half of our fiscal year shows that we face tougher market and a more challenging environment. In addition, the foreign exchange development was not in our favor. Nevertheless, we are pushing ahead with our growth strategy and continue to strengthen our market position as a high-tech company. I think we need to take into consideration that the technological shift in our industry and in our company is an ongoing transformation. The switch from traditional lighting to LED and now to the digital technologies has some way to go. In this context, we have made an important strategic decision with regard to the LSS segment. We have initiated the divestment process of our service business in the United States. This represent roughly 10% of the LSS sales, but it was the biggest lossmaker last year. In Europe, we are reducing complexity in production and logistic networks within LS. By summer 2018, we are aiming for a simplified structure, that means 1 plant, 1 warehouse, 1 IT backbone and 1 headquarter. However, the strategic review of the remaining part of LS is ongoing and as I said in November, is expected to be finalized in fall. Ladies and gentlemen, let me now start with a look at the quarter just ended on Slide #4. In the period January to March, we generated a modest increase in revenue on a comparable basis of almost 2%. Burdens from currency effects increased since Q1. On an absolute basis, foreign exchange lowered sales by nearly EUR 90 million. In the first half year, currency headwinds amounted to roughly EUR 150 million with an EBITDA margin of over 15%. Our profitability stayed at a high level in Q2. Currency effects of about EUR 30 million were the main reason for the decrease year-over-year. Also, ramp-up costs and higher research and development impacted our profitability. CapEx and free cash flow developed as expected. Last week, we adjusted our guidance for the current fiscal year as a result of weaker markets and currency burdens. And that brings me to Slide #5. With regard to global automotive production, we are anticipating an improvement in the second half of the year. Based on IHS prediction, this expectation should support our ambition of a higher growth in the second half of 2018, especially as LED penetration continues to grow. At the same time you maybe remember that the fiscal year 2017, we had to allocate production output to our automotive customer base. This was due to the extremely strong demand. In some cases, customer therefore had to qualify competitors as additional sources. As a result, some have now increased their share of wallet with customer. But let me stress, however, that we did not lose customer. I'm very confident that we're well positioned to fight back with innovative products and new technologies. In contrast, the construction industry in North America remains challenging. Our customers have been suffering from these effects for several quarters now. We do not expect that this situation will improve and therefore do not anticipate much change in the second half of the year. Additionally, we experienced a disruption in the utility support system of our plant for electronic ballasts in Bulgaria. Production had to be stopped for several days in February. This negatively impact our deliveries and reduced revenue was close to EUR 10 million. Thankfully, we are now back on track. This takes me now to our OS business and to Slide #6. OS should move into a more normalized market situation in the second half of the year. Our delivery times and our customers' inventories are back to normal levels in the automotive segment. As a result, our Opto business targets to return to a double-digit revenue growth in the second half of the year. Currently, we are ramping up our LED capacities. We have started to ship product from our new facility in Kulim. First customers were, for example, Opple Lighting from China or U.S.-based Kenall. And let me share another positive message with you today. To have continuity in OS, we have decided that our CTO, Dr. Stefan Kampmann, will take the role as an acting CEO of OS. Aldo Kamper will stay until August and he will support Stefan in the whole time. Meanwhile, the succession plan is running. As you can see on Slide 7, we are also stepping up our activities in growth markets where digitalization is the main driver. As a result of the OSRAM Continental joint venture, for example, we will be among those shaping the future of mobility and cutting-edge lighting solutions. In the horticulture sector, as I showed you on Page #7, we are an established player already today, and we aim to expand our leadership position. Horticulture presents big market opportunities, particularly in light of growing urbanization and a growing population. And thanks to VCSEL technology, we are able to expand our OS product portfolio. In short, we are successfully executing our strategy of profitable growth based upon our 3 pillar strategy. Let me start with SP on Slide 8. We announced that we were looking to tap into the opportunities being presented by the growing integration of light, electronics and sensors in modern vehicles. To that end, OSRAM will provide intelligent lighting solutions in partnership with Continental. The agreement to create OSRAM Continental GmbH was signed in late March. We expect antitrust approval in late summer. On Page #9, you see that the joint venture will play a key role with Specialty Lighting towards innovation and growth. We are confident that this partnership will result in a strong position within a growing market. In the medium term, we expect revenue could reach a level of around EUR 1 billion. The target range for the adjusted EBITDA margin is between 12% and 14%. Let me continue with Specialty Lighting on Slide #10. Today, we also announced that we will expand our existing horticulture portfolio through the acquisition of U.S.-based Fluence. Fluence is one of the world's leading providers of smart lighting for horticulture. This acquisition and our horticulture tech portfolio could open the doors to a potential big future market that is expected to grow with more than 25% year-over-year. Given our strong position in the horticulture market today, what I'll show you on Slide #11, we target to double Fluence revenue over the coming years. Fluence's profound knowledge of the market and the applications combined with our expertise in lighting, sensors and connectivity could make us a leading system provider. Turning to Slide #12, you will see that we are also delivering on our strategic direction in our OS unit. So by acquiring Vixar, and I am now with Page #12, a company in Minnesota, we have added a promising new building block to our technology portfolio. With the VCSEL technology, we have acquired a substantial amount of potential that could elevate our Opto Semiconductor business further. Page 13 shows you that today and to date, we are well positioned in two-dimensional sensing. Our infrared components are already designed in smartphones or tablets. Other than a password, a fingerprint or even an iris scan, facial recognition is another convenient method for identification. 3D sensing will open up new areas of application for us and for our customers and as well pave the way for ultracompact 3D facial recognition. The way in which VCSEL technology captures 3D environmental data has a broad set of applications. It includes augmented reality or LIDAR and autonomous driving. Already today, OSRAM is a market and technology leader for laser chips in LIDAR systems. On LIDAR, we have now accumulated more than 20 design-ins and wins. We're clearly the market leader in this segment. We believe it's entirely possible that revenue in this business could rise between EUR 200 million and EUR 300 million in the coming years. So let's move to Page #15. On Slide 15, I would like to take a look on our third pillar, the business with Lighting Solutions & Systems. As I mentioned in my opening, OSRAM has repeatedly indicated that we are working on improving the performance of our luminaire business. It is important to distinguish 3 business segments within our LS business. In Asia, particularly in China, trends such as city beautification provide us with good growth opportunities going forward. Just this week, we won a city beautification project within the dynamic lighting at a value of over EUR 7 million in China. In Europe, especially in the German speaking countries, we have initiated structural measures. I have mentioned them in the beginning. And then the third segment, the service business in the United States, we are now looking for a buyer for this business. We are currently in the initial phase of exploring interest in the market. I said, this is just the first step. At the same time, we believe that the second part of our reporting segment, LSS, the business focused on smart components for lighting control, has the potential to benefit from the trend of smart buildings, which is why we strengthened our business with the acquisition of the Trilux subsidiary, BAG Electronics. BAG specialize in electronic ballast and LED modules. OSRAM digital systems won, for example, 7 important awards. Ladies and gentlemen, I move now to Slide #16. And as you can see, we are clearly shifting our focus to fast-growing, high-tech market. In parallel, we still generate 1/3 of our revenue with traditional products. Therefore, we have to adjust our cost base in line with the sales development in these traditional product segments. For that reason, we have initiated several performance programs in order to secure long-term profitability. So let me illustrate this with the 2 main measures. Firstly, on Page #16, as a result of a benchmark analysis, we run a lean headquarter project to reduce our overhead costs by 20%. Secondly, we will increase our manufacturing productivity. And it is the first step, both measures should result into gross savings up to EUR 50 million per year. So ladies and gentlemen, let me summarize and let me close with a brief summary. Our strategy works and we will continue to execute. That means, we continue to strive towards technology leadership and growth. Long-term global trends are working in our favor, confirming that our strategy is the right one. As our LED share grows rapidly, we develop more and more into a high-tech company. So far from my side, thanks for listening and then I hand over to Ingo.
Thank you, Olaf, and good afternoon. Thank you for joining us today. Let me provide you with more details on the company's financial results in the second quarter of fiscal year 2018, and I'm moving to Slide #19 now. In the second quarter of '18, substantial foreign exchange headwinds and a less favorable market environment left their imprint on the company's financials, both in terms of top and bottom line. Comparable growth came in at 1.8%. We saw good growth in general lighting for Opto and the aftermarket business in SP. Destocking for auto LED components continued well into the second quarter. Unchanged from prior quarters, the market environment in the U.S. and in Europe for LSS did not improve. Adjusted EBITDA came in at 15.1%, negatively impacted by the strengthening euro, accounting for 130 basis points in difference to prior year's quarter. Higher R&D spend of around 130 basis points accounted for the balance of the difference to the second quarter of fiscal year '17. CapEx was EUR 151 million in the quarter, reflecting the footprint-related investments in Opto, not just for Kulim, but also Regensburg and Wuxi. As a result, free cash flow was negative with EUR 132 million as expected. Reported EPS was at EUR 0.46, lower by EUR 0.35. Approximately EUR 0.19 of the difference to Q2 of fiscal year '17 are due to a stronger euro, EUR 0.08 related to higher depreciation and EUR 0.05 to special items. Adjusted EPS was EUR 0.63. Special items in the quarter amounted to EUR 19 million, in line with expectations. Let's take a closer look at the revenue growth picture for the second quarter of '18 on Slide #20. The weakening of the U.S. dollar against the euro continued to weigh heavily on our nominal sales and nominal growth in the quarter for all of our reporting segments, even more so than in our first quarter of the current fiscal year. At group level, the 15% year-over-year appreciation of the euro versus the dollar had a substantial negative impact of approximately EUR 87 million, impacting nominal growth negatively with 830 basis points. The total benefits from changes in our business portfolio contributed 280 basis points to the year-over-year growth. Looking at the geographies at the lower right of the chart, we see that EMEA growth turned negative in the second quarter. The market environment for LSS continued to be very challenging, particularly for our traditional ballast business. The decline in the SP's OEM business for traditional light sources, especially xenon, continue to be in the low double digits. APAC growth was driven by Opto and LSS. In LSS, we saw the positive growth momentum in our dynamic lighting business continue well into the second quarter. Opto's growth in APAC was driven by general lighting as well as industry and mobile devices. Growth in the Americas was still positive, but slowed down compared to the first quarter of fiscal year '18. Growth was good for our SP aftermarket business in line with typical seasonality. The overall OEM business for SP in the U.S.A. declined, pointing still to a demanding overall auto market in that region. Moving on to profitability in Q2 on Slide 21. At a margin of 15.1%, we delivered EUR 153 million in absolute adjusted EBITDA. OSRAM's adjusted EBITDA margin for the quarter came in 230 basis points lower compared to the same quarter a year ago. Foreign exchange, higher R&D expense and ramp-up costs were the main drivers for the difference to prior year's quarter. As you can see in the bridge to the upper right of this slide, foreign exchange had a substantial negative absolute impact of EUR 28 million net in the quarter, translating into a 130 basis point headwind in margin. R&D was higher with EUR 13 million, driving 130 basis points of the year-over-year reduction in the adjusted EBITDA margin. Ramp-up expenses continue to weigh on the results of Opto and OSRAM. Volume growth was able to offset only some of those headwinds. Adjusted EBITDA in corporate items was negative with EUR 17 million. Special items this quarter amounted to EUR 19 million, in line with expectations. On Slide #22, you see summarized performance for our business units. Let me start with Opto. Opto's revenue growth was driven by APAC and the Americas, with a further expansion of our general lighting business and good growth in our industry and mobile devices business. Our overall Opto business in EMEA did not grow in the second quarter when compared to the same period a year ago as destocking for auto LED components continued. Opto's adjusted EBITDA profitability was impacted by the stronger euro, increased R&D spend and higher ramp-up costs. When adjusting for the impact of foreign exchange, Opto's adjusted EBITDA margin would have been closer to 28%. Opto expects an improvement of its automotive LED business in the second half. Also, based on the expectation, the growth rate of global automotive production will become more favorable. Olaf showed the latest IHS estimate in this regard earlier on Slide 5. SP comparable growth turned slightly negative in the quarter. Business in our OEM channel with traditional light sources, particularly xenon, continued to decline at a low double-digit clip. Growth in LED components and modules was muted as customers were still destocking. Therefore, less components have been sold between Opto and SP as well. The aftermarket performance was strong and in line with seasonal expectations. Profitability in SP was negatively impacted by foreign exchange, driving 50% of the difference in adjusted EBITDA margin when comparing to the same quarter a year ago. Moving on to LSS. Growth in LSS continued to be challenged by a weak market in EMEA and an accelerated volume decline in traditional ballast, not just in Europe, but also in the U.S. Our service business continued to grow in the U.S. as an improved order book drove a good revenue growth in the quarter. In addition, and as Olaf pointed out earlier, we encountered a temporary shutdown in our Plovdiv facility in Bulgaria, leaving sales short by almost EUR 10 million. In the meantime, production performance has improved. Underlying overall market expectations in the U.S. and in Europe have not changed meaningfully. We do not expect a near-term recovery, echoing also what customers and competitors have stated publicly in the course of recent weeks. Overall, lower volumes and a stronger price competition, particularly for traditional electronic ballasts, continue to put pressure on the revenue and profitability of LSS. We recorded approximately EUR 9 million special items for LSS in Q2 '18, largely related to restructuring and transformation charges to improve our cost base. Moving on to cash flow on Slide 23. Free cash flow in the quarter came in as expected at a negative EUR 132 million, largely driven by our capital expenditure plan for Opto. Net working capital increased due to higher inventory levels, which we expect to come down to normalized levels in the course of the second half of our fiscal year. Trade payables reduced in line with a lower quarterly CapEx spending pattern. Let me now turn to earnings per share and net liquidity on Slide 24. Reported diluted EPS in Q2 '18 was EUR 0.46, down compared to Q2 '17, significantly impacted by foreign exchange, accounting for approximately EUR 0.19 of the difference. Adjusted EPS for the quarter was EUR 0.30 lower than in the same period of last year, coming in at EUR 0.63. Our corporate income tax rate was unchanged at approximately 28%. Our net liquidity reduced to EUR 63 million at the end of the quarter with the main drivers being our CapEx spend in the quarter and the payout of our dividend for fiscal year 2017. Let me now change perspective and look forward on Slide 25. As a result of ongoing headwinds from foreign exchange and a rather muted sales performance in Q2 '18, we adjusted our outlook for fiscal year 2018 last week. We now expect to grow between 3% and 5% for the year, reflecting an uneven market situation on the one hand and the expectations of an improving automotive business for LED components in the second half of fiscal year '18 on the other hand. The 3% to 5% is on a comparable basis. Against this backdrop of a lower full fiscal year 2018 revenue outlook and continued headwind from foreign exchange, we have adjusted our outlook for profitability accordingly last week. We now expect adjusted EBITDA for fiscal '18 to be at around EUR 640 million for the year. In line with this adjustment in profitability and continued unfavorable foreign exchange, we now expect EPS to be between EUR 1.90 and EUR 2.10 for fiscal year '18. Our original guidance for special items for fiscal year '18 was EUR 70 million to EUR 80 million. It is unchanged and incorporated in the guidance. Please note, however, that the communicated extraordinary expense of between EUR 60 million to EUR 70 million for performance programs is not yet reflected in the guidance given the related uncertainty around the duration of discussions between the relevant stakeholders. Thank you for your attention and Olaf and myself are now looking forward to your questions.
[Operator Instructions] The first question is from the line of Sven Weier with UBS.
Those would be 3, maybe you can answer them one by one. The first question is just on what you think in terms of the organic growth rate for Opto beyond this year. I think you gave quite some evidence for your expectation for the second half to return to double digit, but -- and I know it's probably a bit early to talk next year, but what's your confidence in general in the Opto business when we think a little bit further and in terms of the achievable growth rate that you see? That would be the first one.
Okay. Sven, it's Olaf. A valid question, but as you said, we are still in the first phase of analyzing 2019, but I still can confirm that we expect a low double-digit growth rate.
Okay. The second question is on your acquisition in the VCSEL space. And I was just wondering, the company you are buying there, are they focusing on a special segment of the VCSEL market, focusing on consumer or any potential specific strengths here and any design wins that they have already.
I think that, as you know, the VCSEL technology, the face recognition, is mainly running in these days in mobile phones. It's moving more and more to other consumer products like tablets and PCs. I expect that the VCSEL technology will move as soon as possible in more automotive applications. And so if you would take a look on my chart on page -- give me a second before I'm talking. If you would take a look to Page 13, you will see that we see -- that the driver monitoring for autonomous driving, the LIDAR, we see application in smart glasses. So a lot of new applications will come up. And Vixar, we are working with Vixar a long time ago. And together with Vixar, we are in design wins for new applications. And of course, Vixar already had orders and design wins from customers in the United States mainly. So I think it's a great market. I think it's a booming market. And overall, I think OSRAM is now very well placed that we have 2D sensing, we have now 3D sensing, we have the infrared, the iris scan, the fingerprint and now the facial recognition.
And then in terms of, this is obviously a fabless company at the moment. I mean, how quickly do you intend to make these things internally then?
What do you mean with internally?
Because I think currently Vixar has outsourced their production of the chips, right, it's a fabless company, I guess. And would you also plan to make the VCSELs yourself then at some point in the future?
I know that always my voices are recorded for my competition so I'm careful what I'm saying. So Vixar today is producing in a foundry. So they are fabless free. If we maybe would use the Vixar chips in Kulim, that could be possible.
And the other question I had, you were talking obviously about the situation in Opto last year where you had some potential share losses at your customers. I was wondering, to what extent has this also been influenced by your decision on the Conti JV. What feedback are you getting from your Tier 1 customers? Is that also leading to some losses or is it so far not a big impact?
No, that's not a big impact. I think what happened is really what happen always if you have the situation that you cannot deliver what your customer is asking for. So what you typically do, you try to get second or third sources. And that happened that we lost some share. So we are talking really a small share, but that openly we lost some share, but as I said, we did not lose one single customer. But I'm quite confident that with new products and new innovation, I'm coming back to get the old part of my share of wallet. And to make it clear, I did not lose the share to any Chinese one.
And it's not that the Conti JV really has a negative side effect on all your customers?
No, I was -- no, no I can tell you really. I was -- 10 days ago, I was in Japan and I had very good discussions with our customer Koito and Stanley. And they are definitely not afraid because I'm not in their garden. It's a new way that -- now in the past, you had the set maker with the set and you had the light source and now the new trend is that you have electronics, software and components in both companies like OSRAM, like Conti, like Stanley, like Koito, like HELLA are moving in this new field. So you can come from both sides. They are in my garden or I am in their garden. So they are customers, they are clients, and I did not lose any share to these major clients in the automotive set maker business.
So the reason for the somewhat lower organic growth in the full year is basically because the underlying car production hasn't expanded as much as you would have thought, but not because you are not gaining back the market share as quickly as you thought?
Sven, this is Ingo. Yes, I mean, as Olaf explained, we had higher hopes for the second quarter as far as auto is concerned. That didn't happen for the reason he just outlined. We are more positive about the second half of the year based on both order intake that we've seen as well as the IHS production forecast. So that gives us a bit more confidence moving into the second half.
And the next question is from the line of Uwe Schupp with Deutsche Bank.
Two questions please. Firstly, just following up on Sven's question. You mentioned on the press call that you already had some discussions with also leading smartphone makers regarding the VCSEL side for 3D sensing. Just a clarification really, is that already potentially for launches, for smartphone launches of your customers in 2019 or is that a bit too early and do you rather see this 2019 or rather beyond, i.e., in 2020? And then secondly, it sounds like the Opto growth also had some impact also on the ramp overall of Kulim. And so assuming that would be the case and assuming that the second phase of Kulim is now maybe planned a bit later than originally. My question would be, is there a potential for or a plan for a potential new share buyback program given the lower share price and the fact that you did buy shares in here on the last buyback 1.5 years ago?
Okay. Coming to my first question, usually, I should move it to Stefan. He's the new CEO of Opto. But what I can say and I will -- both of us, we will not talk about the customer. So what I can say is that we are quite confident that this will happen in '19 and the years after '19. So what we are designing in is something for '19. The second question is with -- I don't see really the relation between a share buyback and the Kulim Phase 2. What I can say is, that we are much more productive in Kulim Phase 1. That means that we have -- that we will run a machine concept in this phase that we are -- we need less space. And for this reason, it looks like that we have a much higher productivity in Phase 1 than we originally expected. And for this reason, we can save additional space. But this doesn't mean that we are running with a new share buyback program. So as you see, I think we would like to spend the money in growth. And that was the reason we announced this morning really the company Vixar and the really important VCSEL technology and the other one, Fluence, in the horticulture as well. So we are spending the money in growth.
Just a follow-up on the first question, if I may. You indicated in your prepared remarks that Vixar already had some customers or one customer in the U.S. Is that the same customer that you are having discussions with regarding a potential 2019 launch or would that be coming more from your end rather than from Vixar?
Not bad, trying to -- moving...
Good try, Uwe.
Good try, good try, Uwe. They don't have only one customer, they have more than one customer, but I said they had mainly U.S. customer. So they definitely have more than one and they have more than 10. So I think it's a quite good company. I think it's a great move. And as I said, we are working with a huge customer for a new product. And for this reason I said, I expect sales between EUR 200 million and EUR 300 million.
And you would be confident in being able to ramp 2019 launch of a volume smartphone by one of the leading makers?
Yes, but Stefan, that's you.
In answer to Uwe's question, Uwe, I only can confirm for 2019, yes.
Next question is from the line of Charlotte Friedrichs with Berenberg.
The first question is, can you maybe quantify the amount of wallet share that you lost in the automotive area and how much of that you will be able to recover in the second half? Then maybe can you also comment maybe on the order book for Opto this year. And then maybe a few comments on the general lighting market, what are the price and volume dynamics here?
I hand over to Ingo.
Thank you. Yes, well, obviously, we cannot completely disclose how much share we lost. I think you should think about a low single digit percentage number in that sense. And again, I think it's important to also understand that at any given moment if you look at our order book, particularly for automotive as well, there's always some float within the quarter. You don't open a quarter with a fully covered order book for that business. And hence, therefore, Olaf -- as Olaf said, we're quite confident that over time we will be able to recover as we gain market share also back in the past from others as well. So I don't think that's a longer-term issue for us probably. I can't tell you and I won't tell you what the exact order book is. And you can imagine then when we said that we are looking into the second half in a more positive way, that is certainly based on some of the order book developments we've seen in the recent months.
Okay. And the general lighting market and maybe also an update on when you expect to have more news on the rest of LS for the Asian city beautification business and the European luminaire.
Let me comment on general lighting and then hand it over to Olaf on LS. So general lighting was a good growth driver for us in the second quarter for Opto. As he said, we are focusing mainly on the, let's say, the professional segment in that general lighting space. And as Olaf pointed out in his prepared remarks, we had the first shipment in the second quarter. And the ramp in Kulim is on track. As he pointed out earlier, if you look at the ramp in the second half, a lot of that ramp will be to in-source what we previously outsourced with third parties. Therefore, we will grow Kulim, but it will not all be visible in our external revenue for that reason. Overall, you have seen also some comments from other bigger lighting players that, especially on auto lighting and street lighting in U.S. and Europe, there's somewhat of a lower outlook in the second half than previously. So therefore, we will also see that somewhat in how we will load the Kulim factory. But I think we had a very good start and we are very looking much forward to continue the ramp and also replace what we previously outsourced.
Coming to your second question of the LS and the city beautification, this is clearly a market in Asia, mainly in China. So I think we have a good standing, a good market share. We are clearly a leader in this area. And we had in the LS segment in Asia really a double digit growth in our last quarter. And as I said, we won now another project over EUR 7 million some days ago, so that's in the third quarter. So I'm very optimistic that we will be very successful in this area in Asia. City beautification in Europe is not the case. So mainly the business of LS in Europe is street lighting and luminaires and professional. So city beautification is nothing for Europe mainly.
No, what I meant was, when will you have an update on the strategic evaluation of those 2 businesses, so the Asian city beautification and the European luminaires, because you have given us an update on the U.S. services business.
I stand absolutely what I said in my guidance and the -- from November 2017. I said, we take our time and we will later come up with a final decision in fall 2018. So I think the first step is now the service. That was the biggest pressure. And I think we -- it's good that we start with the service business. And with the luminaires business, we will make a final decision in fall.
Next question is from the line of Michael Hagmann with HSBC.
Two questions, if I may. One would be about the pricing across Opto, so I was wondering if you could -- maybe current pricing environment or the pricing trend or the trajectory -- put that into a historical context. Are we seeing an acceleration in the price decline across Opto? If you think it makes more sense to look at price/mix in that context, I'd equally be happy to take an answer on that one. And then following on, on the question about the remaining part of LS or the remaining parts of LSS, if you could maybe outline to us why you would want to keep those businesses, i.e., what would OSRAM as a group lose by not owning LSS in its entirety or at least the LS part?
Okay. Let me start with the first one, with LS, and then Ingo will talk about your question. So coming to LS, I think I clearly really said since 2017 that we -- '15 that we have LS on our watch list. And I think the best one from the shareholder point of view is that we create value that we made restructuring on overhead. If we would divest LS in the time where you have losses, you will have -- there's nobody in the market who will buy it. I think the best one is, make your homework, bring it in the right direction and then we can talk about. And as I said, we reduced really the complexity. We put a lot of workforce out of the Traunreut factory last year. And this year, we reduced complexity that we, instead of 2 factories, we have now 1 concentrated in Europe. We have now 1 warehouse. And we moved -- in the past, we had 2 headquarters. Part of the headquarter was in Munich, the other part was in Traunreut. We will move the whole Munich one for LS to Traunreut. So reduce complexity, make it leaner, work on your product portfolio, bring it back to profitability, and I think then that's the best way to talk about it. Again, if we would do it last year or this year, nobody will pay you really a high amount.
Excuse me. Can I just interject here? I understand all of that. The question was really, what would you lose? Like what would Opto and SP lose by not being part of the same group as LSS or LS?
Nothing. We wouldn't lose anything because they're really fully independent. The luminaires business is a different business than the semiconductor business or the automotive business. So it is a pillar in the group. And for this reason we said, let's think about a strategic option and I will come back in the next 5 to 4 months, as I said in fall, we will have a final decision on that.
And then coming back to your question on pricing, we have not really seen any significant changes in the pricing environment for Opto. We've seen here and there some attempts to get into some of the automotive customers with some price proposals from some competitors, but that's more here and there. That's not a broad-based assault, if you like, on a pricing perspective. So there, we don't see any major new dynamic that we haven't seen before.
And the next question is from the line of James Moore with Redburn.
Maybe I'll go one at a time as well. I wonder if we could talk about Vixar. Why Vixar and not another VCSEL player? What IP do they have that's special? And why do you think sales will double every year? Is that a faster growth rate than the market? That's the first question.
Okay. The answer is, Vixar, as I said, we are working with Vixar since a long time. So Vixar is nothing new on our watch list. We are working together on a customer project. And for this reason, we decided to put it in our portfolio. So that was the reason. We are partners since a long time. And maybe, Stefan, I think they have great IP rights, they have a great technology portfolio. And I think together, we have good projects in the pipeline.
I think, Olaf, as you said, we -- due to this long-term cooperation with Vixar, we knew them very well. We know basically their competencies. We know their technology portfolio. We know their applications. We know their few customers and future customers and future projects. And when the opportunity came up to maybe talk about an acquisition, it was the perfect fit. And the growth rate which you mentioned, I think the positioning of that company with the application Olaf mentioned before is a good foundation for this growth, which we are expecting. And the numbers which Olaf mentioned before are very rational.
And as the first question was from Sven, we have maybe the capacity, don't we?
Yes.
And also on your savings program, I wondered if you could help with the timing and the phasing of the savings that you expect to get. I know there's some degree of uncertainty on the charge, but assuming you got the charge in at the end of the year, what sort of timetable are we talking about for the savings?
That's good. Ingo will talk about and I'm coming to the savings. Okay. Ingo?
Yes. From a timing perspective, as we said, we didn't incorporate into the guide because we don't have full certainty that the discussions between stakeholders will finalize within the current fiscal year. I believe we are quite confident it will finish within the calendar year. And hence, we flagged the discussion because we didn't want to wait to have those discussions started. And obviously, if you look at savings, and Olaf will tell you a little bit more about this, the savings can only start when we've agreed and we signed an agreement with our colleagues from the employment front. So then, once that is clear, I think we will also communicate how the savings will move in. And they will definitely not just come in, in a single year. And it will be different types of OSRAM. So there will be different plans with different locations over time. But I don't think -- it's a bit too early to now talk exactly about the phasing across quarters, et cetera.
And so what we tried to do is that you have a lot of different ways to communicate it. You can do it with a big bang and making a lot of noise. Our concept is working on this concept making not so much noise, but being successful in the implementation. So we are working, as I said, and you see there's a chart on our worldwide footprint and the sales force to make it leaner and more effective. We reduced the headcount in our lean headquarter and in our headquarter. I think we benchmark every single function. And I think we will come up with a benchmark cost base. We worked -- additionally, you see it in the third pillar, it's that we streamline and make leaner our business units and their overhead. And we worked on the transformation of our plan. So a lot of different programs -- performance programs. And as Ingo said, really our culture is to talk, first of all, with the workers' union, with the union and with the workforce and that will happen now in the next 14 days.
And the last question really revolves around the revenue growth potential of the group over the next couple of years. And thank you for your earlier comment about low double digit in Opto. But I wondered if we could circle back to your 2020 5-1-5. And can I ask whether now post the profit warning that, that's a redundant medium term target? And perhaps more specifically, you did put the green overlay of the pie chart, I don't know, 6 months ago about the revenue potential for Kulim. And I understand the first year is in-sourcing the outsourced, but could you talk a little bit about what a rough picture for Kulim revenues by the end of the decade looks like now?
Yes, I know. I understand your question and of course, it's relevant. But I think we have a number of puts and takes. And that's what you said, changes in our portfolio, M&A announcement like today on the other hand that we try to sell something, the joint venture with Conti. So our 2020 guidance is based on a positive long-term market trend, our strong product portfolio and our strong market position, and all of which are still valid. So in this case, it is -- we stay to the 2020 target with the whole team. I know it's more ambitious than maybe in the past, but as I said, there are puts and takes, and that's the reason we think we will make it.
And on the Kulim, my sense was [ 800, 900 ] was a number for the end of the decade, when you discussed it last. Is that broadly still the same picture?
I think we should first see how Kulim is ramping. As we said on a number of occasions that the ramp-up plan is completely in line with what we said earlier. Olaf already -- also said that we're looking at a plan right now how we can basically even better utilize already our first building there to put more capacity in there without the need to put in a second building and be more CapEx/sales effective, if you like, and also look at a more positive cash flow picture over the next 2 years. So those are the things that are ongoing right now. And I think it's premature now to call out a number or anything. The revenue potential for Kulim is still valid, absolutely. I think the fact that we've been able to sell product already in the second quarter to clients that have not been our clients in the past is, I think, very encouraging. I'm also looking forward to the second half. So from that perspective, I don't think it makes a lot of sense now to break it down in Kulim, et cetera. But overall, the plans we have for Kulim are still developing according to plan.
Next question is from the line of Alok Katre with Societe Generale.
I have 3, if I may, one by one. Firstly, in terms of stepping back in terms of your overall sort of capacities. Clearly, you sort of struggle a little bit with capacity in the later part of sort of last year and then we had obviously a softer automotive sort of market, et cetera. And then obviously, smartphones, there's some question marks around smartphone sales nowadays. I mean, if you look at all of your end market sort of demand, sort of environment, how confident are you about the capacity expansion at Regensburg? And then also in that sort of same priority, if you could also talk a little bit about how we should think about Phase 1 ramp-up at Kulim and then Phase 2 as well? And so what gives you the confidence behind some of these capacity expansions? That is question one.
Hi, Katre. I think my really quick answer is, I'm very confident about the Regensburg expansion. It is red. So that means red LED. They are booming. We have capacity issues. That means we do not have enough capacity. And I'm really looking forward to get this capacity. And maybe to add on, if you would think about this VCSEL technology, this is based on red. And this is not already in Regensburg. We do not want to produce it in Regensburg, but the red capacity is limited and I'm quite confident.
Okay. Fair enough. And on the auto side, are you confident that you have enough design or platform wins that would back up this capacity as well, potentially even at Kulim, I think there's been obviously plans for auto LEDs.
So I think we need to be careful that we don't mix up things here. First of all, the auto is right now in the process of qualification in Kulim. That typically takes up to 12, 15 months. You have to do it on a customer by customer basis, for instance, but we're very confident that we will be able to accomplish that. So the expectation is that starting with calendar year '19, we will be able to probably start shipping automotive-related product out of that facility in Kulim. So that, I think, is the basis. You need to qualify first before you start production, obviously. As I said before, the order intake we saw in the second quarter points to a betterment in the second half of this fiscal year. As Olaf said, we visited a lot of customers in the recent couple of weeks and we got still very, very positive feedback from our automotive customers. So from that perspective, we are quite confident that our automotive business will continue to grow well in the future.
Okay. Fair enough. And then just in terms of the working capital side of things, you obviously seen a inventory buildup and you're expecting a, let's say, rollback of that inventory buildup in the second half of the year as well. But how should we, I mean, just thinking in terms of -- obviously, you've sort of probably seen customers destocking through the quarter. How should we sort of then think in that background of the inventory increase, particularly in Opto, in the second quarter? Is it sort of -- should we think about it as, you were preparing for second half growth or let's say, is it just to avoid any production challenges in the future? And what sort of working capital level should we be thinking about?
So I think, first of all, the increase in inventory was partially in Opto, but was also in SP. And in SP, basically, we have had 2 reasons why we consciously increased inventory above what we normally have. One was that, as you know, there are some electronic simple components like transistors, capacitors, et cetera, out there that are here and there in scarcity. So we made sure that we have enough inventory so that we can ensure delivery with our automotive customers. That was one reason. The other reason was that, we have quite a number of new product introductions in the second half of the year planned and in line with the product road maps of our customers. And for that, we also needed to ramp a little bit ahead of shipments in the second half. So that was one reason. And for Opto, I think it is fair to say that because we saw somewhat of a lower revenue base in the second quarter, we obviously continue to produce because we know that just based on the order intake we have, we do believe in a better second half. Having said that, we also, of course, make sure that we manage our cash flow for the year properly. So I would expect that Opto will come somewhat down to normalized inventory levels by the end of our fiscal year.
I mean, so when you say normalized, should we think in more like closer to 2017, closer to 2016 or just to give us a sense of what you would sort of think of normal working capital and inventory levels?
I don't think we've ever said anything or disclosed anything about working capital specifically to a business unit. We also kept the free cash flow guidance for the year intact as you've seen despite somewhat of a lower revenue base. So from that perspective, I expect what we were able to do in terms of days sales, days outstanding overall. If you look at net working capital by the end of last year, we will also closely be ending the year at the same level for the company.
Okay. And then my last bit was just on the planned JV with Continental. If you could just -- obviously, the adjusted margin target is 12% to 14% for the whole JV, but could you just sort of give us a sense of what or where do you see the profits today, especially for the, let's say, the Continental part that you would expect to consolidate? And then should we think about this JV as more just restricted to high end sort of smart lighting like a matrix beam or so on or do you see there's enough scope within the context of the JV to extend the offering even to perhaps midrange cars, whether it's C-segment or so on?
Let me start with the profit question and then I hand it over to Olaf and Stefan to talk about the market perspective for the joint venture. So the business that we bring in for both parties includes also, of course, the revenue base and the JV is, of course, an investment case for us initially because we need to integrate 2 parts of a company. We need to integrate parts of Conti, parts of OSRAM. So that will mean that there are some initial expense we expect for IT and other things that you typically would expect for, let's say, a joint company. Of course, we want to make sure that the strong R&D backbone that we marry with Conti's side and our side that we'll be able to develop new products for our customer base. And it also means we will have to up the R&D investment of the combined entity above what is already spent singularly by both shareholders. So that will be an initial investment we will take as well. And then we expect that over the midterm that we will achieve those targeted EBITDA ranges that Olaf indicated early on. But now let me hand it maybe to Stefan or Olaf to talk about the potential we see from a market perspective.
I think it's clear that we have not only targeted the high-end applications and let's say, the premium cars. We want to be an innovation player. That's clear. But we have also -- from the setup of the joint venture, the clear target to enter the volume segment. And I think both companies have a heritage of being a volume player. And our people have also a clear understanding that you need volumes and you need to have the volume segment to be profitable and stable. And in the premium segment, you can launch innovations, but then you have to scale it up to be capable also from a cost basis to be attractive in your pricing for the volume segment. And that's a clear target and a clear setting of the R&D and also of the road map of the company which we are forming.
Next question is from the line of Lucie Carrier with Morgan Stanley.
I have 3. I will go one at a time. The first one, I wanted to go back please on the guidance for this year to understand also a bit better how we are exiting the year and the dynamics. Because if I kind of back out your EUR 640 million with the EUR 325 million adjusted EBITDA you've done in the first half, it means that you are assuming pretty much the second half of the year adjusted EBITDA contribution to be stable or maybe even slightly down. And I had a bit of a hard time to understand that considering you are signaling that you expect much stronger auto business in the second half, which is typically very high margin for you. And also as the FX headwind, if we take spot FX, should be kind of easing actually for you also in the fourth quarter. So can you maybe explain a bit the dynamics here on the guidance?
Lucie, it's Olaf. Ingo will talk about that.
So obviously, as you know, from a profitability perspective, our aftermarket business in SP is extremely important. And that typically has its biggest profit contribution in the first 2 quarters of any fiscal year. And therefore, that won't change in this year as well. So the second half, we will see a lower contribution from that business given the summer season as well. Of course, that will somewhat be compensated by the expected improvement in the auto business of, let's say, Opto. But overall, on balance, and as we said, we still have some challenges in some of the lighting market, luminaires markets in Europe and the U.S. We said that the EUR 640 million is probably a good number to look at. On the foreign exchange, when we updated the guidance last week, we were updating it on the basis of USD 1.22. If you look at our hedging, obviously, we are hedged now for a little bit. So even if the spot rate today is at USD 1.199 or USD 1.20, that doesn't mean that, that materially will change our outlook for the year.
Okay. But just to come back maybe on the point on the aftermarket business, I mean, the seasonality has always been the case, but previously, you were guiding for a stronger second half versus the first half. I mean, you had said, second half '18 would be or like '18 would be more back end loaded. So I'm just not sure I understand why the seasonality in SP aftermarket makes a difference here.
You were asking in terms of profitability and I tried to explain...
Yes, absolutely.
Yes. And I tried to explain that the profitability in our aftermarket business is very strong. And therefore, if the aftermarket business overall is not so strong as it is in the first half, obviously, that has an impact on the overall profitability. And as I said, on the opposite, we expect therefore an improvement in our LED components business for Opto. And if that improves and you count against that the aftermarket business, it could possibly be a wash.
So what you're saying is the improvement you're expecting in the non-aftermarket part versus your previous expectation is actually a bit lower than what you had expected earlier in the year?
No, I don't think that's what I'm saying. I'm saying that if you look at the guidance that we gave on the EBITDA, and your question was, why is the absolute EBITDA probably the same in the second half as in the first, I was trying to explain those dynamics. That's the only answer I gave.
So it's just -- it's more -- the reason may be why I am not understanding well is because when you had guided initially for 2018, you had guided for a second half to be stronger than the first half of the year. So you had said '18 would be back end loaded. I'm assuming you were already taking into account the aftermarket traditional seasonality. And so considering now that the second half is not looking to be stronger than the first half, I'm just trying to understand what has moved here.
Well, okay, let me try it again. So if you look at OSRAM, historically, the full year is never 2x the first half. I mean, that will be -- probably not find a year where that was the case. And I don't expect will be -- that will be different this year. Secondly, when we talked about an improvement, originally, we were, as you will recall, predominantly, we were talking about the impact that Kulim might make on the revenue base. And we still expect an impact from -- positive impact from Kulim in the second half. But you can imagine that given the ramp and also the start-up of that business that, that business right now is not contributing to the profitability of the company. We are ramping up R&D, we are building up the sales force, so I don't have a profit contribution from that business at this point and that hasn't changed either. So therefore, what I said before, and what I said initially when I gave guidance for '18 is still valid.
Okay. I wanted to come back also to kind of follow up on James' question on Vixar. I mean, there are already quite a lot of players in the VCSEL kind of market, fairly large players. So maybe to go back to what James was asking, what is really maybe the difference of Vixar technology versus those existing players? And also from the CAGR you are kind of providing on your slide, I mean, I think you're implying over 1,000% CAGR per year between '18 and 2022. Maybe can you clarify within that overall sales CAGR how much you're expecting for volume and which assumption of price you are taking?
Yes. Thank you, Lucie. I think the difference is maybe to other VCSEL companies is the following. The VCSEL technology itself, it's a long-time technology. It's nothing new. So the first VCSEL technology is based 20 years ago. OSRAM was already in this technology. We stopped that because there were no application. Now in the meantime, the VCSEL chip technology light can be used for facial recognition. This is a new trend, a new application. And in this case, the combination of the VCSEL technology and these application, especially in these days for mobile phones, are very interesting. So Vixar has good IPs. And as I said, we have a long-term relation to Vixar. So it's nothing that we started last week. And as you maybe know, we have a long-term tradition to mobile phone producers as well. So OSRAM is sincere supplier to mobile phone companies. So I think the combination is unique. We have the go-to market with the technology of Vixar. And as I said, we are working together on concrete projects. I think that's different to the other VCSEL companies in the world. So in this case, there's a concrete discussion with a concrete order and that makes me -- of course, if you have the order, you have it; if don't have it, you don't have it. But I expect that we get the design in and design win. And for this reason, I expect a turnover up to EUR 300 million.
And Lucie, I think the second aspect which make this unique is, as Olaf mentioned before, we see also application in the future in the automotive sector. And as you know, it's a big barrier for newcomers to go into an automotive market, not due to the basic technology, but due to the requirement of the application in regards of quality, in regards of robustness. And I think OSRAM with the experience in the automotive sector can really leverage to take the technologies of Vixar and bring it into the automotive market as a recognized supplier and a supplier with a big heritage in automotive components.
And the last one was just a follow-up also on the share of wallet you had with some of the auto suppliers. You did say that, that share of wallet didn't go to Chinese competitors. But is that share of wallet, has it gone to your historical, I would say, 2 other competitors in the market, i.e., Nichia or Lumileds or has it gone to new competitors, maybe the Japanese or South Korean one?
Usually, I do not talk about my competitors by name in a conference call. So as you said, it seems to be that it moved to one of them that you mentioned, but no Chinese one.
Next question is from the line of Peter Olofsen with Kepler Cheuvreux.
I have 3 questions from my side. The first one is a follow-up on what you said on Kulim on the efficiency there. Back in January 2016 at the Analyst Day in Munich, you talked about the cost leadership of OS. To what extent do you need to realize Kulim Phase 2 to achieve full-scale effect and to achieve the targeted cost leadership or does Kulim Phase 1 on a stand-alone basis also have this cost leadership structure already? And then I have 2 follow-ups, please.
As I said, really -- always my competitor and competition is in the line. What we have in Kulim is that we have a much more productive machine concept than we originally planned. With this new machine concept, we need less space in Phase 2 for the same number of wafer starts per week. That means in the opposite, I can put -- or I will be able to produce more wafer starts per week in Phase 1. And with a little bit extension, capacity extension, and that's not Kulim 2, it will be, let me call it, Kulim 1.5, I will be able with less CapEx to produce the same number of wafer starts per week as we proposed in 2016. So we will come to the number of wafer starts per week as we exposed. There's no change in our concept. The concept change is that we need less space and have a higher productivity in the space.
Okay. That's helpful.
That's helpful?
Yes. Then -- and second question relates to the same presentation from January 2016 where you showed the slide with data from IHS, which suggested that the global supply-demand in the LED industry would tighten in the coming years. However, it seems that a more recent forecast from IHS indicate that there will be actually a situation where the oversupply might increase, especially in 2019. So do you share the latest views by IHS and to what extent would that affect your decision-making around further expanding Kulim?
I'm not sure if I understood it correctly, Spitzauer, but let me -- would you?
Yes, I think -- so you're asking whether we believe in the IHS numbers or not. I think what we've seen is in the last couple of months or so, a number of announcements of players, some as we expected, others were a bit of an interesting one, a lot of the announcements were not just based on our technology, but also moving into silicon for some of these investor. I think it's not fully clear yet how that will pan out. I think some of the Chinese suppliers even a couple weeks ago postponed a number of MOCVD orders because they didn't see the market developing. So we are currently going through that obviously. Our focus is right now on how we develop the market. As Olaf said, we found a way to probably increase the space output, if you like, for our existing facility in Kulim and move more equipment in there. Compared to '16, we said a number of times that we believe that we cannot just produce on the basis of sapphire-based technology out of Kulim, but we will also produce based on UX:3, delivering also into more premium segment. All of that is still the case. So from that perspective, we haven't changed really our plans right now. And I think IHS is trying to make a sort of sifting through the -- all these announcements and trying to make some predictions. Obviously, that's part of our normal business planning process that we will also look into this and see where this is going.
And I think we can clearly say, yes, we believe in the numbers of IHS. We are watching carefully what is proposed for the future, but -- and for this reason, we are careful with what we are doing with our investment. And as we said in the beginning, we watched the demand and we saw that there's a huge demand on red. And for this reason, we invested in Regensburg. So in 2016, we thought that maybe a higher demand -- not we, IHS, a higher demand maybe for sapphire. And we said, okay, huge demand in UX:3 and for this reason, again, we invested in Regensburg, and we will come up with our factory in November 2018. So overall, to make it clear, we still believe and we know that the strategy and the investment in Kulim is right. We see that -- we are ramping up. We have high utilization. And we put the right product and the utilization in this factory to be effective. And as I said, we are working on machine concept, space concept, bring more UX:3, make it automotive certified and so on and so on. So in this case, I hope really in the end that we do not get so much questions about Kulim in the future because I think the sector is now online. We have the customer and that's the case.
And then my third question relates to Specialty Lighting where you mentioned the shift from conventional to LED-based headlamps. I assume that LED headlamps sell at higher price points than xenon, for instance. So is it correct that in the comparable sales growth of minus 0.8% in Q2 that there was actually a positive ASP or mix effect in there?
Well, generally speaking, LED-based front light solutions carry somewhat higher ASP. That is correct. But the reason for the decline in the growth or a slight decline in the growth of SP in the second quarter was that we saw a low double-digit decline in our traditional business, so that's xenon as well as halogen, and we didn't see much growth in our LED components business because of destocking. Typically, these are 2 sides of the same coin because obviously if production growth continues, you do see replacement from traditional into new technology LED. Because of the special destocking situation with us, traditional continue to decline as it did in previous quarters and was not fully compensated by growth. But I don't think it has anything to do with real ASP changes or mix in that regard.
Okay, but there is a clear price difference between the different technologies?
Yes, there is a value difference indeed.
The next question is from the line of Guenther Hollfelder with Baader-Helvea.
Some follow-up questions, first one on the impact of Kulim in the next fiscal year, especially -- I mean, I understand that you are replacing third party LED dies going forward. So overall, will you have a positive margin tailwind going into the next year from this strategy?
Question for Ingo.
So as I said, when I think Lucie asked me earlier around general lighting that I do not expect at the end of this fiscal year that we see our general lighting business coming out of Kulim in positive profit territory because simply it's a normal situation. We are ramping up production, we're ramping up R&D and the sales force and the revenue base is not big enough yet to cover that. So from that perspective, I don't think you can assume, as you call it, a positive tailwind at the end of this fiscal year. As far as the contribution for next year is concerned, I think it's a bit too early to already talk about '19 in particular detail. I think the most important takeaway probably is that, again, we are ramping up according to plan. We've asked the team to see what we can do to get even more output from the existing space that we have there, which point to the fact that we want to continue to invest into capacity also next year. We are not yet fully at scale to come back to an earlier question. And that scale level will be reached by certain capacity that we expect to cover next year that should also contribute from a revenue perspective to the overall sales level for Opto. That's all I want to say at this point in time, and we will certainly talk more about this when we give initial guidance for '19 later in the year.
And compared to the prices you are currently paying for the third-party dies, is there any target that you plan to achieve in terms of cost reduction based on in-house production compared to these prices?
Well, obviously, we know what the prices are that we buy wafers in for today, so obviously know what these cost targets are. But as I said, if you don't have full scale, you can't expect to be fully at those prices at this point in time. From a cash perspective, obviously, it's much more attractive still for us to do it in-house rather than paying somebody else to do something that we can also do internally, but we have a very good team at general lighting and Opto. They'll know exactly what market prices are. They know exactly, of course, what customers are asking for. And therefore, there is no mistake as to what we need to accomplish there from a cost perspective, but it will take some time. But again, that's nothing new and that's always been a consideration.
And one question on the VCSEL sales of up to EUR 300 million next year. So I understand this is mainly depending on one major design win in a smartphone. So I was just wondering, what's the timing, when will there be a decision regarding this design win?
To make it clear, I never said next year. That would be really fantastic, but that's not true that this is next year because that would be '19. I understand that you would like to find out who is it, but I will not and I cannot talk about that. We have current projects and customer already in Vixar and we are working on a bigger one. And that's really all what I can and will say in this case.
Okay. Fair enough. And the last question on the LIDAR, you mentioned, I think, 20 design wins. I assume with lasers -- conventional lasers used in LIDAR systems. Any indication about the size of your LIDAR-related laser business, for example, next year what we can expect?
That's really a detailed number I do not want to give you, sorry for that. But I think in LIDAR, we are clearly, absolutely clearly the market and the technology leader because really we are nearly in most of the LIDAR systems in the world. So I think it's a growing market and we are really well positioned in that. And with 20 design wins and check how many design wins and ins have maybe some other ones, you will find out that we have 10x more than some others.
In the interest of time, we have to stop the Q&A session now and I hand back to Andreas Spitzauer for closing comments.
Thanks very much for your participation and we're looking forward to working together with you in the next couple of weeks and months. Thank you. Bye-bye.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.