Philips, Osram lighting spin-offs diverge on LED challenge

Full Name: 
<iframe src="" width="640" height="360" allowFullScreen frameborder=0 title="blown-bong (c)" style="float:left;padding:10px 10px 10px 0px;border:0px;"></iframe>Philips, Osram lighting spin-offs diverge on LED challenge By Reuters <b>Published: 07:01 GMT, 10 May 2016 | Updated: 07:01 GMT, 10 May 2016</b> e-mail 23 shares <b>By Toby Sterling and Georgina Prodhan</b> AMSTERDAM/FRANKFURT, May 10 (Reuters) - Philips' decision to float its lighting business will offer investors a radical alternative to its closest independent competitor in the lucrative illumination market, Osram Licht, itself spun off by Siemens three years ago. In terms of size, the two are comparable: Philips Lighting had core earnings (adjusted EBITA) in 2015 of 547 million euros ($624 million), on sales of 7.5 billion euros. In the same year, Osram reported core earnings of 567 million euros on sales of 5.6 billion euros. Both seek to profit from steady growth in general lighting for streets, homes and offices - predicted by Boston Consulting Group (BCG) to be worth $105 billion by 2020, up from 87 billion in 2014 - as well as their respective niches in automotive or specialist light systems. If you are you looking for more info regarding <a href="">Kibico Kim Bình</a> take a look at the website. But with an eye on the challenges posed by the growing market share and steadily dropping prices of LEDs -- light-emitting semiconductors that are more energy-efficient and last longer than conventional lights -- the two companies are pursuing very different strategies. Philips wants to maintain its global number one position in both conventional and LED lamps, while becoming more profitable at selling complex lighting systems to corporate customers. Osram, meanwhile, is abandoning the general lamps market completely and plans to sell that business. Instead it is betting big on expanding its manufacturing of the LED chips that go into lamps and systems for general lighting, spending a billion euros to build a new plant in Malaysia for that purpose. According to a BCG study in November, LEDs will make up more than 50 percent of the $130 billion global lighting market by 2020, and lighting companies will have to think creatively to make up for weaker margins from "precipitously" falling prices. PHILIPS Philips makes 85 percent of its profits from conventional lamps and will keep pruning that capacity as sales shrink by double digits and LED lamp sales volumes grow. "Overall, we think the combined profit from lamps and LEDs is likely to be stable at best," said Jefferies analyst Peter Reilly in a note after Philips announced its IPO plan. The answer, Philips believes, lies in its other major lighting business, Professional Lighting, which sell lighting fixtures and systems to corporate customers. In that it will have to compete with the likes of General Electric, including selling services around networked LED lights, which are programmable and will become an important part of the "Internet of Things". The Philips unit also faces an unexpected threat from newcomer Acuity Brands, which had more professional systems sales than Philips did in the first three months of 2016 for the first time. Acuity has outmanoeuvred competitors and seized U.S. market share with a superior sales and distribution strategy, and shares are up more than 300 percent over the past five years. Philips Lighting CEO Eric Rondolat acknowledged in a press conference last week that his company "did lose a bit of traction in the past years" but said investments in its sales organisation are beginning to bear fruit. Neuberger Berman, which retains Philips NV as one of the main holdings in its equity income portfolio, has said it will consider investing in Philips Lighting's IPO, expected by July. "We're open to that idea, for sure," said research associate Shawn Trudeau. "We're not structural bears on the lighting business like I feel many investors are." OSRAM The strategy for Osram, whose shares have gained almost 90 percent since it separated from Siemens in 2013, has been to pursue niche markets -- notably in the <a href="">automotive</a> industry, a market with high barriers to entry. Its Specialty Lighting and Opto Semiconductors divisions -- both mainly focused on automotive -- accounted for all the company's operating profits last year. The company announced a big departure in November with its new Malaysian investment, however. The news precipitated a 30 percent fall in its shares and the company's CFO, who opposed the idea, quit. <b>"That's a completely misguided strategic direction," said analyst David Vos of Barclays.</b> "They will now have to go head to head with all the Chinese, Koreans, whoever else decides to compete in that market. That's just a game you can't really win." Osram argues it is investing in a growth market and has scale and technology advantages that will help it succeed. The shares have since recovered and are currently trading at around 45.64 euros, 11 percent lower than before the announcement. UBS analyst Sven Weier, who is neutral on Osram shares, said in a recent note it is conceivable the company's move will pay off: "While the investment could aggravate overcapacity and price pressure, the underlying market is growing strongly." ($1 = 0.8770 euros) (Reporting by Toby Sterling; Editing by Sonya Hepinstall)