Osram to cut jobs after spin-off

2012-11-30 14:03

Frankfurt - German lightbulb maker Osram will cut another 4 700 jobs, or 12% of its workforce, and sell factories to compete with Asian rivals after being spun off from parent company Siemens.

Osram, which has annual sales of about €5bn, said on Friday it wanted to save €1bn over three years, with half the savings coming from procurement.

The firm, set to to be spun off in the spring, has been slow to shift to light-emitting diodes (LED) from traditional incandescent bulbs, while Asian rivals built up capacity and drove down prices.

"We are entering the digital lighting age," Osram chief executive Wolfgang Dehen said, adding new jobs created in the LED field would not be enough to offset the decline in positions in its traditional business.

Siemens itself is spinning off Osram, whose brand is 106 years old, as part of an overhaul of its business which includes a €6bn savings plan that will see it divest less profitable businesses and focus on areas of core expertise.

To that end, Siemens said this week it was to pay £1.7bn for the rail business of British group Invensys to get better access to customers in Australia, Britain, Spain, and the United States.

Siemens plans to give 80.5% of Osram to its shareholders, keeping 17% of the business.

Osram aims to boost profitability by bringing new products to market more quickly. It could also buy chips for mass-market LED bulbs from rivals who can produce them more cheaply, while focusing its investment on high-end technology.

LEDs, best known for their use in flat-screen televisions and tablet PCs, are becoming increasingly popular as a source of general lighting in shops or restaurants, for outdoor displays, and for headlights in cars.

Consultancy McKinsey saw the LED market growing more than sevenfold to almost €65bn by 2020, accounting for the bulk of global demand for lighting.
Asian growth

So far, only two of Osram's 44 factories in 16 countries make LEDs - in Regensburg, Germany and Penang, Malaysia - but it is building a new plant in China at a cost of over €100m to boost its presence in the fast-growing Asian market.

Meanwhile, newer players in lighting such as South Korean groups LG Electronics and Samsung Electronics are grabbing market share from traditional industry leaders - General Electric, Philips and Osram.

"In the short term, this year and early next year, the market environment (for LEDs) continues to be challenging," said Jamie Fox, manager of the Lighting and LEDs area at IMS Research, recently acquired by IHS.

The LED market had a volume of about $10.3bn in 2011, which IMS Research expected would grow to $13.5bn in 2015.

Of the cuts announced on Friday, which are to take place by 2014, 4 300 will be outside Osram's home market. Half of that figure will go via factory sales, Osram said. The 400 jobs to go in Germany will be from Berlin, Munich and Wipperfuerth.

The move will bring its total headcount reduction since the end of its fiscal year 2011, when it had a workforce of 41 000, to as much as 8 000.

Osram said costs for the new restructuring programme will be in the mid-hundreds of millions of euros. Last week, sources told Reuters it would cost €500m.

Sources have also told Reuters that Osram will publish the prospectus for its listing on Dec. 7, ahead of a vote at Siemens annual general meeting on Jan. 23.