ams OSRAM AG

SIX:AMS

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, welcome to the ams First Quarter 2020 Results Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] 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. Michael Wachsler-Markowitsch, CFO; and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.

[Moritz M. Gmeiner, Head of Investor Relations]

Good morning, everybody. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's conference call on our first quarter results. Please note that due to the current situation, we're working from remote locations. So we ask you to please bear with us if there may be a slight delay in responding to your questions later on. As usual, Alex will lead you through the development of our business, while Michael will give you a more detailed view of our financial performance. So without further ado, I would like to hand over to Alex.

[Alexander Everke, CEO & Member of Management Board]

Yes. Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our first quarter 2020 conference call this morning. I will discuss our business, starting with some key financial figures, before Michael will comment on the financials in detail. Our first quarter revenues came in at $501 million, in the upper half of our guidance range and up 32% year-on-year. Our adjusted EBIT for the first quarter was $101 million or 20% of revenues, which was also fully in line with our expectations. With these results, we recorded the highest first quarter in the history of ams all around: revenues, EBIT, cash flow. And amazingly, we did so while grappling with the unprecedented and truly demanding COVID-19 situation.Achieving these results in the times of a global pandemic makes me feel proud of our company and especially our people. I would like to take this opportunity to thank our employees around the world for their outstanding commitment and flexibility in light of the current challenges. Our key priority, of course, is the safety and well-being of our staff, and we have implemented a broad range of measures to ensure our employees can stay safe. At the same time, we continue to work closely with suppliers, customers and partners to mitigate the effects of COVID-19 on our business. Let me now look at our business in more detail. Our positive performance in the first quarter was driven by demand for consumer solutions that developed along expectations, while the expected muted demand prevailed in other end markets. Consequently, our consumer business contributed a larger share to our overall revenues and results. As the leading provider of optical sensing solutions, our broad 3D portfolio and system know-how cover structured light, time-of-flight and active stereo vision for front-facing and world-facing systems. This enables us to fully support customers' technology choices and road maps. Based on our VCSEL portfolio and optics capabilities, we serve the leading smartphone OEMs with the current main focus on 3D elimination.Expanding our position in the Android market, we are shipping significant volumes of 3D sensing into a range of high-end platforms. As the adoption of world-facing iToF 3D continues, we supply different VCSEL 3D illumination solutions for this application. These world-facing systems allow OEMs to offer strongly improved picture quality through camera enhancement, which is driving their market success. At the same time, we are extending our system capabilities and the scope of our 3D offering through the integration of high-quality near-infrared image sensing. Here we pursue near-infrared sensor solutions to support several 3D architectures and use cases. We see our technology driving excellent application performance as we combine high-quality global shutter sensing with excellent low-light sensitivity and high quantum efficiency. In display management, we are seeing further adoption of our behind-OLED light sensing in high-volume Android smartphone and mobile device platforms, which includes several recent releases. This unmatched technology moves light and proximity sensing invisibly behind the OLED display so OEMs can remove bezel-placed elements from the device front and maximize the screen-to-body ratio. Our strong market success continues to be driven by leading Android OEMs while we move along a multi-generation road map for this technology. All in all, we are shipping significant volumes of our wide range of advanced display management across the leading consumer OEMs. We have also started shipping our innovative sensor for highly accurate automatic white balancing in smartphone cameras. Correct white balancing is a key photographic parameter, driving picture quality and color expression. Using spectral sensing technology, the solution performs detailed spectrum analysis of the light environment for precise white balancing that was previously impossible. As a result, our spectrum automatic white balancing enables significantly higher picture quality and vivid natural colors for mobile devices. Our first design win is in a recently launched high-end smartphone platform by a leading Android OEM. Here, our automatic white balancing plays a key role in the strongly improved DXOMARK ranking, the industry benchmark for smartphone camera quality. Given the outstanding camera performance with spectral automatic white balancing, we are already engaged in additional customer designs. When you look at recent Android platform launches by different OEMs, they demonstrate our strong market position in new optical sensing applications such as behind-OLED light sensing, world-facing 3D camera enhancement and auto white balance for compelling photography. We continued our strong R&D investments for further innovation in optical sensing. Leveraging our unmatched behind-OLED capabilities into 3D sensing, we are progressing with our developments to move front-facing 3D sensing invisibly behind the display. Based on active stereo vision technology, we continue to expect to demonstrate behind-OLED 3D solution in the second half. Here, we work to combine ams VCSEL illumination, near-infrared sensing, software and algorithm from our portfolio to create a high-performance 3D offering. We address the market trend to reduce visible components on the device front and expect significant market interest in 3D behind-OLED technology in mobile devices. Generally, both active stereo vision and structured light technology are able to support behind-OLED 3D sensing. So we plan to explore all paths for innovation in front-facing 3D. In addition, we view direct time-of-flight technology as an important upcoming element in 3D sensing, given that it offers strong performance advantages, particularly for longer distances and regarding daylight immunity. As 3D applications continue to evolve and new use cases are being evaluated, we see widening market interest for the demanding technology. Based on our illumination and sensing portfolio, we are engaged in road map-based developments to drive high-quality direct time-of-flight solutions for world-facing use. In audio sensing, we see good traction for our high-performance noise cancellation solutions, where we have built a strong market position. These include innovative digital noise canceling for loose-fit wireless earbuds. Overall, our solutions for audio devices and audio-related applications continue to ship in substantial volumes. I will now turn to our automotive, industrial and medical, or nonconsumer business, which recorded a subdued performance in the first quarter. In automotive, we are experiencing negative order trends, reflecting the current challenges to production in the automotive industry. Despite this current situation, significant R&D and development activities continue unchanged in our focus areas, such as LIDAR illumination for different architectures. The full automotive qualification of our internal VCSEL production line, which we continue to ramp up through this year, provides a further competitive advantage in this area. Likewise, developments and market traction for in-cabin optical monitoring continue against the background of increasing OEM and Tier 1 interest and first secured projects. This emerging market offers attractive future opportunities for our system capabilities, as shown by our recently showcased active stereo vision 3D system solution, including near-infrared sensor and software.Our industrial business showed a muted performance in the first quarter given the challenges in industrial end markets. Nevertheless, our broad product spectrum and leadership in high-performance solutions remain helpful in the current situation. Industrial imaging developed in line with end-market trends, supported by a strong position in high-quality global shutter. Leveraging our technology base, we focus on the development of near-infrared image sensors for 3D sensing, as mentioned earlier. Our medical business performed well in the first quarter. As a result of the COVID-19 crisis, we are fulfilling additional demands to support a broader deployment of CT scanners as they play a key role in clinical COVID-19 diagnostics. Given our leading position in medical imaging for CT, digital X-ray and miniature camera endoscopy, our medical product lines, including NanEye endoscopy, continued their attractive contributions. I would like to point out a further innovative use of our unmatched spectral sensing technology in medical. Our spectral sensor solution can optically analyze the results of medical lateral flow tests at very high accuracy. In light of the current pandemic, we are keen to exploit this medical sensing expertise to help support COVID-19 management efforts. Based on our current evaluation, we see possibilities to accelerate advances in rapid point-of-care diagnostics for COVID-19 and will continue to pursue this path. We have started an early cooperation with industry partners in medical testing, but remain interested in additional partnerships with medical testing vendors. Let me now update you on the acquisition of OSRAM. The acquisition remains fully on track, and we successfully completed the related equity raise at the beginning of April. We expect to use the gross proceeds of around EUR 1.65 billion towards financing the tender offer consideration for OSRAM shareholders. As regulatory filings and other information suggest, the share overhang following the completion of the capital increase seems to have disappeared in the meantime. We are moving very well along the process of attaining the remaining merger control clearances for the transaction. As a consequence, we continue to expect the transaction to close by the end of this quarter, subject to receipt of these clearances. Including the shares we plan to receive at closing, we expect to own around 68.2% of OSRAM shares at that point in time. This will allow us to start implementing the integration of ams and OSRAM immediately following the closing as the majority shareholder. In preparation, activities for this expected integration continue together with OSRAM. While we cannot comment on OSRAM's current business, we are seeing weak demand in certain end markets and expect this to last for noticeable but, in the end, limited period of time. In any case, the short-term market situation does not change the long-term value creation potential from this acquisition or our ability to close the transaction and create efficiencies for the combined company. Looking at our operations, we are taking all required and necessary measures to safeguard the health of our employees as well as our ability to manufacture across locations. We are running planned volume production in all manufacturing locations and work very closely with our suppliers and authorities to maximize availability for our customers. These measures have enabled us to stay aligned with customer requirements and to support customer demand in our end markets. We are taking a prudent approach to short-term capital expenditures and other costs, but we do so without sacrificing our ability to support rebounding demand in the future.I will now come to the outlook for our business. For the second quarter 2020, I'm happy to say that we expect our business to show a very solid performance in spite of the demanding COVID-19 situation and typical first half seasonality. Consumer solutions and programs will continue to drive demand for us, and we see ongoing high-volume shipments to the wide spectrum of OEMs and platforms which includes recent launches. We expect our nonconsumer end markets to be more strongly impacted by the current situation, while certain areas such as medical imaging, continue to provide positive effects. On the basis of available information, we therefore expect second quarter revenues of $440 million to $480 million, which reflect a limited impact from the COVID-19 situation. This is also a significant year-on-year increase of 11% at the midpoint when compared to last year's second quarter. The adjusted operating margin for the second quarter is expected to remain very healthy at 17% to 20% in spite of anticipated COVID-19 effects on our business. To me, these expectations demonstrate that we are able to manage the current situation despite its challenges. We remain focused on the safety of our employees and serving our customers, and I'm convinced we will continue to navigate successfully through these demanding times. Please note that the mentioned expectations assume no further unforeseen negative consequences of the COVID-19 outbreak that would result in a meaningful negative impact on our second quarter business. For reference, the revenue expectation above exclude deconsolidated revenues of around $20 million to $25 million per quarter, which have been deconsolidated as of the year 2019 -- year-end 2019.Before I now hand over to Michael for more details on our financial results, and as these are the last results he will be presenting, I want to take the opportunity to thank Michael for the more than 4 years we have been working together at ams. He has been instrumental in growing ams from a much smaller company some years ago to a very profitable $2 billion leading optical sensing provider we are today. This success is based on his many years at ams, where he was always being a driving force in taking the company forward. So with this, over to you, Michael.

[Michael Wachsler-Markowitsch]

Thank you so much, Alex. Yes, good morning, ladies and gentlemen. As usual, it's my pleasure to give you an overview of our IFRS consolidated and adjusted numbers for the first quarter 2020.Let me start with our P&L and the top line development. As Alex already mentioned, our first quarter group revenues were $501.2 million. This is the highest first quarter in our history which we were able to record in the currently truly demanding environment for our industry and the whole world economy. We are very pleased about this performance, which was again mainly driven by a strong consumer business based on high smartphone volumes and consumer product ramps. These results clearly demonstrate the resilient development of our business in light of the COVID-19 outbreak and its effects. We saw strong growth in the first quarter on a year-on-year basis as revenues increased by 32% compared to the first quarter last year. Reflecting typical consumer seasonality, revenues came down 23% compared to our record Q4 2019. Our adjusted gross margin, excluding acquisition-related and share-based compensation cost, was 39% compared to 32% in Q1 last year, another significant increase. This gross margin development reflects higher capacity utilization as well as continuing positive effects from the significant productivity improvements in our manufacturing processes, mainly in Singapore, which result in more efficient staffing and material usage. Our IFRS reported gross margin was 37% compared to 29% in Q1 last year. Our R&D spending in the first quarter was $65.5 million, in line with our expectations and a meaningful decrease from $76.8 million in Q1 last year. In relative terms, we spent 13% of revenues on R&D in the quarter, which is a very solid level from my point of view. Our continued strong R&D spending supports a range of platform developments and large-scale product opportunities, including new optical sensing technologies for consumer and automotive, such as LIDAR and behind-OLED 3D sensing. While there are always quarter-to-quarter changes in R&D spending, we continue to target the consistent level of 12% to 14% of revenues on a full year basis.Further down on our P&L. SG&A costs were $64.5 million compared to $43 million in the first quarter last year. These costs include onetime effects in relation to the OSRAM acquisition and the recent capital raise. In relative terms, we spent 13% of revenues on SG&A in the quarter. We continue to pursue efficient spending and target lower relative SG&A costs in the future after the transaction-related costs clear out. Our other operating income of $3.9 million for the first quarter compared to $4 million in Q1 last year resulted for the most part from R&D support grants from Austrian and European R&D programs which are tied to dedicated R&D spending for these programs.Given these developments, our adjusted operating result or EBIT, excluding acquisition-related and share-based compensation costs for the first quarter, came in at $101 million or 20% of revenues, which was also a historic record for first quarter and very well within our guidance range. This is also a very strong increase from $22.8 million or 6% of revenues in Q1 last year. The IFRS reported result from operations or EBIT for the first quarter was $59.8 million or 12% of revenues, significantly up from minus $4.3 million in the same period 2019. Our net financial result came in at minus $72.9 million compared to minus $2.7 million in Q1 last year. This includes onetime effects from financing costs in relation to the OSRAM transaction. The result also reflects a required valuation adjustment of our holding in HLJ Technologies (sic) [ HLJ Technology ] which resulted from recent equity market volatility. Consequently, the adjusted net result for the first quarter came in at minus $17.1 million (sic) [ minus $17.0 million ] compared to minus $9.2 million in the same period in 2019.Adjusted basic and diluted earnings per share were CHF 0.20/CHF 0.05 and USD 0.21/USD 0.05 (sic) [ minus CHF 0.20/minus CHF 0.05 and minus USD 0.21/minus USD 0.05 ] compared to minus CHF 0.12/CHF 0.12 and minus USD 0.11/USD 0.11 (sic) [ minus CHF 0.12/minus CHF 0.12 and minus USD 0.11/minus USD 0.11 ] for the first quarter 2019. Our total backlog at the end of March stood at $255 million compared to $264 million at the end of Q4 and $280 million on March 31 last year. This takes into account large intra-quarter business, which is playing a meaningful role for our total business, especially on the consumer side.Now I would like to give you some additional figures from balance sheet and the cash flow statement to complete the picture. Our cash and cash equivalents stood at comfortable $827 million at the end of the quarter compared to $552 million at the end of the fourth quarter. This change mainly resulted from our strong free cash flow generation in the first quarter as well as the utilization of certain financing facilities and the sale of our treasury shares at a technical measure before the capital increase. Here, we took into account that under Austrian law, treasury shares do not receive subscription rights in the context of a rights issue. Our trade receivables stood at $142 million, down from $223 million at the end of the fourth quarter. Our DSO ratio was 33 days, flat compared to last quarter and down from 35 days in Q1 last year. This DSO level is very attractive and well within the target range I would like to see. Inventories were $247 million compared to $232 million at the end of the fourth quarter, reflecting our inventory management and manufacturing efficiency, among other factors, while the finished goods portion of our inventory remained at about 25% of total. On the liability side, we have a current debt position of $1,003 million at the end of March, while our long-term debt stood at $1,376 million. Our net debt position was $1,552 million at the end of Q1, including our long-term financial investments, which reflects 23.4% of OSRAM shares we have purchased already. Our leverage in terms of net debt-to-EBITDA at the end of the first quarter stood at 2x, a very solid level from my point of view. Excluding the effects from the OSRAM share purchases, we would even be looking at the net debt-to-EBITDA ratio of around only 1x. I can say I'm very happy to see the strong deleveraging of the ams business over the course of the past 4 quarters.Our operating cash flow was again strong in Q1, showing a significant increase to $234.7 million from $93.3 million in the same quarter last year. This cash flow result was also a historic record for first quarter. So as you can see, very good cash flow generation is continuing in 2020 as expected. Our CapEx in the first quarter was $37 million, 7% of revenues and 57% lower than last year's Q1 spending of $85 million. As mentioned previously, we expect CapEx to remain relatively low going forward and take a very prudent approach on short-term spending.In conjunction with the OSRAM transaction, we successfully completed the EUR 1.65 billion capital raise from a rights issue in early April. Therefore, it is not yet reflected in the first quarter results. Completing the capital increase in this challenging and highly volatile market environment was not a small feat, in my view. It also shows our clear determination to implement our strategy as well as this transaction. We intend to fully use the proceeds primarily as the consideration for the roughly 40% of OSRAM shares we expect to receive at the closing of the transaction after receipt of the remaining regulatory approvals. The consideration for the tendered shares will amount to roughly EUR 1.5 billion. As a result, I expect that our leverage at closing will be similar or not meaningful different to what we have seen at the end of March. This is a very strong position for us to move forward as a 68% shareholder in OSRAM after closing. Last but not least, I would like to take this opportunity to say goodbye to all of you and thank you for your interest in our company. As you know, I will be stepping down in line with our succession planning, so I will stay very close to the company, and Ingo Bank will be joining the management board as CFO shortly and will be presenting our next quarter results in July to you. And with that, I would like to thank you for your attention and open the floor for questions. Stay healthy.

[Operator]

[Operator Instructions] The first question comes from Sébastien Sztabowicz from Kepler Cheuvreux.

[Sébastien Sztabowicz, Head of Tech]

This is Sébastien Sztabowicz. Congratulations for this strong quarter. I've got one question on the short-term outlook. What kind of visibility do you have on your Q2 guidance? And it seems that the demand could be a little bit subdued on the smartphone market with volume slightly dropping double digit in the second quarter, and your guidance is fairly optimistic, so the visibility will be quite appreciated. And the second one is on 3D sensing. It seems that you are now targeting to put structured light 3D sensing behind-OLED on top of ASV. What kind of timing do you have in mind for structured light specifically? And the last one is on OSRAM and the synergies because since last summer a lot of things have changed, we have the COVID-19, we have the collapse of the automotive market. Is this something that is changing a little bit the synergies that you are targeting with OSRAM, the EUR 300 million synergies or not?

[Alexander Everke, CEO & Member of Management Board]

Yes, thanks for the question. For the first one related to the second quarter guidance. As you know, we base our guidance on the information we have, how customers plan their needs and how they take up volumes as we move through the quarter, so we cannot speculate about -- regarding the question. So it's -- we see the second quarter, I wouldn't say optimistic. We see it realistic based on the information we have and based on the forecasting we got from our customers with an adjustments we feel is appropriate. So it's similar to the last quarter. This is based on the information we have, and we feel comfortable with the guidance we just gave. The question about structured light behind the OLED. Based on our technical information, it appears that it's possible, it's doable, and that's why we are keen to explore all the ways related to structured light, but also for active stereo vision to move this technology behind the OLED screen because I strongly believe that will be the future, that you don't see any sensors on the display in a smartphone anymore. And because of that reason, we see a future for those either structured light or active stereo vision behind-OLED. Michael?

[Michael Wachsler-Markowitsch]

Yes. Let me take your synergy question. Clearly, our initial assessment of the EUR 300 million synergies continues to hold. I think we always said that there is further upside in the long term from jointly unlocking exciting new opportunities, and we continue to see runway for further upside to create more value for our shareholders. But currently, the EUR 300 million is what we said and what we still can say.

[Sébastien Sztabowicz, Head of Tech]

Just on the timing of structured light, is it the same timing that you have for active stereo vision, a product that could be showcased over the next 6 months or it will be after active stereo vision on your road map?

[Alexander Everke, CEO & Member of Management Board]

It will be later than active stereo vision, that's correct. So active stereo vision will happen this -- in the second half of this year. Structured light will be a bit later. But we are working, as always, on road maps for the next quarters and years ahead so that we are always available to be the first to offer new technology to our customer base.

[Operator]

Your next question comes from Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

My question is just really around the financing of the deal. What's the sort of thought process around raising debt at the moment? I see your bridge loan has only a 3.08% interest -- effective interest rate according to your annual report. The prevailing interest rate for your debt is obviously much higher, potential credit rating is much higher. So -- but at the same time, you can't -- as I understand it, the bridge loan will kind of run out in March next year. So what is your thinking there on the timing? And what kind of acceptable interest rate? How soon do you need to do it? And then I have one follow-up.

[Michael Wachsler-Markowitsch]

Yes, Robert, this is Michael. Happy to answer your question. Look, I mean, obviously it actually depends on certain circumstances. The maturity of bridge financing can extend into next year, around mid next year. And I think it's important to note that we have currently only around EUR 450 million pulled out of the bridge financing. And after the expected closing, we expect to settle the tender offer shares and other acquired shares to a very high extent using the EUR 1.65 billion we received from the equity raise. So clearly, we intend to refinancing the remaining acquisition facility through a combination of different debt instruments. But also, clearly, we have to wait and see how the capital markets further develop. We are obviously very mindful of current market volatility. And there is -- and therefore, we are not in a rush to tap the market. We will look at this. Clearly, we will watch and monitor the situation. And as I mentioned before, we're very proud of what we have achieved. We have currently a very solid net debt-to-EBITDA ratio. And you have seen our ongoing strong cash flow generation, which is also key to support our operations, but also the transaction going forward. So we feel comfortable about the whole situation, but certainly, we will monitor it going forward.

[Robert Duncan Cobban Sanders, Director]

Got it. And just my follow-up would just be, whatever you can say on the year. I think in the past, you said you could grow for the full year led by Android, in particular. Is that still your expectation? Is there anything about the seasonality between H1 and H2 that could be different this year? Maybe H1 is unusually strong and H2 is not. I know it's obviously it's a bit early to say, but obviously it would be good to get some idea about the sustainability of the Q2 trend into the second half.

[Alexander Everke, CEO & Member of Management Board]

Yes, Rob, Alex here. Absolutely. I mean, as you know, we offer detailed guidance for the upcoming quarter, and outlook for the second quarter just reiterates the strength of our business model. But overall, we are dealing with an unprecedented situation for the whole industry and does not have a clear idea at this point of time the market development in the coming quarters. So -- but still, I think it's likely that we see a general seasonal pattern with a higher second half like in other years. But to speculate in more detail about this would be premature. What we can clearly say, however, is that the activities in development, design and other preparation that we are seeing at our smartphone customers, in average, are continuing. There's no meaningful change in what we are observing right now there.

[Operator]

The next question comes from Jürgen Wagner from MainFirst.

[Jürgen Wagner, Director]

You may -- a follow-up on OSRAM. You mentioned you will move ahead as a 68% shareholder, but you are not in a rush. What -- at the moment, what potential squeeze-out costs are you looking at for the minorities you still want to buy over time? And the second question, the 3D behind-OLED, you added now structured light. And when are you expecting industry adoption? As you mentioned, you will have it in the second half. And potentially what content could we look at for both ASV and structured light?

[Alexander Everke, CEO & Member of Management Board]

Yes, let me take the second question, Jürgen, and then Michael will take the first one. So 3D behind-OLED, that's, as I mentioned before, is, I think, a very attractive solution for our customer base, and we expect a very nice adoption from the end customers. Obviously, the industry adoption will be not this year, will be next year, probably end of next year. Our customer base have to use designs after we demonstrated with our demonstrator, what we will release during the second half of this year. So we have to be a bit sensitive, but I think in the -- the discussion with customers will start end of the year and continues into next year. And then it depends on the road map of customers when they bring this to market. But it's certainly, and that's why we're investing in this technology, a very positive and unique selling point for our customer base related to their end customers.

[Michael Wachsler-Markowitsch]

Yes, Jürgen, Michael. Happy to take your first question. You may recall that we said we go for a DPLTA. And obviously, we're not in a position to speculate at this point in time about any costs associated with that. What is clear, though, is that the one-off DPLTA compensation is the higher of the 3 months VWAP and the value determined based on the valuation methodology in Germany. What is the outcome, we simply don't know. So I think it's too early to speculate about that. And same obviously is a true statement for any potential squeeze out which might come at the later stage.

[Operator]

The next question comes from Deshpande Sandeep from JPMorgan.

[Sandeep Sudhir Deshpande, Research Analyst]

My question is, firstly, regarding the second quarter guidance. I mean clearly, very strong guidance in the second quarter, yet historic second quarter has been sequentially not as strong. How much of this, in terms of the guidance that you've proffered, is associated with new wins versus what you've always had in the past? That's my first question. And my second question, I mean, you've answered it in some way, but maybe you can clarify. What is your plan on the rest of OSRAM that you do not own today? And what you're going to do with those shares which are still out there in the market? And is there a short-term plan? Or is this a long-term plan?

[Alexander Everke, CEO & Member of Management Board]

Well, let me take -- thanks for the question. Let me take the first one. So the second quarter guidance is a mixture of, of course, a good demand, so based on the current demand and situation we are seeing and it's a mixture of all customers. Certainly, as you know, we have positive effect of new wins, but it's not the majority. But as we described some quarters ago, what we see over time is that the first half and second half distribution of our revenue will be more balanced, which is also in line with our strategy.

[Sandeep Sudhir Deshpande, Research Analyst]

Sorry. Just a follow-up to that, it means that your old strategy that the first half you will have wins in smartphones that are released in the first half is playing out in these numbers. So this is a lot to do with the incremental revenue could be with the new wins, correct?

[Alexander Everke, CEO & Member of Management Board]

Part of it is incremental win, absolutely. But we don't quantify the amount compared to the wins we had before. But certainly, the more we win in the Android space, the more our revenue distribution will be balanced over time. And that's exactly what we want to accomplish. But it's also, as you know, we are managing the business very professionally and very thoughtfully. And we are very happy with the performance we see in most of the end markets and relate to our customers. And of course, it's also a matter of that we are capable of supplying the demand to our customer base, that we manage our supply base. Raw material supply is [ monitored ] very tightly that we are able in this very difficult situation to manage our factories worldwide in Philippines, in Austria as well as in Singapore. So all this comes together that, first of all, the demand is there, what we indicated. But secondly, we also create the ability to supply, and altogether, creates this Q2 guidance.

[Michael Wachsler-Markowitsch]

Yes. And to your second question, this is Michael. Again, we have formally announced the intent to pursue the DPLTA and this intention is unchanged. Clearly, only on a basis of a prudent financing for this step, that's what we always said. So -- and with that, we have not laid out a specific time line. So I think we continue to look at the market situations and assess our options.

[Operator]

Our next question comes from Andrew Gardiner from Barclays.

[Andrew Michael Gardiner, Director]

I had another one on the second quarter outlook and your visibility. Alex, you've explained sort of how you've framed it based on forecasts from customers and you've made adjustments to try and be prudent. We're hearing sort of more noise coming out of the supply chain and indeed from some of the OEMs, one of your larger ones, this morning about expectations for weakness in the smartphone business as we head into the second half of the year. I'm just wondering what you're seeing across your customer base in terms of revisions to expectations as we've come through recent weeks. Have there been changes? Or is your 2Q sort of order book effectively what you had anticipated it would be weeks or months ago?

[Alexander Everke, CEO & Member of Management Board]

Well, we follow the program plans of our customers, their forecasts. We are in constant discussion with our large customer base to ensure that our guidance, our forecasting is as accurate as possible. Obviously, we -- there are changes, as in every market situations, over the weeks. But we are very pleased what we see for the second quarter that we deliver a good forecast for and good guidance for the second quarter, and we feel confident that we can deliver this. But we don't see -- no significant changes very recently. So that's why we feel very comfortable.

[Andrew Michael Gardiner, Director]

Okay. And if I could follow up related to this…

[Alexander Everke, CEO & Member of Management Board]

And also we expect a very good development in the second half, as I indicated before. So we're still in a very comfortable situation. And on top of this, besides revenue, as our Q1 results and Q2 guidance shows, that also financially, on a bottom line, we feel very comfortable to manage the situation. So it's -- we feel safe in this.

[Andrew Michael Gardiner, Director]

Okay. And just a follow-up, sort of related to this. In the prospectus for the rights issue, you disclosed that sort of high 50%, nearly 60% in revenue in 2019 was from your leading customer. And you talked of, again this morning, about the gradual diversification of your revenue base or of the Consumer & Communications towards Android. Within what you just reported for first quarter and what you're guiding to for second quarter, is it possible to already see a material change in that, that your leading customer is less than sort of the high 50%, 60% of sales? Or is it still pretty similar today?

[Alexander Everke, CEO & Member of Management Board]

Well, we certainly have quarter-on-quarter variations, but still, of course, our largest customer has the largest share of those quarters. But as I mentioned before, obviously the more the Android business is growing, the more it's balanced. But certainly, with Austria moving forward, we will be significantly more balanced, not only by customers, but also by market segments.

[Operator]

The next question comes from Janardan Menon from Liberum.

[Janardan Nedyam Menon, Technology Analyst]

Just 2 from me. One is on OSRAM. You'd previously indicated your plans for how you would go about reducing costs and gaining synergies, et cetera, at OSRAM which have included suggestions that you might be planning to exit certain businesses or JVs and things like that. I'm just wondering, in the current environment, obviously the automotive industry is under severe pressure. Do you think you may need more time to implement those changes and achieve those synergies and cost reductions or exits than you previously had anticipated before COVID? Will there be additional pressure from either government entities or unions, et cetera, in the current environment where that could take more time? Second question is just on your second half outlook, one more time, if I might. Typically, you have a very strong third quarter seasonally because you ramp for new product launches with the end of the third quarter. And normally, the supply chain would have quite a bit of visibility on that by this stage already. So I'm just wondering, you're not sounding fully as yet confident on the second half of the year, which is understandable. But is that more an uncertainty on what Q4 could be and you have some degree of confidence right now based on order trends on Q3? Or is that sort of equally split between that uncertainty is there across both Q3 and Q4?

[Alexander Everke, CEO & Member of Management Board]

To be frank, to speculate now about the distribution of Q3 and Q4 related to revenue would be really premature in this challenging situation. But I think it's already a good news that we see seasonality from first half to second half, as I mentioned before. So this gives us a positive view on that. But we will not speculate now on Q3, Q4 distribution of the revenue. That's not the right thing to do now at this point of time. As related to the OSRAM case and reducing costs and so on, what you just mentioned, we don't think we need more time than originally planned. We are in discussion with OSRAM, and we go through a process to make those decisions together. We don't see additional pressure from either direction. And we mentioned before that we feel comfortable to deliver the synergies, as indicated, through the capital market. And we feel comfortable with the OSRAM team together to deliver this. And as you see how we manage the situation for ams in this challenging situation, we will not change the style to manage the combined entity.

[Operator]

Our next question comes from Andreas Müller from ZKB.

[Andreas Müller, Research Analyst]

I've got one question on the deleveraging profile, which I think you indicated would be still the same as you had in the last presentation slide. Or has there anything changed given that there are many variables, EBITDA from OSRAM, but also your very strong result right now and also the 100% ownership you assume in this deleveraging profile? Can you give a color there what could have changed in the meantime?

[Michael Wachsler-Markowitsch]

Sure. Yes. I think this is -- it only became better, right? You have seen our strong cash flow, which we never took into the equation over the last 3 quarters, and this is going to continue. So we expect a quick deleveraging. And with this prudent approach we have taken, I think we're absolutely at the right path.

[Andreas Müller, Research Analyst]

Okay. Also for 2021, 2022?

[Michael Wachsler-Markowitsch]

Yes, absolutely.

[Andreas Müller, Research Analyst]

Okay. Great. And then another question on the bill of material in an average Android phone. I mean can you give us here, say, development you expect the next quarters, but also the progression year-on-year in the current quarter, but also, yes, in last quarter just directionally?

[Alexander Everke, CEO & Member of Management Board]

Well, in average, we have several dollars' content for us, but it really depends and we see this on a quarterly basis, it depends on the requirements of customers, which kind of solution they are looking for, what we decide for us, which kind of content we want to supply, what makes sense for us as a company strategically, but also related to the margin profile. There is no general answer to that. The only thing what we continue obviously, which is the underlying principle of our strategy, is that we see good progression in increasing content, and this is certainly the strategy we have, to add more content over time. That's why also our investment in image sensors, our investment in software, to be able to complete -- to supply, if needed, complete solutions. So that's our way forward, but we can't go into more detail there.

[Andreas Müller, Research Analyst]

Okay. And then maybe my last question on the working capital progression. What do you see in Q3 in terms of working capital, how that will progress?

[Michael Wachsler-Markowitsch]

Well, I think we're very proud about, as you have heard now several times, about our working capital development and how we managed, especially our day sales outstanding and our inventories. So I clearly expect this to stay in -- within the range we have seen in the last quarters, and we will continue to tightly manage it.

[Operator]

Your next question comes from David O'Connor from Exane BNP Paribas.

[David O'Connor, Analyst of IT Hardware and Semiconductors]

Maybe 1 or 2 on my side. You mentioned, Alex, a very good development in the second half. Can you grow the business in the second half year-over-year? That's my first question. And then maybe one for Michael on the DPLTA. You mentioned you're not in a rush, but is there an actual time frame you have internally of when you want to realize the squeeze out there?

[Alexander Everke, CEO & Member of Management Board]

Well, about second half, I think I said everything I can say. And by saying a positive trend -- potential positive trend for the second half means that second half is larger than the first half. And that's considered as a growth, yes. But again, the situation is…

[David O'Connor, Analyst of IT Hardware and Semiconductors]

But on a year-over-year basis?

[Alexander Everke, CEO & Member of Management Board]

It's too premature to say this, to be frank. We have a view on that, but no one can predict COVID-19 situation for the next few months. And I think it would be very premature to give a comment on that one.

[Michael Wachsler-Markowitsch]

Yes. And if I may take your second question, I think I can only reiterate that we have announced the intention to pursue the DPLTA and we clearly expect to do so on the basis of prudent financing for this step. So it's a priority for us to have this prudent financing in place. And therefore, we have to monitor the situation and watch what we can do when. But clearly, we will actively represent our shareholding as a 68% shareholder of OSRAM after closing. And we will ensure obviously that our voice is heard there. And this will allow us also to start realizing some synergy effects already for the combined company even without having the DPLTA in place. So no change to that.

[Moritz M. Gmeiner, Head of Investor Relations]

Ladies and gentlemen, thank you very much. This concludes our question-and-answer session for this morning as well as this call. We, again, thank you for joining us this morning, and we look very much forward to talking to you again in July with the second quarter results. Everyone, please stay healthy and safe. Thank you, and have a good day.

[Michael Wachsler-Markowitsch]

Thank you. Goodbye, everybody.

[Alexander Everke, CEO & Member of Management Board]

Thank you. Goodbye.

[Operator]

Ladies and gentlemen, this conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.