ams OSRAM AG

SIX:AMS

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the ams Q1 Results 2021 Conference Call. [Operator Instructions] I would now like to turn the conference over to Alexander Everke, CEO, Mr. Ingo Bank, CFO; and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.

[Moritz M. Gmeiner, Head of Investor Relations]

Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's conference call on our first quarter results. Alex Everke will lead you through the developments in our business and then Ingo will take you through the details of the financials. 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 2021 conference call this morning. I will start with some key figures showing the healthy performance of our business. First quarter 2021 consolidated group revenues were $1.55 billion, and the adjusted group EBIT was $172 million, which was 11% of revenues. Referring to our final published expectations for the historical ams business, we recorded robust first quarter results in that business. Revenues of $525 million and an adjusted operating margin of 22% were in the upper half and near the top end of the expected range, respectively. Let me first look at developments around the acquisition of OSRAM. The domination and profit and loss transfer agreement between ams and OSRAM became effective in early March, giving us full original and financial control of OSRAM. The business integration of ams and OSRAM is now fully underway, and we are very well on track here. We are running a broad set of parallel programs to implement the new group organization, drive the creation of synergies and optimize our business portfolio. Regarding savings, Ingo will have more details on the increase of total expected synergies and savings to EUR 350 million over 3 years. As part of the announced alignment of our business portfolio, we are already engaged in a number of M&A processes. Here I expect several announcements over the course of this year. Yesterday, we have also announced a delisting offer for all remaining OSRAM shares, which will result in the delisting of the OSRAM share after completion of the offer. This is the next logical step in the full integration of OSRAM, and Ingo will have more details on the offer later on. Our combined business will be known as ams OSRAM, which emphasize our combined position as a worldwide leader in optical technologies. We have also moved to a new presentation reporting framework for the group, which consists of 2 segments: semiconductors and lamps and systems. The semiconductor segment comprises the historical ams business and the historical OSRAM optical semiconductor business while the lamps and systems segment includes the historical OSRAM automotive and digital business. This segment framework reflects our business structure and maps onto our solution portfolio. Now let's take a look at our business in the first quarter. Our semiconductors business showed a very healthy development supported across business lines. The semiconductors business and the automotive market achieved strong results with very attractive revenue growth and higher profitability year-on-year. Excellent customer demand across regions continues to be driven by the ongoing recovery of automotive demand compared to last year. Overall, we see a very strong order situation continuing into the current quarter, enhanced by demand supply imbalances in the sector. Despite an increase in production efficiency compared to 2020, capacity utilization is at maximum, with volumes in several areas, short of customer demand. Our semiconductors business in the consumer market saw a healthy performance driven by our optical sensing solutions. Our broad portfolio helps drive features such as behind-OLED and other display management, 3D functions, camera enhancing applications and ultra-small-scale optical sensing. Serving a variety of leading OEMs for different devices, our solutions recorded healthy demand in the quarter including typical seasonality. The semiconductors business and industrial and medical market showed a robust development. The regionally driven recovery in illumination, industrial automation, harbor and imaging is gaining further traction, helped by our leading position in global shutter imaging. Medical imaging developed positively and COVID-19 LFT solutions showed sequential growth. Our lamp and systems business recorded a very solid overall performance in the quarter. The lamps and systems business in the automotive market performed strongly with attractive good revenue growth and higher profitability year-on-year, sustained very robust demand across regions reflects the ongoing recovery of automotive demand compared to last year. A strong order situation is continuing into the current quarter, which also echoes demand supply imbalances in the market. With production fully utilized despite year-on-year output improvements, customer demand exceeds available volumes in several areas. Our L&S business and the industrial and medical market saw a mixed picture overall. Reduced end demand continues to impact the construction and building related business as well as the entertainment market, while horticulture and certain areas of the digital system business are developing positively. The disposal process for the digital system business, which has -- had been initiated by OSRAM earlier, continues to progress. Looking at our combined business, let me take you through how I see us moving ahead. We have a range of major growth vectors for the medium term. The highly disruptive micro LED technology for next-generation displays. We are seeing strong momentum here already and are driving the industrialization for scalable consumer applications. We have a leading position in micro-LED, epitaxy and wafer processing and are getting strong positive feedback from the consumer market. We, therefore, expect significant micro-LED opportunities for us with sensor display integration to follow. Our innovative UVC LED technology for effective chemical-free disinfection. Here, we create market-leading performance and the application areas include all of our end markets. That is medical, consumer, automotive and industrial. Next-generation automotive lighting, such as highly pixelated headlights and have head-up displays. High-resolution front lighting enables completely new application to assist the driver and increase road safety, while head-up display will move to integrate AR for safer driving. LIDAR for ADAS and autonomous vehicle plus industrial use. We offer a market-leading portfolio across edge-emitting laser and VCSEL for different LIDAR architectures and applications to serve automotive, but also industrial automation. Consumer optical technologies for 3D, AR, digital health and much more. Here we are driving new 3D technology in time-of-flight and other areas near-to-eye sensing and visualization for AR, next-generation in-vitro diagnostics using UV-C or VCSEL and highly innovative optical sensing, like self-mixing interferometry or SMI. More near term, on the other hand, we also see a broad range of drivers for our business. Horticulture lighting, where demand is increasing rapidly. We're also leading in this field as our LED technology enables much higher harvest and profitability per area. Our strong position in mini LED technology, which significantly enhances the performance of current displays via backlighting. We benefit from a positive market dynamic and are very well positioned to expand opportunities through technology advances. Driving innovation, we also see ways to create novel mini-LED technology for new users beyond display backlight. High-power protection technology for visualization, where we offer market-leading technologies. And our market available LFT technology for point of care, metal diagnostics using spectrum sensing. Current application of consumer optical sensing, where we offer high-performance solutions for a range of features in smartphones and mobile devices and our market-leading position in current automotive lighting technology benefiting from the ratification of exterior and interior lighting. Important for all of these drivers is our much larger customer base through the acquisition of OSRAM. This base creates much broader support for our growth drivers. Because in new markets, we can access more customers more quickly, especially compared to the historical ams business. While the consumer market now accounts for less than 40% of our group business, let me offer some additional comments on this page. We received ongoing positive feedback from very large customers on our core technologies for consumer applications. This includes our optics technologies, illumination and sensing, and it confirms the unchanged attractiveness for consumer OEMs. Given multiple active developments and early-stage work, I definitely see no lack of consumer opportunities going forward. These include all our customers in the consumer market today. Let me now talk about our business outlook. Starting this quarter, our outlook relates to the combined group. We expect our overall business to continue to develop positively across segments in the second quarter. This expectation is particularly driven by the ongoing dynamic recovery of the global automotive demand despite a general tight supply chain, solid demand trends in other business areas support this development in light of seasonal effect in the consumer market. At the same time, pandemic related effects continue to influence regional economies and end markets with different intensity. For the second quarter, we, therefore, expect group revenues of $1.43 to $1.53 billion, 5% lower sequentially at the midpoint, with an expected adjusted EBIT margin of 7% to 10%, all based on currently available information. Looking forward, we currently expect a more limited seasonality for this year. Group revenues for the second half are presently expected to be slightly higher compared to the first half. This is due to the expected automotive production situation in light of continued strong automotive demand, as well as an expected lower market share in the consumer market. The latter, with a net revenue effect of below 5% of currently expected full year group revenues. At the same time, we have multiple ongoing developments and program activities for all our largest customers in consumer and automotive. On this basis, I'm confident we will continue to build our business on strong relationships we have with all of these large customers. Against this background, our focus as a company is on improving profitability, strong cash flow and free cash flow generation, speedy de-leveraging, cleaning up the business portfolio and realizing synergies. While we do not offer a detailed view, we feel confident about our business position, financial strength and improvement potential, not only for this but also for next year. Consequently, we also reconfirm our overall financial target model for the integrated group, which looks for a double-digit average yearly revenue growth in percent and adjusted operating margin of 20% to 25%. With this, I would like to hand over to Ingo.

[Ingo Bank, CFO & Member of the Managing Board]

Yes. Thanks, and a very good morning to you all. Before I start reviewing the financials, let me first briefly outline the status of the integration on Page 18 of our presentation. A number of important milestones have already been achieved, and overall, the integration is fully on track and in line with the plans we've made. The DPLTA is in place since early March, which means that we have full operational and financial control of OSRAM. We've defined a new global organization structure for the group and have started its full implementation on a worldwide basis. Our new segment and financial reporting framework is in place, and I'll come back to that in a moment. We've increased the level of total expected synergies to now EUR 350 million, and I'll come back with more details later on. The portfolio alignment has also started, and we are currently running several active M&A processes at various stages. Let me now move to Page 19 of the presentation, which shows our new reporting segment structure as of 2021. In this context, we will refer to the ams OSRAM Group when discussing consolidated group financials. The ams OSRAM Group has 2 segments. On the one hand, we have the semiconductor segment, which includes the historical ams and OSRAM optic semiconductor businesses. On the other hand, we have the second segment, Lamps & Systems, which includes the historical OSRAM automotive and digital businesses. This clear reporting and business presentation structure aligns with the setup of our business, our technology base and our solutions portfolio as we see it moving forward. Let me now turn on Page 20 for an update on the expected synergies with the DPLTA now in place, we're able to implement and execute all programs targeted to create and realize synergies across the group. This translates into more than 500 separate projects which have been defined or already started. A dedicated integration management office is in place, properly resourced and led by senior executives of the company. First of all, we again confirm the originally announced EUR 300 million run rate pretax synergies over a 3-year period looking forward. Furthermore, OSRAM has already achieved savings of approximately EUR 50 million since the summer of 2020. These savings at OSRAM were fully aligned with our implementation thinking when we first planned for the transaction. They related to the phasing out of the low-margin general lighting business, an adjustment in corporate and general lighting R&D and G&A expenses, including the corporate office of OSRAM. As a result, the total of pretax synergies and pre-DPLTA savings now amount to EUR 350 million. Around 2/3 of the integration synergies are expected within the first 2 years, in line with previous comments. Let me also emphasize that the integration synergies are independent from the OSRAM transformation programs announced by OSRAM in the past and will therefore happen in addition. One-time costs for the integration continue to be expected at around 1.3x the EUR 300 million synergy target over time. Amongst others, this also includes the evaluation of the group's manufacturing infrastructure and footprint where we could see certain onetime costs to be incurred over time. Let's now move to the financial results of the group summarized on Page 22 of the presentation. When we refer to adjusted financial metrics, we refer to adjustments for acquisition related, share-based compensation and restructuring costs as a result from investments in associates. A reconciliation to the IFRS base of presentation is included in the financial information on Q1 2021, which we published today and which is available on our Investor Relations website. Comparable prior year financial figures are not available this quarter due to the acquisition of OSRAM with the consolidation having started only from Q3 2020 onwards. I'm turning now to Page 23 of the presentation. In the first quarter of 2021, group revenues were USD 1.549 million against the background of healthy to robust demand across different end markets, there was a sequential revenue decline of 9% as expected due to typical seasonal effects, particularly in the consumer business. Let me add some comments on the market and supply chain environment and situation as we see it now. Overall, our business is seeing a strong order situation, particularly in the automotive, and to a lesser extent, industrial market, which continues also well into the current quarter. At the same time, we note maximum capacity utilization in several areas as well as multiple allocation situations towards existing customer orders. These mean that currently, we're not able to realize all possible revenues within our business portfolio. We are also aware of tight supply chain conditions in several segments of the semiconductor industry. Given the complex nature of supply chains and currently constrained forecasting of supply chain participants, we may therefore, experience indirect or direct revenue effects or swings related to product availability and customers' manufacturing plans in the future. Let's have a closer look at the revenue distribution on Page 24. With respect to the segment split, 65% of group revenues were recorded in the semiconductor segment and 35% in Lamps & Systems. This reflects external revenues as reported for the group. Intercompany revenue flows have been fully eliminated in this view. With the acquisition of OSRAM, the group's revenue distribution with respect to end markets has already substantially changed compared to the historic ams business when we look at the right-hand side on Page 24. This reflects a very balanced and attractive end market mix already pointing into the direction of our targeted mix. Turning now to gross profit and gross margin for the group on Page 25. First quarter '21 adjusted gross margin came in at 35%, unchanged from Q4 2020 despite lower revenues. Adjusted EBIT for the group was a solid 11% for Q1 '21. Foreign exchange movements, especially the weakening of the U.S. dollar against the euro, continued to provide headwinds for our profitability in the first quarter of 2021. Moving to the OpEx development for the group on Page 26. SG&A expenses for the group in the first quarter were at USD 236 million, almost unchanged sequentially, but slightly higher on a relative basis at 15%. Our more targeted range for SG&A spend for the integrated group is between 7% to 9% over time. R&D spend in the first quarter was USD 187 million, which translates into 12% of group revenues. This was slightly higher on an absolute as well as relative basis. We target R&D spending in a range of between 11% to 14% of revenues over time to support our innovation driven growth. Turning now to the net result and EPS on Page 27. The adjusted net result for the ams group in Q1 21 was USD 89 million. This was significantly lower sequentially due to the lower operating profitability, in line with typical seasonal patterns. Adjusted basic earnings per share in Q1 2021 were $0.38 or $0.34, reflecting the sequential decrease in the net results. Let me just briefly also add a comment on the tax rate. We target a sustainable tax rate of below 20% over time. Moving to cash. Cash flow and debt position of the group on Pages 28, 29. The group's operating cash flow was strong in the first quarter of 2021 at USD 249 million. The sequential decrease we saw here was mainly due to the lower profitability as well as higher CapEx spending. Free cash flow was also very robust at USD 151 million for the group. Q1 '21 CapEx spending for the group reached USD 97 million, translating into about 6% of group revenue. Our target looking forward is for annual CapEx spending on a normalized course of business basis to remain below 10% of revenues. We would currently also expect to run at that level for full year 2021. Moving to Page 29 now. The group cash and cash equivalents stood [indiscernible] in Q1 '21, unchanged [indiscernible]. Debt was slightly lower sequentially at almost exactly USD 2 billion at the end of March. Overall, this translated into a financial leverage of the group to approximately 1.7 at the end of Q1, which is ahead of expectations. So overall, a very sound and solid financial position for the group. The well-balanced funding structure we have in place now for a while, enables us to acquire all available OSRAM shares in the delisting offer we just announced without the need for further financing. Obviously, the delisting offer will result in a planned increase in group leverage, which will very much depend on the number of shares being tendered. To give you some perspective here, where are we to acquire all remaining OSRAM shares now, which is rather a highly unlikely scenario, the resulting maximum leverage level would still be below 3.5x debt at that time. This also means that outside of this rather hypothetical scenario, we do not expect to access the still existing and undrawn bridge facility of EUR 750 million. In any case, we remain committed to de-leveraging the existing debt as quick as possible. I will personally see ourselves reaching our target level of 2x net debt-to-EBITDA within 18 to 24 months, depending of course, on the actual tenant rates in the offer among other sectors. That view is based on continued robust cash flow generation and free cash flow generation we would expect. The cash flowing in will also be augmented by the disposals some of which are already underway. And finally, to give you an idea on the interest expense, the cost of debt across our current total debt for the group is right around 3%. During the first quarter, we also announced a buyback program for our convertible bonds, which started in early April. As of now, we have bought back convertible bonds with a nominal value of slightly over EUR 16 million, spending approximately EUR 13.4 million, which helps to further optimize our financing structure. Moving now to the outlook of -- for the second quarter of 2021 on Page 30. As Alex said, we expect group revenues in the range of USD 1.430 million to USD 1.530 million and an adjusted EBIT margin between 7% and 10% for the second quarter. As you can see here, we provide quarterly guidance on revenue and adjusted EBIT for the ams OSRAM Group. The financial reporting of OSRAM continues in line with statutory requirements until the delisting will be effective. Let me now take you through the announced delisting offer for OSRAM on Page 31. The offer price is EUR 52.30 per share and represents a significant premium to the cash compensation under the DPLTA. The maximum total consideration for 100% of the remaining outstanding shares would then translate into approximately EUR 1.4 billion. This is a fully unconditional offer so delisting does not depend on any level of shares received. We currently hold 72% of OSRAM and expect the offer period to start on May 21, following approval of the offer document. Let me provide you some background on this decision. The delisting of the OSRAM shares is the next logical step in the integration to realize full ownership of OSRAM. The shares received will also reduce the yearly compensation payment under the DPLTA, so less cash needed for that. And as mentioned before, the total consideration is already fully financed. So we do not need additional financing. Let me finish my prepared remarks by mentioning that we have published the Annual General Meeting invitation today. The agenda includes an update to our typical shelf-type authorization, which is already in place and common in Austria. Adding back a 4% capital authorization, we are partially adjusting for the reduction resulting from the capital increase last year. As this is a shelf-type authorization, we have no intention to access it in the short term. And with that, I would like to thank you for your attention. I'll open the floor for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Dominik Olszewski with Morgan Stanley.

[Dominik P. Olszewski, Research Analyst]

So first question is just with regards to the EBIT impact of those lost revenues that you talk about in the second half of this year. So putting that another way, does the guidance for a slight increase in revenues in the second half versus the first half also applied to EBIT? And how is OpEx trending for the remainder of the year? And then a second question is just around your customer engagements and traction you're seeing on the back of the software integration solution offered via your relationship with ArcSoft? So to what extent is that helping you win design wins for world-facing solutions?

[Ingo Bank, CFO & Member of the Managing Board]

Yes.

[Alexander Everke, CEO & Member of Management Board]

Yes. Let me take.

[Ingo Bank, CFO & Member of the Managing Board]

Yes. Go ahead, sorry.

[Alexander Everke, CEO & Member of Management Board]

Let me take the second question and then Ingo takes the first one. Obviously, the relation with the software companies, as you described correctly, will help to the -- get further design wins specifically in the Android space, but it's not a must have, but it's very, very strongly helpful. And certainly, it will also help to design better performance systems with the knowledge of software, and the customer at the end of the day, has the choice to use the complete solution from us or utilize their own software.

[Ingo Bank, CFO & Member of the Managing Board]

Yes. And maybe then on the EBIT question. So as you know, we're providing detailed guidance on the next quarter. So in the second quarter. We mentioned that we have somewhat of an impact -- revenue impact for the consumer business. And we will clearly take available measures to lower the margin impacts that this will have, including cost reductions in our manufacturing base to mitigate somewhat the margin impact this will have. Of course, we will also see improvements from the synergies ramping up further in the second half of the year. And I think it's important to realize what Alex also said that right now, we are also, from a market perspective, still very much supply constraint. So in other words, we could do more revenue as we are -- as we can do right now because we have these constraints right now. So I, therefore, expect also in the second half, somewhat distortions in the supply chain. So it's a bit too early to say, but we are definitely working on measures to mitigate the impact that you were referring to.

[Operator]

Next question comes from the line of Janardan Menon with Liberum.

[Janardan Nedyam Menon, Technology Analyst]

Just a follow-up on that. This loss of market share. Is there any further color that you can throw on it as to what were the factors which led to such a loss of market share was it the lack of competitiveness of your product? And two, is there any requirement? I mean, is there any read that this could lead to further sort of market share in the consumer space into 2022 or beyond or do you have confidence that the development work that you said you're working with all your customers, including on the consumer side, will ensure that there is no risk or less risk of further losses of market share beyond what you're seeing in the second half of this year? And secondly, as a follow-up, can you just give us an update on what are the time scales in terms of exiting from the digital business on the OSRAM side of things? And also anything on the continental JV, if you could give an update on that as well? That would be great.

[Alexander Everke, CEO & Member of Management Board]

Yes. Alex here, let me take your question. So generally, customer product definition requirements can change over time, while new opportunities open up as well. In any case, important is that first, you run a portfolio at different stages based on strong relationships, which we do. And second, that no single product line or application is completely defining any of our business. Unfortunately, you will understand we can't go too much into the details. That's not possible for us, but we can clearly state that the technology we have available, and we are continuing to expand is competitive and is future growth for those opportunities as well. On the divestments, as I mentioned, some announced already divestment of DS, and this is going smoothly. We also expect in a discussion with potential buyers that in the course of this year, we're going to make announcements of potential divestments. So we feel very confident that what we have indicated a while ago, that the majority of the digital business unit can be divested for good buyers in the year-on-year timeframe. We are not in the rush there, but we see opportunities that we can execute a good amount of these in the course of this year and next year.

[Janardan Nedyam Menon, Technology Analyst]

Understood. But at this point in time, you can't give any clear view on whether your position at various customers will improve or stay worse -- I mean get worse or stay the same into 2022?

[Alexander Everke, CEO & Member of Management Board]

As I mentioned before, we have a very strong relationship. We see a lot of opportunities at all of our large customers. And I can tell you we feel very confident with the portfolio and technology we have moving forward.

[Operator]

The next question comes from the line of Stephane Houri with ODDO.

[Stephane Houri, Research Analyst]

Yes. I have 2 questions. You've been talking about an impact of less than 5% for the full year, how should we model the complete impact going forward? Because I assume that this will probably expand in 2022? So that's the first question. And the second question is you've been talking in your preliminary -- your remarks about micro-LED with sensors included. Could you say more about that? Is there already some patents, design wins or things we have to know about this kind of product?

[Alexander Everke, CEO & Member of Management Board]

Yes. Let me start with your first question. We mentioned that we feel very comfortable with that the impact is less than 5% for this year. And it would be premature to speculate about the eventual size and revenue effects in the coming year as we also do not provide guidance in the coming year. But you know the typical seasonality of projects in the consumer space. On the micro-LED, this is a very compelling technology, and OSRAM is clearly leading this space. And we strongly believe, and that's also the feedback we've received from a large amount of customers and different market applications that micro-LED is certainly the superior display technology for the future. With a lot of advantages above compared to OLED screens, certainly in the brightness and the power consumption, which is basically half of it only. So we clearly see there as a way forward to have displace manufacturer with micro-LEDs. It will start with smaller screens in AR/VR glasses and display and watches and then continue into a larger display.And then the next step is -- and that is the most exciting part, basically, that the sensors we are providing can be integrated into the display, and this is not the same like OLED, where you have it behind the glass, behind the OLED screen, it's basically in between the micro LEDS, which creates a higher performance and a better visual display is behind it -- behind the OLED screen of the OLED display. For us, it's important that we are focusing predominantly on epi and wafer manufacturing, on chip manufacturing, and that is the differentiating technology we have, which clearly differentiates us from our competitors. And this is a good compromise of differentiating this technology and less CapEx investments on the way forward.

[Operator]

The next question comes from the line of Jürgen Wagner with Stifel.

[Jürgen Wagner, Director]

We had STMicro last week saying that design cycles in smartphones are about 3 years. How do you see that's trend for you? So when will those 3 years start and end basically? And then on '22, what are the growth drivers for you? And would you now still see '22 as a growth year and a year of margin expansion for the combined group?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thanks for the question. I'll start with the second one. I think it's too early to give a statement on 2022. I mentioned in my speech before the mid- and short-term growth drivers. And certainly, we are encouraged by also the more positive market environment currently, and we expect this to continue, specifically in the automotive space, but it's too early to give a guidance for 2022. Design cycles in mobile devices, 3 years. I mean, it really depends on not only the customer, it also depends on the technology, on the complexity, and certainly, on the roadmap from the specific customers. But let's say, for high complex technologies, a time of 2 to 3 years is certainly.

[Operator]

The next question comes the line of Adithya Metuku with Bank of America.

[Adithya Satyanarayana Metuku, Associate]

Firstly, you talked about an impact of 5% from this consumer share loss. Is this the impact that we should model in the second half of 2021 or has some of this impact already come through in the first half? That's my first question. And secondly, now from my discussions with investors, it feels like investor confidence and communication is pretty low given different events that have happened over the last 2 to 3 years. I was just wondering if you have any plans to change the way you communicate around financial reporting, et cetera, to help increase investors' confidence in the strategy of the company going forward? Thank you.

[Operator]

[Technical Difficulty] Ladies and gentlemen, the line has been reconnected.

[Ingo Bank, CFO & Member of the Managing Board]

Apologies. Yes, we have some technical difficulties. Alex?

[Alexander Everke, CEO & Member of Management Board]

Thanks. I'm sorry for the technical problem. So on your question, the 5%, as you know, we just gave the guidance for the second quarter, and we indicated that the second half of the year for the complete company is slightly higher than -- in revenue than the first half. And this is all what we can say to this topic. But it's certainly the 5% is a factor for the second half, for sure.

[Adithya Satyanarayana Metuku, Associate]

Understood. So is that -- so there is no effect of that 5% in the first half?

[Alexander Everke, CEO & Member of Management Board]

No, I don't -- look, we gave the guidance for the first -- for the second quarter, and this is -- we are very confident with that one.

[Operator]

The next question comes from the line of Robert Sanders with Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

My first question would just be, could you give an update on your plans to consolidate manufacturing sites in Asia, for example, in back end I was wondering if this content impact might accelerate those plans, reduce inefficiency? And the second question was just I saw that ZTE launched an under-display 3D sensing solution for facial recognition. The reviews are a bit shaky, but how soon do you think we could see mass adoption of under display 3D sensing for facial recognition?

[Ingo Bank, CFO & Member of the Managing Board]

Yes. Maybe let me take the first question on the manufacturing footprint, and Alex can take the second part of the question. So when we look at the synergies that we communicated, as you can see, there's also a contribution from what we referred to as cost of goods sold that indeed refers also to what can be done on the manufacturing footprint side since the DPLTA was effective in March. We now have had the chance to start further looking into what optimization opportunities we have to do so. I mean, generally speaking, if you look at the manufacturing sites and the buildup, they're largely designed for manufacturing flexibility so that we can do multi process, multiproduct or multi technology in the locations that we have across the group in Asia Pacific. But clearly, this is -- if you look at the synergy work we're currently conducting, this is right now given that we had to start a bit later with that, a clear focus, indeed.

[Alexander Everke, CEO & Member of Management Board]

Yes. And the second question regarding 3D under the OLED screen. We announced that we have the technical concepts demonstrated. We are engaging with customers on this technology, but it obviously it takes -- depending on the customers' roadmap, it takes the time to materialize this, but clearly -- and we expect about 2 years on that, but clearly, what we see the trend in general to bring the sensor parts under the -- behind the OLED screen or then later on what I described before, within the screen with the micro-LED. So the trend in the market clearly goes to make the sensors invisible and having integrated or behind the screen. That's the trend, and we are prepared with our technology to participate there.

[Operator]

The next question comes from the line of Achal Sultania with Crédit Suisse.

[Achal Sultania, Director]

Just a question on the margin profile, again, for the second half of this year. Maybe can you just help us understand when you talk about this customer's -- consumer market share loss, does it have any impact on the gross margin for the consumer business? And if yes, are you already starting to take some cost actions in your Singapore fab, which I presume is the fab where most of these consumer business is located?

[Ingo Bank, CFO & Member of the Managing Board]

Maybe building also what my answer was on the question from your colleague earlier on. As I said, we are in the process of planning and executing meaningful cost reductions, certainly also, including our manufacturing footprint in Asia Pacific to help mitigate the margin impact that we expect at the same time, there's also synergies that we see ramping up in the second half, and we still have a fairly volatile supply chain environment. We could -- at the moment, we can't deliver all the demand that we see from our customer base, we're working also there to, let's say, help de-bottleneck here and there so that we can do a bit more. So it's -- therefore, it's still, at this point in time, a picture that will evolve, but rest assured that we are addressing some of the margin impact we expect from this consumer share loss through robust cost reductions.

[Achal Sultania, Director]

Maybe Ingo, just a follow-up on that, just to clarify. So the EUR 350 million synergy plan, that is OSRAM specific. So whatever you do with this consumer business will be on top of the EUR 350 million?

[Ingo Bank, CFO & Member of the Managing Board]

No. The EUR 350 million synergies is as you would expect, in any business combination is derived from the integration of both companies so eventually, it will be difficult to tell whether it's from what used to be also OSRAM or what used to be ams, but it's a EUR 350 million plan that is coming from the integration overall. And that's also how the way we manage it, and that's also how we're going to execute it. Overall, I think it's important, of course, that let me think about this year and what we will do. We've announced a few things last week. As you will have noticed. We're now looking also what we can do from a cost mitigation perspective on the manufacturing side. So overall, these are plans to generate that EUR 350 million, EUR 50 million of which, as I explained, have already been realized by OSRAM since the summer of 2020.

[Operator]

The next question comes from the line of Sébastien Sztabowicz with Kepler Cheuvreux.

[Sébastien Sztabowicz, Head of Tech]

On the reduced market share on consumer, are you using one specific design or it is more than just 1 design, many I would say couple of designs? This will be the first one. And the second one is on the LIDAR market that you have integrated OSRAM. Could you please make an update on the opportunity that you see on the LIDAR market? And notably, who is your backlog today in terms of number of projects for LIDAR or the size of deals in euro or dollar terms that you have already in the backlog?

[Alexander Everke, CEO & Member of Management Board]

Yes. So on the -- Alex here. So on the first question, as you know, we are not discussing specific product lines of relationship as well as certain areas of the business. I think the indication we gave in our statement should describe the situation we are in. On the LIDAR market opportunity, certainly now is the combination of OSRAM adding their VCSEL capabilities and edge-emitting laser capabilities and system know-how. We have a very, very strong basis, which can accelerate the business ams stand-alone has generated already. And both companies together have a very, very unique position there. And as you know, the manufacturing sites for VCSEL manufacturing is automotive qualified. We have the ability to drive the driver ICs to control the LIDAR VCSEL arrays we have the edge-emitting laser now. So it's a very broad portfolio. The engagement with customers in that space is growing, and we see more and more opportunities but of course, the question is the timing of the future deployments or cars utilizing LIDAR, but we feel comfortable with the project we have on hand, delivering into the market.

[Sébastien Sztabowicz, Head of Tech]

When do you expect this kind of opportunity to start to ramp in terms of revenue as the combined entity?

[Alexander Everke, CEO & Member of Management Board]

Well, we see first growth will happen in the next year. And this depends a bit on the customer side. As you know, the automotive market is a little bit in jeopardy right now. I think the first priority is to solve the chip shortage for these guys, but we feel comfortable that LIDAR will happen, and this is a growth driver for the midterm, which is very compelling and very differentiating.

[Moritz M. Gmeiner, Head of Investor Relations]

Thank you very much. This concludes our question-and-answer session for today's call. We thank you very much for joining us this morning, and we look forward to updating you on our business again with the next quarter's numbers. Thank you very much and have a good day.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.