ams OSRAM AG

SIX:AMS

Earnings Call Analysis

Solid Performance Amid Challenges with Growth in Semiconductor Segment

In Q2 2024, the company's revenue slightly decreased to €890 million due to seasonality in the Lamps and Systems business, while semiconductor revenues rose 3% quarter-over-quarter. Despite this, profitability improved, with adjusted EBITDA increasing by 9% to €135 million and adjusted EBIT rising 28% to €56 million. For Q3, the company expects revenues between €830 million and €930 million and adjusted EBITDA margins between 17% and 20%. Key growth areas include automotive semiconductors, which saw a 6% year-over-year increase, and new sensor products for smartphones.

Solid Results Amidst Challenges

In its second quarter of 2024, the company reported revenue of EUR 890 million, marking a seasonal decline of EUR 28 million from the previous quarter. Despite this, the revenue was in line with guidance and reflected a slight decrease of 3% year-over-year when adjusted for divestments. Notably, the semiconductor segment experienced a 3% increase quarter-over-quarter, revealing its resilience amidst broader market pressures.

Profitability Improvements

The company's adjusted EBITDA rose to EUR 135 million (16.5% margin), representing a 9% increase compared to Q1. The adjusted EBIT margin also improved to 6.8%, up from 5.2%, with adjusted EBIT increasing by 28% to EUR 56 million. This uptick in profitability can be attributed to better factory loading and ongoing structural savings from the base program.

Segment Performance Analysis

The Lamps and Systems business faced a seasonal revenue decline of 17% quarter-over-quarter, coming in at EUR 233 million. The company anticipates a rebound in demand for the Auto Lamps aftermarket starting in the third quarter. However, the semiconductor segment grew significantly, with revenues reaching EUR 372 million, an 8% increase driven largely by automotive and industrial applications. This segment's adjusted EBITDA margin improved to approximately 23%.

Future Guidance

For Q3, the company expects revenues between EUR 830 million and EUR 930 million, alongside a projected adjusted EBITDA margin of 17% to 20%. This reflects confidence in recovering demand, especially for new sensor products and a seasonal uptick in the horticulture business.

Cost Management and Cash Flow

Their cost management strategy is progressing well, with EUR 60 million in structural savings realized to date against a target of EUR 75 million for 2024 and an ambitious EUR 150 million for 2025. Despite a free cash flow of minus EUR 179 million in the first half of the year, the company anticipates improved cash flow in the second half due to reduced capital expenditures.

Strengthening the Balance Sheet

The company ended the second quarter with strong liquidity of EUR 1.8 billion, indicating a solid financial foundation. Additionally, the potential sale of eight factories and restructuring of non-core segments are part of efforts to enhance financial stability and operational efficiency, further reinforcing investor confidence.

Summary of Strategic Initiatives

The company is focusing on core segments, with significant new business in automotive semiconductors, reported up to a lifetime value of EUR 2.5 billion in design wins this year. This is coupled with a strategic adjustment in the microLED segment, reallocating resources to focus on automotive lighting innovations, showcasing a commitment to enhancing both revenue and market share in key growth areas.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the conference call on the second quarter 2024 results. I'm Mort, the Chorus Call operator. [Operator Instructions]. The conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions].

At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead.

[Juergen Rebel, executive]

Good morning. This is Juergen speaking. I would like to welcome you to our second quarter 2024 earnings call for investors and analysts.

With me are Aldo Kamper, CEO; and Rainer Irle, CFO. Aldo will comment on business and strategy. Rainer will comment on financials. After our introductory remarks, we are happy to answer your questions.

Aldo and Rainer will refer to the earnings call presentation that you'll find on our website. For further information, we always provide a full slide deck that you can find on the website as well. Aldo, please share with us your thoughts on second quarter business and strategy development.

[Aldo Kamper, executive]

Thank you, Juergen, and good morning to everyone from my side as well. We are happy with our solid results in the second quarter in an environment in which uncertainties are increasing.

Let us take a look at Slide #2. Q2, group revenues decreased slightly as guided quarter-over-quarter and came in at EUR 890 million, a EUR 28 million seasonal decline compared to the first quarter. We landed at the midpoint of our guided range.

The seasonality is entirely due to the Lamps and Systems business as the semiconductor business is actually up 3% quarter-over-quarter. We come to details later.

Comparing year-over-year on a like-for-like basis, we stood at EUR 839 million, excluding divestment in Lamps and Systems segment. The currency impact stands at around EUR 2 million. Like-for-like and on a constant currency basis, our revenue, therefore, slightly decreased by 3% year-over-year.

Despite seasonally lower revenues, we improved our profitability. Adjusted EBITDA came in at 16.5% or EUR 135 million after EUR 124 million in the first quarter. Adjusted EBITDA landed almost at the top end of our guided range. That is 9% higher than in the first quarter.

We see the effect of better factory loading and materializing structural savings from our reestablished the base program. On top, some tailwind from PC funding catch-up also helped.

On the other hand, within that number, there's also a seasonal reduction from Lamps and Systems. For comparison, you see a chart of adjusted EBIT on the right-hand side. The adjusted EBIT margin came in at 6.8% after 5.2% in the first quarter.

In actual terms, adjusted EBIT stood at EUR 12 million higher than in Q1, namely at EUR 56 million, an increase of 28%.

Let's now look at the financial performance of these business segments. The Lamps and Systems segment is shown on Page #3. The business continued to perform well in line with expected seasonality.

Revenue stood at EUR 233 million, resulting in a 17% quarter-over-quarter seasonal decline. As I explained in previous calls, Q4 and Q1 are always a strong quarter in the year as most lamp replacements happened during winter time in U.S. and Europe.

The second quarter is always the softest quarter in the yearly aftermarket business cycle. We expect aftermarket sales to pick up again in September. The Specialty land business for industrial and entertainment applications, however, remained at a low level of around EUR 40 million.

There are still high inventories, especially at our semi equipment customers. The adjusted EBITDA margin for the segment stood at 17.6% or EUR 39 million in absolute terms. This compares to 22.5% in the first quarter or EUR 60 million.

Besides the decline from seasonality, we had some positive onetime inventory revaluation in Q1, which exacts a bit the quarter-over-quarter contraction.

Turning our attention to the semiconductor segment now on Slide 4. You find the Opto Semiconductor business, was in brief on the left-hand side. This is our semiconductor business with emitters that is LEDs and lasers.

Revenues improved to EUR 372 million, driven by automotive and some application industrial, such as horticulture and professional lighting. This compares to EUR 345 million in the first quarter, an 8% quarter-over-quarter increase.

Adjusted EBITDA increased by EUR 17 million to EUR 84 million. This makes an adjusted EBITDA margin of around 23% after 19% in the first quarter. You see the effect of higher loading here.

However, high research and development expenses still weigh on profitability, though we have fully adjusted to the micron strategy along the lines outlined last time. [indiscernible] and the catch-up impact also get some tilt.

On the right-hand side, you see the financial performance of our semiconductor segment CMOS sensors and ASICs or CSA in short.

Revenues declined quarter-over-quarter by EUR 9 million and stood at EUR 224 million compared to EUR 233 million in the first quarter. With some initial business stabilized on a low level and sensor Android-based 5.4% in high demand, some legacy sockets for consumer handheld devices continued to ramp down, leading to the quarter-over-quarter reduction.

Adjusted EBITDA for CSA more than quadrupled to EUR 21 million or 9% adjusted EBITDA margin. Whilst the utilization charges from weak industrial medical business are still high, we also see the structural savings from our reestablished base program taking gradual effect shown here to be on the right track.

Let us switch to Slide #5, looking at the dynamics in the end markets in detail. On the very left, you see the revenues of both semiconductor segments combined for comparison purposes.

Year-over-year, revenues reduced slightly by 1%, which is purely a consequence of the noncore portfolio, which still blurs the numbers and is in some parts declining due to ramp-downs of some legacy consumer designs.

Automotive revenues came in still strong despite increasing cloud on the horizon, as you'll hear from all corners of the industry now. Our content per vehicle expansion continues and we could again show structural growth, especially in our emitter business, which ended up with a 6% year-over-year growth.

Overall, industrial end markets remain weak for the time being. However, in detail, the picture is more diverse. The positive professional lighting saw relatively solid demand. Horticultural grew nicely based on design wins, having the best product in the market always helps.

On top, our new blue laser diode for material treatments sold even better than planned. On the negative side, we see no NTS to the inventory correction when it comes to capital goods and medical markets.

Likewise, the mass market in Europe does not seem to rebound. Mass market in China and the U.S. are doing relatively speaking, fine in contrast. But, overall, the mood industrial market is pretty muted.

Consumer business continues to improve compared to a year ago when it comes to sensor products for Android smartphones, had a very strong quarter here. We are benefiting from our leading market position in spectral-sensing.

However, over year-over-year and quarter-over-quarter decline is a result of legacy designs gradually approaching end of their life cycle.

Switching now to Slide #6. In line with our solid operational performance in the second quarter, we also continued to be very successful in securing new business to support our mid- to long-term structural growth ambitions.

First, we need to speak again about our blockbuster product device. The 25,000-pixel forward lighting solution is a feature had hardly anyone wants to miss and consequently more than EUR 100 million of lifetime value in terms of new wins were added.

We will look at the vias in some more detail on the next slide. Second, a high precision temperature and position sensing products can compete more and more customers and we can mention EUR 50 million of design wins, showing again that our content per vehicle expansion is broad-based.

Third, whilst suffering from inventory directions are differentiated technology for sensor interface in industrial space is helping customers designing better products. We could win designs of accumulated EUR 100 million during the quarter.

Key win relates to an HVAC application were more than half of that cumulative number. For professional ID, the segment was one of the few areas industrial that did well. It would also win significant new business worth more than EUR 100 million of our lifetime.

Last but not least, our leading position in Ambient Light Sensing and proximity sensing the engorged spacing is continuously being reinforced. We saw around EUR 100 million designers in Q2.

Our sensor technology makes photos by taking by smartphones simply better, more natural as confirmed again by the later DXL ranking, we feature in almost every premium smartphone in the market.

I would like to share a few more details about the ramp of our market-leading EVIYOS forward lighting solution. We are now on Slide #7. As publicly known, the first of them was the Volkswagen brand with its 2 models, Touareg and the Tiguan.

In 2024, we are now in full ramped further car models. We're very happy that EVIYOS ramps both in Europe and in China. In China, leading EVs will be equipped EVIYOS As we go along, more and more models will ramp being a key element of our structural growth part in automotive.

On the right-hand side, you see that the latest market estimates for adaptive matrix LED headlights. Do not be confused by the terms Mini and microLED as they basically designate the path towards smaller pixel dimensions.

However, it's not to be confused with the super small pixel that we had been pursuing with our cornerstone product for novel displays. Of course, the smaller the pixel gets the trickier the physical effects are. Before this, we decided to redeploy some of microLED resources to the high pixelated automotive Hedland development.

Looking at the market forecast, by Trend Force, you can see why we believe this is a beneficial investment. The market for advanced high pixelate LED solution is expected to grow to EUR 1 billion by 2028. And we have the best starting position with having won the majority of existing designs.

Again, this exemplified by more than EUR 450 million of design wins. We believe this is just the beginning and for this we redeployed the resource from the previous microLED-display product.

Let us dwell a little longer in the Automotive segment. Turning to Slide 8 here. I reported our design win traction with a LiDAR diode in LiDAR modules not long ago. It's another example of our art on the vehicle expansion across the board when it comes to optoelectronics in cars.

It's an important team up with the leaders in emerging technologies. For this, we are very proud of being recognized by Robosense, a leading Chinese Tier 1 in the LiDAR space as one of the key [indiscernible].

Robosense LiDAR solutions feature already in 25 vehicles on the road and the design win tally stand at 65 models. A few years, the LiDAR diode market for automotive lighter should grow above EUR 100 million annually.

Let's switch now to Slide #9. Last year, we could record a total design win volume of more than EUR 5 billion lifetime value. We talked about this early February when announcing the 2022 figure.

We are on track to repeat this outstanding achievement with a strong acceleration in the second quarter, our year-to-date design wins for the first half of '24 stand at around EUR 2.5 billion. Design wins are across the board with by nature with an overweight to automotive. This design in base clearly underpins our future growth ambitions.

So far, we have been talking about improving the top line. Now, let us switch the view towards the bottom line. And now on Slide 10. Exactly a year ago, we announced our strategic efficiency program we established the base. We said that most of our product lines are structurally healthy, but the overall performance is hampered by the noncore businesses, primary and some consumer applications.

We also said that we target structural run rate savings of about EUR 75 million by the end of '24 and of around EUR 150 million at the end of 2025. Today, 1 year later, I'm glad to report that we're fully on track with the program when it comes to realization of those savings.

To date, we've already realized about EUR 60 million of structural cost savings. The fall-through into results is also evidenced by the strongly improving EBITDA in the business unit CSA.

In terms of noncore portfolio cleanup, we have addressed the most burning issues, that is the passive optical components and the CMOS image sensor business. Announced the key assets of the best optical component business are being sold at focus light for about EUR 45 million in cash. We expect the deal to close in the third quarter.

And as communicated 3 months ago, we are restructuring the CMOS image sensor business to a profitable core in primary medical applications. Key adjustment of the structure, especially in the U.S., are already implemented.

The remaining EUR 200 million or so for noncore businesses are being dealt with in the coming quarters, various solutions for the promised exit are on the table and we're assessing which option will we get the best, and it will be the best given the various boundary conditions we have.

For clarity, this means that our starting base for our midterm operating growth model in 2023 is around EUR 3.15 billion. This is the level we measure ourselves against when it comes to the growth of the core business.

As we've mentioned regularly, our midterm target operating model has 3 elements for improving profitability towards the target level. First, we established a base, which we just talked about.

Second, to ramp up new products and design wins. We've talked about the example of EVIYOS as a key element earlier. And third, overall market normalization or market recovery, if you think of it the strong medical end markets or the overall impact of car units being built.

Let me also comment on the adjustment of our microLED strategy that we laid out 3 months ago. With regards to development activities, we have terminated no longer needed contract workers.

We've also strengthened the core automotive development in high pixelate forward lighting by the transfer of the employees. The reduction of factory personnel has started as well.

With regards to the 8 factories, we have said that this is a process that will take some time, despite the significant interest we had immediately received. The process has started, the interested parties will be handling in their bids, and we are on our anticipated time line.

And with this overview, I now hand over to Rainer to provide you with some more details on liquidity, cash flow and financials in general.

[Rainer Irle, executive]

Yes. Thank you, Aldo. Welcome, everybody, and we are on Page 11. Operating cash flow came in again at EUR 55 million, as you can see in the chart on the left. Just as a reminder, in line with the market practice, net interest payments are now included in the definition of operating cash flow and thus also in free cash flow.

The payment of EUR 50 million of interest due got pushed into the second quarter as the due date following the bank holiday end of March. As such, Q1 operating cash flow was higher in Q2 lower than according to the underlying business.

The next chart to the right shows cash flows related to CapEx. It stood at minus EUR 176 million, around EUR 90 million lower than a year ago. 176 million also includes the payment for a lot of construction builds that we received till late last year with long payment terms that we paid now.

It is obviously still elevated compared to our 10% CapEx to sales target as it contains a meaningful amount of microLED related to the quest or construction. It was not always possible to cancel those machines, but we did renegotiate successfully in many instances, which brings our total transformation cost down to the current estimate of EUR 680 million, a bit lower than the EUR 700 million we said before, including the significant down payments.

Inflows from divestments were negligible in Q2. The next meaningful inflow will be from the sale of assets of the Optical Components business to focus Light, we expect the transaction to close in the third quarter.

As a result, free cash flow, including the interest payment came in with minus EUR 190 million, making it the worst quarter of the year. It will become significantly better in the second half with lower CapEx and higher operating cash flow from higher revenues.

Now, coming to Slide 12. We had EUR 900 million cash on hand at end of Q2, a reduction by EUR 176 million compared to end of March. In Q2, we paid the dividend to the minority investors of OSRAM Lich AG, and as I said, there was still a carryover effect from last year.

We also paid back EUR 100 million maturing bilateral loan end of June, while drawing another one to replace it. We expect liquidity to rather go up than down in the second half of the year.

Bilateral bank facilities, including promissory notes, amount to EUR 346 million, a slight reduction compared to end of March. Of those, we have already paid back the maturing promissory notes of EUR 51 million in early July, I had indicated that when we spoke last time.

There are no changes in the maturity profile relating to the 25 or 27 converts, not to the 29 senior unsecured notes. The Sale-and-Lease Back in Malaysia stood at EUR 401 million. That's always a bit a quarter-o-quarter increase from the quarterly accrual of the catch-up interest payment at maturity.

Secondly, according to IFRS, it's not that, but I think you would agree with us that we consider it a step internally.

We are working on the exit of the Sale-and-Lease Back in close alignment with some vectors by transferring into a new lessee as part of the divestment. A process that is well on track, but takes some time as Aldo explained. That would take away the EUR 400 million debt-like liabilities, strengthening our balance sheet and reduce leverage.

It will also take away the EUR 35 million interest expense each year. For completeness, the outstanding minority put options amount to EUR 605 million, or 14% of shares outstanding in Q2, put options worth around EUR 5 million executed.

We have the revolving credit facility of EUR 800 million, which is in principle reserves for the unlikely event of a more by kind of exercise of the minority options. We believe that scenario is unlikely, but it's still kind of the headroom in the revolver is EUR 200 million on top of that.

And also, we have another EUR 106 million of undrawn bilateral bank facility. In summary, we continue to stand with a strong available liquidity of EUR 1.8 billion at the end of the second quarter. On the right, you find the similar maturity table of our outstanding debt.

And now on Page 13, looking at gross profit in OpEx. Adjusted gross profit came in at EUR 243 million in the second quarter, EUR 2 million higher than in Q1. Adjusted gross margin stood at almost 30% more than 1.5% higher than in Q1.

The cost improvements from restate is the base, particularly in the business units, they are clearly visible. The adjusted R&D expenses decreased by 12% quarter-over-quarter to EUR 100 million from EUR 140 million in Q1.

Now, there is a catch-up payment of its funding in there that is positive, but also with the end of that microLED project, the capitalization of R&D has come down, which is kind of negative. Adjusted SG&A expenses came in essentially flat at EUR 94 million in the second quarter.

Now, on Page 14. The net financing result in the second compared to EUR 57 million in Q1. No material changes here. Adjusted net results came in at minus EUR 1 million and the back on only EUR 2 million net tax expenses.

For the entire year '24, you can assume around EUR 50 million net tax expenses for modeling purposes. As such, you need to see the first and second quarter together, adding to around EUR 23 million tax expense.

Consequently, the adjusted diluted earnings per share came in at EUR 0.00, significantly above the minus EUR 0.04 in the last quarter. The clean IFRS reported net result was minus EUR 41 million in Q2, resulting in minus EUR 0.04 per share.

And now, let's take a look at Page 15. Q3, we expect the beginning of the seasonal rebound in the Auto Lamps aftermarket business. In semiconductors, we expect demand for automotive products to weaken in line with the reduced car unit forecast by HF.

However, we will see a good revenue contribution from ramping new sensor products for smartphone applications. You also see an uptick in the horticulture business. The inventory corrections in some industrial and medical markets will continue.

In summary, the revenues are expected to come in between EUR 830 million and EUR 930 million. On the back of stronger sales and progressing implementation of our reestablished base program, we expect the adjusted EBITDA to improve quite a bit coming in between 17% and 20% in the third quarter.

Thereby, we assume a euro-to-U.S. exchange rate of 110%.

Looking at the remainder of '24 as a whole of the targeted EUR 75 million of run rate savings from reset base are on track. When it comes to CapEx for the full year, the guidance was EUR 450 million last quarter, and that included the carryover effect and so on.

But we might end up a bit higher at EUR 500 million to EUR 550 million as we have included some significant capital grants to come in end of this year, and they might slip into next year, which is just a timing effect. And then EBIT comes in higher this year, then obviously, the '25 CapEx would be lower by that same amount.

With free cash flow now standing at minus EUR 179 million in the first 6 months, it will be certainly much stronger in the second half as we continue to target positive free cash flow, excluding interest payments this year.

And with that outlook and the summary, I would hand back to Aldo.

[Aldo Kamper, executive]

Thank you, Rainer. I switch now to Slide 16. We'll summarize today's key takeaways. We delivered solid revenues in an increasingly difficult environment in the second quarter.

Profitability came in at the upper end of the guided range. The structural growth in automotive semiconductors continued with 6% year-over-year. We continue to win significant new business in our core semi business year-to-date within a EUR 2.5 billion lifetime value for new business.

Implementation of reestablished base is fully on track for delivering this year's and next year's targeted savings. The key elements of the noncore portfolio are addressed Restructuring of the microLED activities have started, key resources have been transported to automotive core development in high pixelate forward lighting that has a very promising prospect.

The process for finding new lessee for 8 factories is on track and overall, we now look at Q3 with improving revenue and improving profitability despite a more and more difficult market environment.

This concludes our introductory remarks and we're now happy to take your questions.

[Operator]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Sébastien Sztabowicz from Kepler Cheuvreux.

[Sébastien Sztabowicz, analyst]

The first one is on the initial market. Could you please comment a little bit on the level of inventory that you are seeing right now on the specific market? And when do you believe this inventory correction could be completed?

And the second one is that your comment on the automotive market that is currently weakening. Is it a matter of some inventory build in the market or it is just due to weaker-than-expected global car production volume? And if there is some inventory building up, where it is really happening right now?

[Aldo Kamper, executive]

Sébastien, happy to take those questions. On the mitral market, I mean, at least on the sensor side, we continue to see low demand. We had hoped that our customers would work through their inventories that were still high, that were very high starting this year in the aftermath of the semiconductor shortages that they face, and they wanted to be well prepared to avoid that for the future.

They have a lot of NCRA-type of orders that we then also delivered on late last year and we were hoping that they would work through that inventory in the first 2 quarters or so. And they are, but unfortunately, a very slow pace.

So, they still have significant inventories on their side, and it will take still a number of quarters is our belief that before that is then digested and then we will start to see real demand again at the moment is quite minimal.

On the LED side, industrial markets are a bit better, like I outlined also both professional lighting as well as horticulture lighting. We're actually doing quite well in the second quarter and also, we look at or especially also getting stronger in the third quarter. That's normal seasonal pattern and given the strength of our product portfolio here, we are also benefiting from the market rebound in [indiscernible].

On the auto side, it is really about the overall weakening of the car production. Still, we look at inventory levels as being healthy and, in that sense, not worrisome. But, yes, we just see that our customers are getting more cautious pretty much across the board. And yes, we have to take that into account now into our forecast.

[Operator]

And the next question comes from Janardan Menon from Jefferies.

[Janardan Menon, analyst]

Congratulations on a good set of results. My first question is also on automotive. Yes, all your peers have also flagged the weakness in automotive into the second half of the year.

But for the last 12 months or so, you have been talking about some strong design wins ramping in automotive in the second half of the year alongside also the consumer design win. But it appears that the consumer design win is coming through quite nicely and ramping up your revenues quite nicely into the third quarter, but the automotive doesn't seem to be coming through.

Is it because the weakness is more than compensating for those ramps or is it there's any delay in those ramps? I'm also trying to really get a feel for how your revenues will progress into Q4. I know you don't want to give any guidance for Q4 at this stage, but just qualitatively, if auto stays weak on the production side into Q4, is there some upside from new designs ramping into Q4? Is where I'm also trying to get at.

[Aldo Kamper, executive]

No. I mean, of course, the new design wins ramping helps and overall, that is still happening. We do see at some of our customers that are kind of reshuffling their portfolio at the moment between EV and non-EV, especially in Europe, and there are some disturbances, if you will, out of that. But overall, given the content per vehicle improvements that we continue to see, that will kind of dampen the impact.

So, yes, of course, we are not immune to lower vehicle builds, but you will see a lessened impact because we have a compensating effect in the improved content per vehicle.

So, before, we were hoping that fairly stable build volume in the second half would then lead to rising revenues in the Automotive segment given that content per vehicle improvement, but now given the weakness in the second half, that will be probably more flattish.

[Janardan Menon, analyst]

And then on the cost reduction, you seem to be making very good progress there, and you've already had EUR 60 million out of the sort of targeted EUR 75 million run rate. Does that mean that there could be some upside over there? Could you continue to see the sort of first half run rate in the second half and exceed that EUR 75 million?

[Aldo Kamper, executive]

Well, I think what it is signaling is that we're making good progress, and I would say that the speed of implementation is higher than anticipated.

I would, at the moment, still say that overall goal of EUR 150 million is still the one that we're shooting for, but, yes, we continue to push hard to make these things happen as quickly as possible.

[Operator]

And the next question comes from Robert Sanders from Deutsche Bank.

[Robert Sanders, analyst]

I was just interested in asking about pricing as you look into next year. The pricing, particularly in automotive has been quite benign for the last 3 years, owing to the chip shortage, but I was just interested to know if you saw any pressure from Tier 1s then OEMs to squeeze pricing into next year given that they're now facing quite severe margin pressure?

[Aldo Kamper, executive]

Obviously, our car makers and Tier 1s are seeing that pressure themselves. This is a competitive space out there, especially on the side in China.

As the real price war going on and also globally, as the overall demand is weakening, of course, the carmakers are also responding with more attractive pricing to the end customer. And, yes, they are trying to push that on to the supply base as well.

You have to kind of keep in mind though that we didn't abuse the price increase spiral of the last years that some of the other semi makers perhaps have gone through. So, in that sense, also the expectation of us now giving price is also much lower.

We've been very reasonable and very logical in our price management over the last years and with that backdrop, we, of course, respond adequately to the price pressure, but it is still in a reasonable range.

But, yes, that being said, pricing does have a bit more pressure now, I mean, overall, a lot of the input materials are back to normal and people do expect like in normal times that semiconductors get better and cheaper every year and that we are basically now returning to the long-term trend again.

And, as long as we accompany it also with progress on the cost side, also with mix improvements, then we can usually handle that price pressure. But, yes, it is increasing a bit versus where we were the last year, so no question.

[Robert Sanders, analyst]

And just a question for Rainer. Could you just talk about your gross margin impact from underutilization? I mean, what would it being your gross margin if you had 100% utilization? And what is it now, utilization?

[Rainer Irle, executive]

Yes. Rob, I mean, I'm sure we would not assume that you can ever run a company of our size with a 100% utilization, right? But the underutilization costs are in that way, hundreds of millions and the upside that you have when you improve the utilization are significant.

On the under hand, obviously, it's also very important to kind of keep those costs under control. So, that's kind of in times of a bit of weaker market it doesn't hurt you too much. But if the utilization improves, there's a very significant upside in the market certainly.

[Robert Sanders, analyst]

So, what are utilization do you assume in your 15% plan, just so I understand?

[Rainer Irle, executive]

Yes. No, look, in the target model, there is an improved utilization, and that is both from additional design wins are coming and where we have capacity for, but it is also from in-sourcing of certain manufacturing that's currently outsourced.

[Operator]

And the next question comes from Sandeep Deshpande from JPMorgan.

[Sandeep Deshpande, analyst]

My question is, clearly, you've got strong design wins in the consumer space in the second half of the year, which is helping the revenue ramp up into the second half of the year.

I mean, I think at the midpoint, it's about EUR 60 million that you're seeing an improvement. Is this all mostly driven by the consumer side with autos being soft and industrial deals? That's my first question.

And my second question is, regarding your facilities in Malaysia, where are you at this point in terms of resolution on those facilities that the microLED facility in Malaysia and what are the plans there?

[Aldo Kamper, executive]

I'll perhaps take the second question first. As we said, we are in the process of selling that facility or finding a new lessee for the Sale-and-Lease-Back contract or however you want to look at that.

We've got good interest in the fab, it is geopolitically still an attractive place to go for a lot of other semi-players, and we're having good discussions and now a quite broad process that we're going through to optimize the value of the assets in this sales process.

So, it will take a bit of time but we continue to be confident that we will find a good solution here that gives us good value for the investment that we've made and that we unfortunately don't need anymore.

On the overall upswing in the second half year, yes, you're right, on the one hand, the consumer ramp has a meaningful impact, but it is not only that. It's about, I would say, half or so is out of that, and then the other half will come out of both the semi business like [indiscernible], for example, are getting stronger in the third quarter, but also the Lamp and Systems segment usually is already a slight uptick in the third quarter September is the load-in month for the lighting season.

So, it will be a combination of things that help us in the third quarter get better.

[Sandeep Deshpande, analyst]

Just a quick follow-up to that first one, is there any potential that this equipment that you're being forced to take, which you cannot cancel has any other home that you can sell this equipment into?

[Aldo Kamper, executive]

Sure. I mean, that depends a bit on who is buying the factory and then, of course, we are also having the excess equipment on sale. And we are hoping that we either can motivate the buy of facility to take some of that or we'll also look for other homes outside of that.

But, of course, it's also an active process to try to make best use of those equipment. A few of them we've taken ourselves and are using to kind of get to productivity gains quicker by using the latest and greatest in our other facilities, but wherever that is not possible or not meaningful we, of course, try to monetize it differently.

[Operator]

[Operator Instructions]. And the next question comes from Juergen Wagner from Stifel.

[Jürgen Wagner, analyst]

On China, where you have been historically very strong, how do you see the competitive environment currently evolving as we read a lot about local sourcing in China?

[Aldo Kamper, executive]

Juergen. No, that's definitely a topic. Fortunately, we have been building our relationship here now since decades, and they go very deep and that is very helpful.

Secondly, it is still about innovation. A lot of the carmakers in China want to showcase that they are really up to snuff and they're using the latest and greatest. And on the latest and greatest, it is not the Chinese that we're competing with, it is the usual 1 or 2 Western companies that have, if at all, a similar product.

So, that does protect us on the innovation side, and that's, of course, where we keep pushing very hard. On the more established products, yes, people are looking at alternatives but it is not that different from the kind of pressures we have had over the last decade from other players in other markets.

We had to tie lease for a while, really pushing harder with the greens, pushing really hard for some time. And the automotive space still is a bit resilient on that because it's really about the quality levels, it's about long-term availability, it's more than just the price and the current performance of the product and we continue to see that people value that.

It is a bit of a similar exercise we're seeing right now than in earlier times where people tried the alternatives for some smaller programs, oftentimes are disappointed with the performance, oftentimes a disappointed that, for example, also changes are made to the product without being informed, things like that, and then they tend to come back.

So, yes, we see the pressure is there, and people are, of course, our customers are also looking at alternatives but I think given the specifics of the automotive market we have a fair chance of defending our position there.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Juergen Rebel for any closing remarks.

[Juergen Rebel, executive]

So, thanks, everyone, for joining our Q2 '24 call. With that, we'd like to conclude today's session. For any further information, please refer to our website.

We have further material examples at the full Investor Relations deck, and you can reach out to us any time. Thanks a lot, and have a good summer break. Goodbye.

[Operator]

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