ams OSRAM AG

SIX:AMS

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, welcome to the ams Full Year and Fourth Quarter 2019 Results Conference Call. I'm Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference was not recorded for publication or broadcast. [Foreign Language]At this time, it's my pleasure to hand over to Mr. 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, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you to our fourth quarter and full year 2019 results conference call. Please note that there is a presentation available to accompany this call on our website at ams.com in the Investor section at Presentations and audio. Afterwards, in the Q&A, we would ask you kindly limit your questions to 2 questions each.With this, I would like to hand over to Alex and Michael to give you an overview of the development of our business.

[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 fourth quarter and full year 2019 conference call this morning. I will discuss -- I will first discuss our business, including the acquisition of OSRAM, starting with key financial figures. Following that, Michael will comment on the financials in more detail, including further topics related to the acquisition.Our full year 2019 revenues grew 32% to $2.086 billion. Fourth quarter revenues came in at $655 million, above our guidance range and up 38% year-on-year. Our adjusted EBIT for the full year 2019 was 21% of revenues or $433 million compared to 9% of revenues for 2018. Adjusted EBIT for the fourth quarter was $184 million or 28% of revenues, which was fully in line with our expectations. As you can see, our business showed a very good performance in 2019 and ongoing positive development in the fourth quarter with very strong results.Looking at last year as a whole, we saw strong demand for our consumer solutions, which allowed us to achieve these excellent results despite a rather muted situation in our nonconsumer end markets.Before I discuss our business in detail, I would like to comment on the acquisition of OSRAM Licht AG, or OSRAM. Let me briefly recap the rationale of the acquisition, which is a transformational step for ams. As detailed on Page 7 of the presentation, we see a clear and compelling strategic rationale for the acquisition of OSRAM to create a global leader in sensor solutions and photonics. The acquisition accelerates ams opportunities to win in new breakthrough optical solutions. We will expedite the diversification of our revenue mix, targeting a significantly balanced end market exposure in the midterm. We are able to enhance our manufacturing footprint with scale and cost advantages and leverage our complementary go-to-market strengths. And lastly, we are confident for the combination to deliver significant synergies visible in next years and longer term.Looking at Page 8. This is a highly complementary combination of ams and OSRAM that will bring together 2 leaders in optical technologies, which jointly will be able to offer market-leading coverage of light emitting technologies, light sensing, optics as well as related hardware, software and algorithm. This will create a compelling technology platform with unmatched coverage of the optical technology value chain and a stronger combined company to benefit all stakeholders.So as shown on Page 9, combining OSRAM with ams is an aggressive step forward where we are addressing disruptive megatrends with around EUR 5 billion of revenues and delivering value to customers. And we see a combination of balanced end market exposure plus profitable growth, which is supported by a sustainable capital structure, including fast deleveraging of the balance sheet. Based on this, we were successful with our all-cash tender offer for OSRAM in early December 2019 at EUR 41 per share.In October 2019, we had already become the largest shareholder of OSRAM with a shareholding of almost 20% and, on that basis, launched a successful tender offer in November 2019. To refinance part of the acquisition financing, an extraordinary general meeting of ams was held on January 24 of this year, in which a capital increase in form of rights issue of up to EUR 1.649 billion was approved by all shareholders. We are in the process of attaining required merger control clearance for the transaction and currently expect the transaction to close in the second quarter 2020, subject to the set of these required clearances.In addition, we have announced yesterday the firm intention to pursue a domination in profit and loss transfer agreement with OSRAM in order to accelerate the implementation of the company's joint strategic vision. We are taking this step on the basis of strong shareholder support for the acquisition as it will enable both companies to optimally work together and expedite the realization of synergies for ams shareholders.Let me now discuss the development of our business. Our consumer business is a global leader in advanced sensor solutions for smartphones and consumer devices and was again our key growth driver last year. It also provided the largest contribution to the results of the fourth quarter.I'm now looking at Page 10 of the presentation available for this call. We are a leader in 3D sensing technology where our broad portfolio and system expertise supports all applications and approaches: structured light, time-of-flight and active stereo vision for both front and world-facing consumer 3D. Our high-power VCSELs, leading optic expertise and unequaled hard and software portfolio are what's driving our market-leading technology position in 3D.Last year, we shipped very substantial volumes in 3D solutions to the leading smartphone OEMs globally and clearly expanded our position in the Android market. We currently ship high-quality 3D sensing illumination in all technologies: structured light, time-of-flight and active stereo vision, serving different customer needs. Our differentiated VCSEL technology is recognized in the market for excellent performance which has allowed us to build a very good market position in VCSEL for consumer 3D sensing.A key development in 2019 was the introduction of world-facing iToF systems in high-end smartphones, which drove strong volumes in our VCSEL 3D illumination for iToF. This iToF system enhanced the photo camera for better picture quality, a feature that is highly successful with consumers. Based on design wins, we expect a broader customer adoption of these world-facing systems in 2020.Turning to Page 11, we helped to introduce ASV 3D technology last year, and we are shipping into first smartphones, implementing of front-facing ASV. ASV offers high 3D performance, including support for payment security at lower system complexity and total system cost. We expect ASV to gain a significant market position in 3D applications going forward, and we are getting more positive market feedback on these attractive technology. Here, we leveraged a partnership with image sensor specialist SmartSens for near-infrared, or NIR, image sensing with high quantum efficiency, which enables superior optical performance.Recently, we presented first ASV system demo implementation with NIR sensors based on our IP. The systems combined ams illumination, sensing, software and biometrics into fully integrated ams 3D solutions, which demonstrates our infrared system capabilities and portfolio in 3D sensing. Driving a major innovation on the base of ASV and our optics know-how, we feel confident to be able to move front-facing 3D sensing fully behind the OLED display. That will mean that the 3D system for face authentication is totally invisible and does not take up any space in the front of the phone.We are making very good progress and now expect to demonstrate behind-OLED ASV full ams 3D system within 6 months. This solution combines VCSEL illumination, NIR sensing, software and algorithm from ams and based on ams IP, which highlights our unmatched portfolio for full 3D system offering. As this 3D behind-OLED technology will eliminate visible components on the front side and offers the convenience and security of 3D, we expect it to drive attractive new opportunities in consumer devices.Turning to Page 12. We are leading innovation also via another new technology in 3D. We expect dToF technology to play an important role going forward as 3D sensing applications continue to evolve and see OEM interest accelerating for this technology. dToF offers excellent performance across challenging light conditions, particularly bright light and for longer distance of several meters. dToF is, therefore, a highly attractive technology for new 3D use cases, but it's technology -- technically highly demanding. We are moving ahead in development of a high-performance full ams dToF system, which combines ams illumination, optics, SPAD sensing, et cetera, into a high-value solution we feel very excited about.Beyond consumer, we see emerging momentum in industrial where market interest for industrial access 3D, such as door locks, is growing while we are working with a global OEM for an industrial ASV win in the household device.Rounding off, we introduced a long-distance 1D ToF solution for very accurate distance capture last year and have won the first design for laser-based autofocus in a high-volume smartphone, which is planned to be launched this year. So when I look at the consumer 3D market, we are able to fully cover evolving customer needs and road maps across all technologies regardless of whether structured light, iToF, dToF or ASV is the preferred customer approach. Looking at our momentum in consumer 3D, I can say that we are pursuing quite a number of new designs and new opportunities with the largest names in the consumer market.Switching to automotive 3D on Page 14. We continued significant R&D for advanced LIDAR, and we are seeing very good VCSEL traction with major automotive players. Next to the large-scale 3D LIDAR illumination program in true solid-state for ZF, the leading Tier 1 system supplier, we have active engagement in different geographies. For this, we won 2 further LIDAR illumination projects at 2 additional Tier 1 suppliers last year with an expected total lifetime value of several hundred million dollars.Our addressable high-power VCSEL arrays offer significant advantages in different scanning architectures. For several architectures, we provide complete subsystems, including dedicated driver ICs. In-cabin monitoring is evolving into a meaningful new automotive optical field as OEMs and Tier 1 suppliers show strong interest in differentiated 3D and 2D use cases.We have already won our first 3D time-of-flight illumination project at a global Tier 1 supplier and, at the recent CES trade show, showcased a full ams 3D solution for driver recognition using ASV illumination and NIR sensing integrated into the dashboard at a very tiny scale.In other optical sensing, we understood our market-leading position in display management last year. Looking at Page 16, we introduced a significant innovation, allowing OEMs to move high-performance proximity and light sensing invisibly behind the OLED display. This unmatched behind-OLED technology saw very strong market success last year as OEMs are keen to pursue maximized screen-to-body ratio and bezel-less phone designs. Adoption expanded quickly, with behind-OLED solutions already shipping in a range of high-volume entrant smartphones and mobile device platforms. We further designed one, the option to remove bezel-less elements from the phone design is expected to drive further adoption of behind-OLED across leading OEMs. Looking across technologies, we are shipping an extensive range of high-volume display management solutions to the broad base of consumer OEMs.Moving to Page 17. Leveraging spectral sensing, we also introduced an innovation for extremely accurate automatic white balancing in smartphone cameras, which uses lower resolution spectral sensing. Correct white balancing is essential in photography to realize best picture quality and color expression. Our solution enables previously impossible white balancing accuracy through detailed spectrum analysis of the light environment. This, in turn, creates significantly better picture quality and vivid natural colors for mobile devices.We have won a first design for AWB in a high-end smartphone platform, which is planned to be launched this year. We also started shipping new flicker-detection sensors in high volume to Android OEMs last year that improved picture quality by detecting artificial light flickers. At the same time, we remain engaged with OEMs in optical personal health sensing where we measure blood pressure and additional data at outstanding accuracy.Let me now look at our AIM or our nonconsumer business. Our automotive, industrial and medical business showed an overall muted performance in 2019, reflecting a difficult automotive and industrial market environment. In the fourth quarter, though, automotive, industrial and medical were able to record a more positive revenue trend.In automotive, we achieved solid results last year, despite a generally weaker demand situation which resulted in a subdued market environment worldwide. We focus on safety, driver assistance, autonomous driving, position sensing and chassis control, serving a range of Tier 1 suppliers and OEMs, while market traction in automotive continues to increase in Asia, including Japan.Our industrial business performed in line with muted expectations against the background of weaker end market demand over the course of 2019. We serve the industrial automation, factory automation, HABA and additional industrial markets as a leading supplier and address market opportunities in sensor-rich industrial IoT in Industry 4.0. Here, new applications, including 3D, create opportunities for the coming years.Referring to Page 18. In industrial imaging and machine vision, we continue to leverage our industry-leading global shutter technology with new designs last year. Growth applications, such as 3D, create new optical sensing markets where the SmartSens partnership accelerates ams solution capabilities. Just recently, we closed the joint venture transaction for our environmental sensing activities, which we had announced in spring 2019. The joint venture, in which we are a minority shareholder, will allow the business to successfully address growth opportunities with the focus on Asia.Our medical business saw significant growth in 2019 despite a generally challenging macroeconomic environment worldwide. We confirm our leading position in medical imaging for computed tomography, digital x-ray and mammography and continue to expand our business in Asia with several regionally based OEMs. We're also a leader in the next-generation medical endoscopy, shipping NanEye endoscopy microcameras in volume.Turning to Page 19. We recently introduced a major innovation in medical imaging, the first standard product sensing solution for computed tomography where previously only fully customized ASICs were available. Based on monolithic integration of sensing and analog-to-digital conversion, we offer high-performance imaging and significantly lower system cost and complexity, while doctors and patients benefit from better diagnostics and low radiation doses.In operations, we significantly redesigned and improved manufacturing processes in Singapore in 2019. Production efficiency and yields increased strongly as we require lower levels of labor and materials compared to the previous setup. This allowed us to record meaningful, better profitability for our Singapore manufacturing compared to the year before.We successfully completed the construction of our internal VCSEL production line last year for a ramp capacity of around 2,200 6-inch wafer starts per month. The production ramp of the front-end facility began as envisaged at the end of last year and is expected to extend through the current year. We are now able to exploit differentiation opportunities in higher-power VCSEL through both design and manufacturing, while scalable, outsourced and internal VCSEL capacity supports our expected growth needs.Let me now come to the outlook for our business. For the first quarter 2020, we expect our business to continue to perform well against the backdrop of typically expected seasonality and a more uncertain global macroeconomic and geopolitical situation. We foresee high-volume consumer programs to provide important contributions based on supportive smartphone volumes. In nonconsumer end markets, however, business trends remain influenced by the challenging macroeconomic and demand environment.The acquisition of OSRAM is progressing as expected, with regulatory approval proceedings underway and the legal basis for implementing the planned rights issue in place. Encouraged by the constructive relationship with OSRAM and overwhelming positive feedback on the strategic merits of the transaction, we expect to successfully close the transaction as envisaged.On the basis of available information, we expect first quarter revenues of USD 480 million to USD 520 million, showing a less pronounced level of seasonality and a strong year-on-year increase of 28% at the midpoint. The adjusted operating margin for the first quarter is expected to be 19% to 21%, reflecting ongoing operational efficiencies and showing a very significant improvement year-on-year. Looking forward and based on current information, we also expect another year of revenue growth for 2020.When compared to historical figures, the revenue expectations above excludes deconsolidated revenues related to the mentioned divestments and joint ventures of around $20 million to $25 million per quarter, which have been deconsolidated as of the end -- year-end 2019. However, all expectations mentioned before are based on the assumption that the consequences of the coronavirus infections will not have a meaningful negative impact on our business for the first quarter of the year 2020.Let me now hand over to Michael for a detailed look at our financial results and further comments on the ongoing acquisition process.

[Michael Wachsler-Markowitsch]

Thank you, Alex. Good morning, ladies and gentlemen. A very warm welcome also from my side. It's my pleasure to give you an overview of our IFRS and adjusted record fourth quarter and full year results of 2019, followed by an update of the acquisition process of OSRAM.Let me start with our P&L and the top line development on Page 27 (sic) [ Page 26 ]. Our revenues came in very strong at $2.0859 million -- $2.0859 billion, sorry, a 32% increase last year over 2018. Also, fourth quarter, we recorded a top line development, 38% growth to EUR 655.3 million (sic) [ $655.3 million ] in revenues. The significant growth in full year last year and Q4 once more was predominantly driven by our consumer business. We're also seeing a continuing revenue diversification with expanding business in the Android market.On the next page, Page 28 (sic) [ Page 27 ], our revenue distribution. We've seen a change in the regional split, which is mostly due to consumer side changes in our billing structures. The increased revenues by market in 2019 was driven by a broader development of optical sensing products in our consumer business. We now have more than 80% of our business in consumer and less than 20% in nonconsumer.On the next page, Page 29 (sic) [ Page 28 ], you can see our backlog development. I may remind you that the figures are not fully comparable due to a narrow backlog definition from 2019 onwards. Still we can see that year-end 2019, an expanding role of intra-quarter business, particularly in consumer and the typical seasonality. With that, our total backlog is EUR 265.1 million (sic) [ $265.1 million ] at the end of last year.Let me now go to our gross profit and gross margin development on Page 30 (sic) [ Page 29 ]. We have seen a very strong 71% increase for last year to EUR 853 million (sic) [ $ 853 million ] in absolute terms and, in relative terms, an increase to almost 41% gross margin. For the fourth quarter, we also recorded a strong increase over Q4 2018 to EUR 296 million (sic) [ $296 million ], a 45% -- 45.2% gross margin. The gross profit margin development reflects major improvements in production efficiency, higher utilization and positive product mix effects. On an IFRS level, our gross profit margin in 2019 was 38.7% (sic) [ 38.3% ]; in Q4, 43.2% (sic) [ 42.2% ].Further down the P&L, our R&D expenses also showed a very nice development. We've seen a higher R&D investment continuing throughout 2019 for major development projects in consumer and also nonconsumer business. In relative terms, we've seen a substantial decrease in 2019 in R&D spending in line with targeted development. Our R&D spending, therefore, was EUR 289 million (sic) [ $289 million ] last year or 13.9% of revenues. In Q4, we recorded EUR 64.1 million -- $64.1 million, sorry, R&D spending or 9.8% of revenues.Our SG&A expenses also developed positively. We've seen an increase in absolute terms to EUR 193.6 million (sic) [ $193.6 million ] in 2019 or 9.3% of revenues. In Q4, we recorded EUR 51.3 million -- sorry, $51.3 million and 7.8% of revenues. The decrease in relative SG&A spending shows the strong cost discipline and the ability to manage our profitable growth.All in all, this led to a very positive result from operations or EBIT. We recorded a record level of $433.4 million in 2019 or 20.8% of revenues, a strong increase of more than 200% compared to 2018. Also for the fourth quarter, we've seen a strong increase from $60 million in Q4 2018 to $184.3 million in 2019, which is 28.1% of revenues. The EBIT effect reflects the strongly improved gross profitability and production efficiency improvements. On IFRS, our EBIT was $363.7 million or 17.4% of revenues; and in Q4, $200.9 million or 30.7% of revenues, respectively.Let me move on to the net financial result on Page 34 (sic) [ Page 33 ]. That was clearly driven by valuation effects of our U.S. dollar convertible bonds in 2018, which is the base effect of high result -- financial result. In 2019, we have seen a more -- development more in line with what we have expected. We've seen first financial cost impacts in conjunction with the OSRAM offer and shareholding, especially in the fourth quarter, led to $28.3 million negative financial results. In total, for 2019, we recorded $14.3 million negative net financial result.Our tax expenses on the next page also showed a very positive development. Attractive tax rate going forward also, comfortably in line with what we have expected. I may remind you that we always said we expect the tax range in high single-digit numbers, which is exactly what you see in Q4 with 7.8% or $13.5 million.Net income, therefore, in 2019 reflects the operating profitability, very strong CHF 4.15 or CHF 4.05, basic and diluted; on an adjusted level, USD 4.13 or USD 4.03. Our reported basic and diluted EPS, therefore, in Q4 was a strong CHF 1.94 or CHF 1.77 (sic) [ CHF 1.76 ] or USD 1.96 or USD 1.78, respectively.Now let me move on with some more numbers from the balance sheet. On Page 38 (sic) [ Page 37 ], you see our working capital development. We had a very tight working capital management in the light of the very strong business growth we have seen last year. Our trade receivables came in with $223.4 million at the end of the year compared to $133.9 million at the end of 2018. Our inventories decreased nicely to $232.5 million in 2019, reflecting the strong operational performance, especially in our manufacturing areas in Singapore, a decrease compared to $342.9 million in 2018. Our trade liabilities also decreased to $149.9 million compared to $194.6 million at the end of 2018. Main reason of that is a lower CapEx development and, therefore, lower trade liabilities. Overall, our working capital increased only slightly from $282.2 million end of 2018 to $306 million end of 2019, which is a 15% number as a percentage of revenues compared to 18% in 2018, very nice improvement.On the next page, Page 39 (sic) [ Page 38 ], you see our net debt and cash and short-term investments development. We've seen an increase of 32% to $1.750 billion at the end of last year. The equity ratio on the basis of the strong result also increased from 36% to 38%, and our cash and short-term investments decreased from $691 million at the end of 2018 to $553.7 million at the end of 2019. Clearly, this net debt increase is largely driven by the financing of 20% OSRAM holding in connection with our offer. On a stand-alone basis, however, our number, our net debt-to-EBITDA number, showed a very strong decrease as expected from more than 5 end of 2018 to a very attractive 1.3 at the end of 2019.Now let me move on to the cash flow to complete the picture. On Page 41 (sic) [ Page 40 ], you see we had a very strong cash flow in fiscal 2019, which reflects the operational performance and clearly underscores our cash-generating ability. We've seen a strong increase of more than 100% to $717 million (sic) [ $714.4 million ] or 34.4% (sic) [ 34.2% ] of revenues last year. In Q4, we've also seen very good performance, $276 million (sic) [ $ 273.5 million ] operating cash flow, 42.2% (sic) [ 41.7% ] of revenues.Last but not least, on Page 42 (sic) [ Page 41 ], we come to the CapEx of our business. As we have expected, we've seen a very substantial reduction in CapEx as the significant investment cycle of the 2 years, 2017 and 2018, was completed, substantial reduction to below 10% of revenues, 9.6% or $200.9 million last year. Also, Q4 shows a significant decrease 33.6% of revenues or -- sorry, $33.6 million or 5.1% of revenues. We expect our CapEx target to stay below 10% of revenues going forward.Now let me come to some details of the OSRAM transaction. I want to reiterate on Page 43 that this transaction clearly fulfills our M&A criteria. It's strategically compelling, as Alex mentioned before. It's value enhancing. We see significant cost and revenue synergies with an expected annual pretax run rate in the excess of EUR 300 million. It's financially accretive. We expect it to be accretive with the earnings per share number from 2021, the first full year of consolidation onwards, and also a return of invested capital is expected to exceed the weighted average cost of capital from 2021 onwards.This -- all of this will be financed by a very sustainable capital structure, the pro forma leverage of below 4x 2019 EBITDA at closing and about 3x of 2019 EBITDA, including synergies, and we target to delever the balance sheet to less than 2x by 2021. And last but not least, it fits with ams financial model, the combined business targeted to achieve double-digit revenue growth and supporting the ams medium-term adjusted EBIT margin target, which is 25% plus.Let me give you a little bit more detail on the sustainable capital structure, as I mentioned before, on Page 44. We have a fully committed financing by our banks who have underwritten a EUR 4.4 billion bridge facility and a EUR 1.65 billion equity issue which was, as Alex mentioned before, already approved by our shareholders. It will be -- it will happen in the form of a rights issue, and we're working towards that. The planned debt refinancing of up to EUR 2.9 billion (sic) [ EUR 2.7 billion ] is also fully committed, and we also work towards that. As I said before, we target to delever our balance sheet to about 2x net debt-to-EBITDA in 2021.Again, to finalize that, the capital raise was approved by our shareholders on January 24 this year, and we are able to implement, after finishing the prospectus, the rights issue from the end of February, and we're working towards that. We expect, as applicable under Austrian law, 2 weeks rights trading period, which is followed by the issuance of the detailed terms, like subscription price, the exchange ratio and the value of the rights, which will be defined shortly before the launch.Now let me also add a comment on what you have seen yesterday. In addition, we announced our intention to pursue a DPLTA or domination agreement, as Alex also mentioned before. After further analysis, we believe pursuing a DPLTA is the most advantageous course of action for ams. This enables us to achieve a speedy and beneficial integration of OSRAM following the expected regulatory approvals and the closing of the transaction. The DPLTA also ensures the timely and complete realization of the synergies we expect from the combination of ams and OSRAM. We have announced the intent now as we are keen to optimize our position and the position of ams shareholders with regard to the implementation of a DPLTA.One significant parameter related to the eventual valuation of OSRAM, which is part of a DPLTA, is the 3-month trailing volume weighted average price of OSRAM, or VWAP. Based on our announcement yesterday and our internal analysis, we expect this VWAP to be around EUR 42.2. This VWAP price will be looked at by the relevant court together with a separate valuation following described methodology. In any case, the approval of such DPLTA would only happen after the closing of the transaction, which we currently expect before summer.With this, I would like to come to the highlights on Page 45 of the presentation, next page. Again, we clearly have a successful strategy with focus on leadership in optical technologies. We're transforming the OSRAM acquisition to create a global leader in sensor solutions and photonics with an outstanding portfolio. Our key success factors are differentiation, innovation, high performance and solution play capabilities. Our balance sheet shows a solid and sustainable capital structure to support the OSRAM acquisition, and we're targeting a very quick deleveraging over the next couple of years. We've seen a very good operating profitability and also expect this going forward with a strong cash flow generation and limited CapEx requirements. ams and OSRAM are in an excellent position for long-term growth opportunities in exciting areas.And with that, I would like to open the floor for questions. Thank you for your attention.

[Operator]

[Operator Instructions] The first question comes from the line of Achal Sultania with Crédit Suisse.

[Achal Sultania, Director]

Just a couple of questions. First on the -- under the glass ASV technology that you're talking about, Alex, I thought that basically a lot of Android vendors had already given up on face ID. And here, you're basically saying that you're still working towards trying to implement that technology under the glass. So can you just help us understand what are the discussions that you're having with the customers around the face ID technology? Can it have a revival after a soft launch last year?And then secondly, on the combined entity, ams plus OSRAM, obviously, OSRAM's near-term guidance is well below what ams is delivering in terms of growth and margins. Are you saying that the combined entity should actually deliver double-digit growth with 25% plus EBIT margins over the medium term? Is that the target for the combined entity?

[Alexander Everke, CEO & Member of Management Board]

Yes, Alex here. Thanks for the question. Let me just give a short answer to your last question. The answer is clearly yes. The double-digit growth and more than 25% adjusted EBIT margin is for the combined entity. We are pleased with the last announcement from OSRAM, but there is obviously a way to go. But this is the midterm targets we want to achieve, and we are confident with that.On ASV, you need to understand why some customers went away from face ID, which actually, we don't see it as dramatic as you have mentioned it. One is cost, system complexity and convenience. But with the ASV, which is a lower system cost, which is easier to handle for customers since we can provide a complete system, and it's behind-OLED so it's not visible, we see a strong momentum going forward in this field. And the other point is, it's also important, which was not there 1 or 2 years ago, ASV is also payment -- has payment security, which enables all the applications you can do with the other technologies. So it's a very new technology, lower complexity, lower system costs for customers, very convenient and invisible for consumers. It's a very different thing.

[Operator]

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

[Sébastien Sztabowicz, Head of Tech]

I've got one regarding OSRAM because a lot of things have changed since you announced your synergy targets last summer. OSRAM has pushed out somewhat its midterm margin objective, you gave some higher commitment to employment in Germany, specifically. Are you still confident or comfortable with your EUR 300 million synergy target? And the second one would be to understand a bit the difference in terms of semiconductor content for ams specifically. Between the 3 different 3D sensing technologies to light, time-of-flight or active stereo vision, is there any major differences for you at this stage?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thank you for your questions. So related to OSRAM, actually the deeper we look into the company, the even more confident we are to achieve this number, the synergies, or even higher. So we are very motivated and encouraged to accomplish this. On the content for the 3 technologies, it depends a little bit, of course, on the customer application, but it's kind -- for us, it's kind of comparable. And obviously, when you -- when we deliver complete solutions, even including software, the content is, of course, extremely attractive for us. So we see it as very, very positive. Maybe one additional remark on OSRAM, the CFO for OSRAM also confirmed my statement last week.

[Operator]

The next question comes from Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

Just on the domination agreement. I know you're anchoring a VWAP, 3-month VWAP. But as I understand it, this could take quite a while. So presumably, that VWAP go up over time. And it does look like there are a lot of hedge funds that are trying to hold out for numbers more like EUR 50. So is there something about the process that I don't quite understand in terms of the court or some kind of legal process that could anchor you at the recent 3-month VWAP as a result of this press release overnight because, as it looks like today, it's going to be hard to get the approval from the necessary 75% unless you sort of give concessions to these hedge funds that control OSRAM shares? So I'd just love to get your view and some idea around the potential risk of a higher-than-expected squeeze-out cost.

[Michael Wachsler-Markowitsch]

Rob, it's Michael. Actually, it's the other way around. We locked the end of VWAP by announcing the DPLTA for a period of about 6 to 9 months, depending on how the process goes. And since we have the ability to buy in the market, if we want to, we can also increase over time our shareholding to a level where we expect that we get 75% of the votes at an upcoming AGM of OSRAM.

[Robert Duncan Cobban Sanders, Director]

Got it. So you can still buy in the market basically as of today. There's no restrictions on that. Okay.

[Michael Wachsler-Markowitsch]

Well, there are some restrictions, but we can do more.

[Operator]

The next question comes from the line of David O'Connor, BNP Paribas.

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

Two from my side, if I may. Maybe firstly, Michael, you talked in the release 2020 growth is expected. Can you help us with that, if you can give any more color? Just looking at consensus, it seems like it's up 10% year-on-year for 2020. I mean is that the type of profile that we should expect? Any color on that would be helpful. And then maybe actually a second question also, Michael, on the pricing for the capital raise. Do you have -- when exactly will that be assessed? Do you have to wait until after the contestation period finishes? If you can give us some detail around the specifics there for the pricing, that would be helpful.

[Michael Wachsler-Markowitsch]

Yes. Sure. With regard to the outlook, as you know, we continue to give detailed guidance for the upcoming quarter as before. But to frame expectations on a larger scale, we wanted to ensure the market is not being biased somehow by short-term developments like the rights issue but really taking a little bit longer-term view, and that's why we said we expect the growth here. But obviously, I cannot share any more details than that. And with respect to the rights issue, as I said, we expect to be ready with everything needed in the process by end of February, beginning of March, and we take it then from there.

[Operator]

The next question comes from the line of Jürgen Wagner, MainFirst Bank.

[Jürgen Wagner, Director]

Actually, I have 2 questions. A follow-up to your ASV 3D behind-glass. Actually, last year, you gave us a much longer time frame. And now you say you're ready within 6 months. What drove that acceleration in development? And the second question is a follow-up on OSRAM. Yes, as you announced to enter this DPLTA, what makes you so confident to close the deal actually over summer? Currently, we see like delays at Infineon when they -- in their process to buy Cypress.

[Alexander Everke, CEO & Member of Management Board]

Yes, thanks for the question. So first of all, the -- within the 6 months, we have the first product demo available for our customer base. But we, as you correctly mentioned, we are ahead of our schedule. We've put in a lot of investment and strong engineers in big groups on this development, and we are developing very, very nicely, much faster than we even expected. And it's a very compelling technology. We have a very differentiated solution there. And you can easily imagine that everything which is behind-OLED, which is invisible and has the same functionality or better, will be a great appreciation for our customers.On the second question, Michael?

[Michael Wachsler-Markowitsch]

Yes. Sure. Actually, the reason why we are so confident about the timing is that we don't expect any regulatory issues. We have almost no overlap in businesses in no country. So it should be a very straightforward process, and that's why we expect this closing quite soon to what we have heard from our lawyers, yes.

[Moritz M. Gmeiner, Head of Investor Relations]

Ladies and gentlemen, if there are no further questions at this point, we would like to thank you very much for joining us this morning for this results conference call. We wish you a pleasant day, and we hope to speak to you again. Thank you very much, and have a good day.

[Operator]

Ladies and gentlemen, the 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.