ams OSRAM AG

SIX:AMS

Earnings Call Analysis

Company Aims for Revenue Growth and EBIT Increase

The company is aiming for a 6%-10% growth in its semiconductor core portfolio, targeting EUR 3.6-4.1 billion in revenues by 2026, led by automotive, mobile light sensors, and the 8-inch sales from a new facility. Adjusted EBIT margins are expected to reach 15% by 2026, with cost savings of EUR 150 million and contributions from new businesses. In 2023, design wins exceeded EUR 5 billion, driven by automotive, industrial, medical, and consumer segments. Q1 2024, revenues between EUR 800-900 million are projected, with an adjusted EBIT margin of 4%-7%. Full-year guidance for 2024 anticipates run-rate savings of EUR 75 million, with stronger performance in the latter half. The CEO sees organic growth potential in the second half after inventory corrections, supported by new product introductions and an expanded medical customer portfolio.

Overview of Revenue and Profitability

In the final quarter, the company reported a slight increase in revenue compared to the previous quarter with EUR 908 million, which was above the midpoint of their guidance range. However, on a year-over-year basis, the company saw a decrease of 10%, attributing this decline partially to negative currency impacts.

Segment Performance and Market Conditions

The automotive semiconductor segment exhibited robust demand, achieving a 10% year-over-year structural growth, primarily due to a strong market rally in China. Conversely, the industrial and medical sectors faced significant challenges with a 12% quarter-over-quarter decline, and the professional lighting applications saw no respite from deteriorating market conditions. The company remains optimistic about its new hyper-red LED product expected to boost horticulture lighting in the forthcoming tender seasons.

Recent Achievements and Outlook in Key Markets

The company has carried its momentum from the third quarter into its design-win performance, amassing over EUR 100 million in the automotive sector, particularly with LIDAR technologies for ADAS applications, securing significant design wins across various markets, and being recognized by key Chinese automotive player BYD.

Cost Structure and Financial Position

The adjusted gross profit was stable at EUR 260 million, and R&D expenses saw a slight reduction due to higher capitalization in the sensor and IC business. The company also reported a robust liquidity position of EUR 2.1 billion, despite an adjusted net result downturn to minus EUR 60 million due to one-off charges.

Strategic Initiatives and Savings

The company has set in motion a base program aimed at saving around EUR 150 million by the fiscal year '25. These savings, combined with plans for divestments and a focus on improving net debt to adjusted EBITDA to less than 2x, paint a strategy toward achieving financial stability and growth.

Future Growth and Capital Expenditure

Expected design wins and strategic initiatives have shaped a growth forecast of 6% to 10% with semiconductor core portfolios and an aim for 15% adjusted EBIT by 2026. On the investment front, the company anticipates a CapEx of EUR 500 million for the fiscal year as it deals with delays and increased industrialization costs while expecting a normal seasonal decline in Q1 with adjusted EBIT between 4% and 7%.

Divestments and Operational Model Refinement

Intense discussions are underway regarding the divestment of two product lines, signaling adjustments to their operational model for a tighter focus on core businesses and recovery in the second half of '24.

Anticipating a Return to Organic Growth

The company expects organic sales growth to pick up again in the latter half of the year, driven by recent design wins and the ramping up of a major ambient light sensor socket that was previously lost. This growth is anticipated despite the overall market still showing signs of weakness and the impact of ramping down older technologies.

Long-term Prospects and Innovations

Estimates for the micro-LED market by the end of the decade are optimistic, forecasting an addressable market of $1.1 billion. The company's efforts in small diagonal displays are anticipated to pave the way for conquering larger diagonals over time. Additionally, significant revenue from the new fab in Kulim is expected to initiate in 2026, marking a milestone in the company's journey towards innovative product categories.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, welcome to the conference call on the fourth quarter 2023 results. I'm Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a Q&A 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. Welcome to our Q4 and fiscal year 2023 earnings call for investors and analysts. With me are Aldo, CEO; and Rainer, CFO. Aldo will comment on business update and strategy. Rainer will comment, as usual, on the financials. And after the introductory remarks, we are happy to answer your questions. Aldo and Rainer will refer to the earnings call presentation that you find on our website.Aldo, please walk us through the Q4 business update.

[Aldo Kamper, executive]

Thank you, Juergen, and good morning to everyone from my side as well. We've delivered a solid business performance in the fourth quarter in spite of a mix back in terms of end markets.Let us take a look at Slide #3 here. Q4 group revenues increased a bit quarter-on-quarter and came in at EUR 908 million, EUR 4 million higher than in Q3. We landed slightly above the midpoint of our guidance range of EUR 850 million to EUR 900 million. 1 year ago, we stood at a on a like-for-like basis excluding divestments in Lamp & Systems segment at EUR 1.054 billion, we had a negative currency impact of EUR 41 million. Like-for-like and on a constant currency basis, our revenue declined 10% year-over-year. We'll see in a minute that the decline is primarily due to the well-known socket losses in consumer applications.Adjusted EBIT margin came in at 6.9% above the midpoint of the guided range. At first glance, adjusted EBIT came in weaker with EUR 62 million compared to EUR 71 million in Q3. However, if you remember our last earnings call, we said that we benefited from around a EUR 10 million positive one-off effect related to the catch up of government subsidies. On a like-for-like basis, our profitability remained essentially flat.Now let's take a look at the Semiconductor segment on Slide #4. Revenues declined slightly by 3% from Q3 and came in at EUR 629 million. In detail, the picture is diverse, which I will comment on in a moment. Adjusted EBIT of the Semiconductor segment came in at EUR 29 million or 4.6% adjusted EBIT margin. Taking the EUR 10 million of [ IPSA ] subsidies effect in the last quarter into account, the adjusted EBIT actually improved on a like-for-like basis by EUR 3 million or 10% from Q3 to Q4. We see the effect of the improved factory loading, but also further structural improvements on executing our reestablished the base program.Let us switch to Slide #5, looking at the dynamics in the end markets in detail. We recorded a record demand for automotive semiconductor products, mainly driven by a year-end rally in China. Overall, we recorded 10% structural growth year-over-year in this segment.As you might have heard from our semiconductor peers, industrial markets are extraordinarily weak at the moment. We are no exception and see the same weakness with a 12% quarter-over-quarter decline. In professional lighting applications, no improvement was seen as the construction sector continues to deteriorate. Horticulture was still very muted as well. The greenhouse lighting product tendering season in the first half of '23 was particularly soft if you remember. We believe that the tendering season this year will be stronger especially on the back of our latest hyper-red LED product which boasts market leading efficiency and should convince even more customers.In capital goods market, we benefited in Q4 from noncancelable orders. Unfortunately, this will contribute also to the inventory correction in H1 in this year. Overall, we see weak demand both from industrial OEMs and the mass market. The medical business remains subdued as well.Coming to consumer, on the positive side, we continue to see an upswing in demand for sensor product for Android smartphones where we boost leading positions. Negative, we still see a sequential decline as a consequence of the continuous ramp down in the wake of the socket losses of certain past higher-end products.Now let us take a look at Slide #6. I'm very pleased with excellent design-win momentum that we had reported in Q3 continued in the December quarter. First, taking a look at ADAS applications, we claim that we are and will be the leading laser diode supplier for LIDAR module makers. We have more than 20 million lasers in the field already that generated cumulated revenues of a triple digit million euro over the last decade. Looking forward, we count more than EUR 100 million design wins and the only true level 3 cars on the road feature our products. On top, more than a dozen car models on China streets also trust our lasers.Second, we are also constantly winning new business with established LED auto products. This quarter we are very pleased to announce significant wins for classic low pixelated forward lighting applications like in the use of metrics beams. In total, we landed more than EUR 100 million design wins, often in high profile sockets.Third, for many years, we have been providing high performance ladle diodes for material treatment industrial applications. Applications range from bottling equipment to copper welding in the production of EVs, 2023 was a good year in terms of winning new business in this profitable niche. Likewise, laser projection in industrial application and other interesting application in 2023, we could win significant business in this market as well.Finally, our time-of-flight sensors are key element of many home consumer or portable consumer devices. 2023 was a good design win year for those as well.With these examples, I want to give you an impression that we're also constantly winning new business beyond automotive although the individual project is typically much smaller due to the market structure. Nevertheless, if that's up, the 3 examples from industrial and consumer that I just mentioned are representing a combined design win number in the order of EUR 150 million.With this, let me switch to Page 7. We are equally well represented in China in the automotive semi-sector as we are in our home region, Europe. We are supplying to almost all Tier 1s and OEMs. It makes us proud that our passion for innovation and the strong relationship we have with our customers, it's time and again formally recognized. We are very pleased that BYD has held us as one of their few suppliers of the year in 2023 during the last quarter.Let us now turn to Lamp & Systems on the next slide. The Lamp & Systems segment performed again very well in line with what we expected. Driven by the automotive aftermarket business, we saw revenues of EUR 279 million, a 9% quarter-over-quarter seasonal improvement. As a general pattern Q4 and Q1 are always the strong quarters in the year as most lamp replacement happen during winter time in U. S. and Europe.The sales industrial and entertainment application, however, remained weak at around EUR 44 million with 12% decline compared to Q3. Especially the semiconductor equipment applications remain muted due to high inventories. Adjusted EBIT came in at 11.9% or EUR 33 million in Q4. In absolute terms flat compared to Q3. However, an adverse raw material effect weighed on the EBIT. We had secured too much of a critical raw material during peak allocation times in 2022, which we had to correct now.On Slide 9, I wanted to give you a glimpse of why we are convinced that our last-man-standing strategy will allow us to consistently win share and keep revenues flat in a gradually declining market in the Lamp & System segment. One important element is extending a portfolio, after being the first to market with so-called street legal LED retrofits for a limited range of cars, we've extended our pioneering portfolio of LED replacement lamps significantly in 2023. With such a lamp you can get an LED performance in traditional cars as they fit the classical halogen lamp sockets. Sales of these products are growing rapidly year-by-year and with a clear global market leader in this field as well.With this, let me hand over to Rainer for more details on the financials.

[Rainer Irle, executive]

Thank you, Aldo. We are on Page 10. Good morning. Adjusted gross profit came in at EUR 260 million basically flat quarter-on-quarter. Adjusted gross margin remained almost flat at 28.7%. The slightly higher revenues may have also expected a slight improvement in the margin. However, a one-time material value correction of a mid-single digit million weight on gross profit as Aldo just mentioned.The adjusted R&D expenses came down by 4% to EUR 92 million from EUR 96 million in Q3. The reason for this development was a slightly higher R&D capitalization related to the sensor and IC business. Adjusted SG&A expenses came in at EUR 150 million. The increase of EUR 50 million quarter-on-quarter was due to the seasonally higher selling expenses in the Lamps & System segment, a true up in bonus provisions and some smaller year-end charges.And with this, let us take a look at the adjusted net result and earnings per share on Slide #11. Net financing result in the fourth quarter stood at minus EUR 80 million compared to minus EUR 34 million in Q3. Within that number we booked about EUR 40 million one-time charges for refinancing, such as the call premium for the outstanding '25 [ high-yield ] bond, and also hedging charges related to the capital increase.The one-off charges also dragged down adjusted net result which stood at minus EUR 60 million in Q4, after EUR 29 million in Q3. The adjusted diluted earnings per share amounted to minus EUR 0.03 in Q3 compared to the other way in Q4 compared to EUR 0.11 cents in Q3. However, please bear in mind that the number of shares almost quadrupled from 274 million shares prior to the capital raise in December to 998 million basically billion thereafter. As such the earnings per share calculation for the December quarter based on the weighted average share count of 456 million.The clean IFRS reported net result was minus EUR 82 million in Q4. Adjustments amounted to EUR 66 million in total. About 50% or EUR 33 million are M&A related and about EUR 23 million are share-based compensation related, besides EUR 50 million transformation costs.We have cleaned up old long-term incentive plans which caused some one-time charges. However, in '24 the cost for share-based compensation will come down by more than 50% as a result of the cleanup.Turning to Slide 12. Looking at the operating cash flow graph on the left-hand side, in Q4 accounts payable were down by almost EUR 80 million in Q4. This is the main reason for lower operating cash flow in Q4 compared to previous quarters. We paid a lot of invoices in Q4 and reduced a bit the carry over into '24 which explains most of the reduction in accounts payable.In terms of PPE and intangibles we spent EUR 222 million in the December quarter. The CapEx ratio was about 2.5x above our target ratio of 10% to sales and that is due to the elevated level driven by completing the first phase of our industry first 8-inch Kulim manufacturing facility.In '23 our focus in terms of portfolio cleanup was on the Lamps & System segment. We could get quite some good proceeds from those divestments. In Q4 the EUR 63 million includes the proceeds from selling some unused assets on the semi side such as the factory in Asia. If we now include these proceeds in our definition of free cash flow, but exclude interest payments we end up with a negative EUR 79 million in Q4.And now, let us take a look at the entire fiscal year '23 and with that back to Aldo.

[Aldo Kamper, executive]

Thanks, Rainer. And let us now take a look at Page 14. 2023 was a year of major development for ams-OSRAM, a pretty meaningful reset. Rainer and myself joined and formed a new management team around us. After a careful review of our business and the underlying strategic plans we decided for a new strategic direction and also realized the need to address the maturity wall in 2025 and strengthen the balance.We aligned the strategy towards the profitable core intelligent sensors and meter components geared towards structural growth opportunities in automotive, industrial and medical areas where we also historically have been strong. Whilst we decided to exit non-core consumer businesses that are not differentiated, we continue to invest and pursue selected consumer applications where we do believe to have a sustainable differentiation or a unique value proposition.The exit of non-core semiconductor businesses in 2023 -- with a 2023 EUR 300 million to EUR 400 million run rate is an essential element of our reestablish the base efficiency and savings program which is well on track. We also updated our mid-term guidance model -- operating model. We were pleased that the market appreciated our strategic realignment so well, and supported the EUR 2.25 billion refinancing. We could complete the refinancing before Christmas by upsizing the new bond issuance to EUR 1 billion and higher than planned proceeds from the asset level transactions. This eliminated the need for another small trends in '24 and we can fully focus on the operational execution of our plan.In spite of the many strategic and more fundamental changes we're really proud of the motivated and enthusiastic colleagues that we have. They kept the dedication to our customers and innovations up and delivered a very strong design win success in 2023.Although it's an exceptional financial burden we are convinced that investment in the world's first 8-inch LED manufacturing initially dedicated to disruptive micro-LED technology with novel displays is an important long-term step for the company.Let me ask Rainer to comment on the following slides on the financial balance sheet and financial targets.

[Rainer Irle, executive]

All right, Aldo. We are now on Page 15. When looking at revenues on the left-hand side we see that we recorded revenues of EUR 3,519 million in 2023. Compared to '22 when we posted EUR 4,819 million, we see a gross decline of more than a EUR 1 billion. Close to EUR 500 million relate to the portfolio cleanup in the Lamps & System segment.The expected ramp down of major consumer programs where 2 sockets were lost also accounted for several EUR 100 million. Exchange rate effects of EUR 86 million impacted. The remaining decline was mainly due to inventory correction.Whilst we have a cyclical element in all application segments the picture is more granular. In automotive we saw an inventory correction in the first half of '23 but achieved year-over-year structural growth in the second half. In industrial, we saw a severe inventory correction in the first half. The run rate improved quarter-over-quarter, but we still see much weaker markets than in '22. This market contraction is also reported by the relevant market analysts.Contrary to the first impression, the only application segment where we truly lost market share was consumer. As repeatedly commented the technology moved on. In addition, we unfortunately lost an important sensor business in '21 and therefore lost significant share in this light sensor business. For future generations and starting in the second half of '24 we won the socket back. A reason why we are more positive about the second half of this year.Taking a look at the year-over-year development of adjusted EBIT on Slide 16. In fiscal '22 we posted EUR 407 million adjusted EBIT but we ended up with EUR 233 million in '23. Main driver for the decline are underutilization costs, due to the consumer socket losses that I just described. Portfolio effects contributed among other effects too. The underutilization cost from the inventory correction is not visible in this representation as the effect is almost netted with other positive effects such as the government funding we received in '23.Looking at our cash flows on the right-hand side, operating cash flow came in stronger in '23 with some help from higher factoring. We recorded EUR 674 million compared to EUR 599 million in '22. In '23, we spent EUR 1,049 million on PPE and intangibles compared to EUR 537 million the year before.On the other hand, we had significant proceeds from divestment around EUR 224 million. Taking these into account, free cash flow defined as operating cash flow minus CapEx plus proceeds from divestment amounted to minus EUR 151 million in '23 compared to EUR 443 million in '22. As mentioned before, this definition is a bit odd as it does not include interest expense.Let us take a look at Slide 17. Key goals of the refinancing were strengthening the balance sheet a higher equity ratio and having a balanced maturity profile. End of December '23 we had EUR 1,146 million cash on hand. Bilateral bank facility and promissory notes amounted to EUR 355 million. The outstanding '25 0 coupon convert had a book value of EUR 436 million and will be repaid at maturity March '25. Raised money for repayment already during the refinancing.Then you find the '27 convertible bond with EUR 669 million book value and the 2 new debt instruments in the cap table. The '29 euro senior unsecured note of EUR 630 million and the '29 U.S. dollar senior unsecured note of around EUR 368 million.The Malaysia sale and these back transactions stands at EUR 384 million. Technically, according to IFRS, it is not debt, but other noncurrent liability. However, we consider that debt internally. Annual interest payments are rather low, but there will be a 30% catch-up payment in '33, which explains the higher number in the maturity profile. This brings us to a net debt position, EUR 1,696 million, including the Sale-and-Lease back.During the refinancing, we could also extend the revolver of EUR 800 million, which is reserved for any unlikely but possible bike exercises of the Osram Licht AG minority put option. For completeness, the outstanding minority put options amount to EUR 611 million, or 14% of shares outstanding.After successful completion of our refinancing in the fourth quarter, we end up with a strong available liquidity of EUR 2.1 billion by end of December. This includes more than EUR 1.1 billion cash, EUR 800 million undrawn revolver and EUR 206 million undrawn bilateral bank facility.Slide 18 shows a recap of our reestablished base program, targeted to deliver about EUR 150 million savings on a run rate basis by the end of fiscal year '25. I won't go through all of the details, as we have done that on a regular basis. We have already made the company leaner by reducing the number of business units and reducing the Management Board from 4 to 2 members. The structural adjustments have stared as well. First reductions have been executed.We have also strengthened end-to-end responsibility in the business units. With this, we have also fostered the monetizing innovation mindset by giving core innovation responsibilities back to the business units. The refinancing, we discussed on the previous slide.In terms of portfolio pruning in the Semiconductor segment, we are in intense discussions with potential buyers regarding 2 product lines within the EUR 300 million to EUR 400 million to be exited. The key development in 2023 was an update of our mid-term target operating model.We summarized our financial targets on Slide 19. We said we want to grow 6% to 10% with our semiconductor core portfolio, including the cleaned-up Lamps & Systems business. Taking out the divestments in Lamps & Systems, mentally EUR 400 million run rate in '23 for the non-core business we have a starting base of about [ EUR 3. billion ] and that I mean assuming that we sell all of the EUR 400 million. And now applying linear CAGRs of 6% to 10%, we end up with revenues of EUR 3.6 billion to EUR 4.1 billion in '26.The key growth drivers for this is automotive, the mobile light sensors, followed by the 8-inch sales from the new facility, and growth in industrial and medical. We want to reach the 15% adjusted EBIT in '26.On the bottom of this chart, you see the mechanics how we want to get there. We target to deliver about EUR 150 million savings from the reserviced base, including the exit of non-core portfolio. The other portion comes from the fall through from new business and some market recovery in growth.In terms of CapEx, we target 10% of sales. And for free cash flow, we said in 2024 we want to be positive, including potential proceeds from divestments, but still before interest payments. Of course, we want to have a business that generates cash after interest payments, and this is clearly our mid-term target. And in terms of leverage, we strive for an investment-grade profile with net debt through adjusted EBITDA smaller to 2x.And with that, back to Aldo for a few words on over-design wins and technology breakthroughs.

[Aldo Kamper, executive]

Thank you, Rainer. Now, let's turn to Slide 20. Since the second quarter of 2023, we have been giving indications of the strong design wins for certain key products. Now, when we look back at the total of 2023, we look at a total design win volume of more than EUR 5 billion across all products and applications. The majority came from automotive, but also industrial, medical, and consumer came in strong. We hope that this aggregated number for the semiconductor business gives further trust in the underlying potential of the core business we are focusing on.With this, let us take a look at the next slide. At the center of our business lies innovation and technology leadership, besides strong customer relationships and leading market positions. Looking at 2023, the passion for technology of our ams-OSRAM employees has delivered on this in spite of the many changes in a certainly challenging year. Let me comment on a few interesting developments that are already delivering revenues, or where we are pretty confident that they will be in coming years.The first example is about a much more precise method to record X-ray images in computer tomography. With photon counting sensors, you measure individual photons instead of a stream. This allows for unprecedented accuracy and lowers radiation dosage for the patient. The true 3D images that are created are a step change, such as the move from black and white to color TV at the time. We believe our first product will hit the market end of this year and will ramp further in 2025.The second example is familiar to you, as we all have featured it in our last earnings call already. However, light out of nowhere, a trade named ALIYOS, was really a breakthrough last year. With ever more digitized car platforms, the design of a car becomes more and more the decisive feature, besides some key performance figures. Our technology allows for entirely new designs and incredible interest we received is unchanged. Whilst not delivering revenues yet, we made significant progress in '23 with respect to our super small vertical micro-LEDs for novel displays.The factory shelf for housing, the world's first 8-inch LED production was completed in record time. Equipment has been moved in, and the first reference manufacturing line is operational. We are making continuous progress in industrialization.The last example relates to the highest performance blue edge emitting lasers for industrial and consumer applications. We are only the second company on the globe after Nichia from Japan that is able to master this technology. Our product will be used in home cinema applications and in material treatment applications. 2024 will mark the first year of revenue of this new product category. This is another example of the multi-pronged growth path that we want to deliver.Closing our look back into 2023, let us now look forward into 2024. With that, I'm on Slide 23. In Q1, we will experience, on the one hand, the normal seasonal decline. On the other hand, it will be pronounced by the inventory correction in industrial and medical markets. We also expect the demand from China for automotive products normalizes after the exceptionally strong quarter we had in Q4. Revenues are expected to go in between EUR 800 million and EUR 900 million. In line with fall-through, we expect the adjusted EBIT to come in between 4% and 7% in the first quarter. Thereby, here we should assume a euro-to-dollar exchange rate of 1.08.Now, looking at the whole year 2024 and its challenges and opportunities. We press the reset button in '23 gave the company new strategic direction, and will continue to execute stringently on our turnaround program. At the same time, macroeconomic and other challenges persist. For example, high inflation drives merit increases. The costs for industrialization of our new 8-inch micro-LED products are also up. These above-normal headwinds need to be mastered with additional productivity measures, which are not easy to achieve. So expectations for EBIT improvement in 2024 should be exaggerated in spite of executing the reestablish the base program stringently.We still expect run-rate savings of about EUR 75 million towards the end of the calendar year. Within that turnaround, we also want to divest or exit certain non-core businesses. Just bear in mind that the 2023 run-rate of EUR 300 million EUR 400 million will be lower for 2024, as some of these businesses are ramping down.In terms of business dynamics, the first half of '24 will be impacted by the inventory corrections in the industrial and medical applications. A normalization of auto-semi-demand from China should also be on your mind.The second half of '24 should come in stronger than the first, driven by design wins going into production and a potential normalization in industrial and medical.CapEx related to PPE this fiscal year will be in the order of EUR 500 million. The reason for this slightly higher number compared to last quarter's indication is a delay of about EUR 50 million out of '23, but not a cumulative increase.Capitalized R&D and the rollover of accounts payable should amount to around EUR 200 million. In terms of free cash flow, defines operating free cash flow minus CapEx and including proceeds from investment, we continue to expect a positive contribution.Switching to Slide 24. Let us summarize the key takeaways from today. We delivered solid revenues and adjusted EBIT in Q4, above midpoint of the guidance range. We continue to see a strong design win momentum, especially in automotive. Turnaround program is well on track. 2023, the strategic realignment of the company and updated the midterm financial model. Completed the refinancing ahead of schedule. And with that, we are now fully focused on execution of the plan.For Q1, we expect a decline in revenue and adjusted EBIT in line with seasonality and inventory corrections in industrial and medical. For 2024, our focus will be on the stringently execution of the reestablish the base program to lay the foundation for benefiting from structural growth to go.This concludes our introductory remarks, and Rainer and I are happy to take your questions now.

[Operator]

[Operator Instructions] And the first question comes from Sebastien Sztabowicz from Kepler Cheuvreux.

[Sebastien Sztabowicz, analyst]

Yes. On inventory, do you have any kind of visibility on the level of inventory in your industrial and medical business? Just curious to understand where we are versus the normal level of inventory there. And the second one is on micro-LED and the technology roadmap there. Could you help us to understand what kind of progress have you made so far? And are you happy with the progress? And when do you expect to receive the first payment -- prepayment from your strategy partners there?

[Aldo Kamper, executive]

Yes, on the inventory topic, as you already noticed, the inventory levels are elevated for industrial and medical. Especially on the industrial side, we also know that by shipping against [ NCRE ] orders in Q4, we also have somewhat even increased that topic. So yes, we have to work through these elevated levels in the first half of the year, and then it will hopefully return to a normal run rate that is the underlying demand at the moment. So that will be corrected in our view in the first half. In automotive, on the other side, inventory levels remain very solid. They are, in some cases, even low. So the inventory correction is really mainly an industrial and medical topic for us.On the micro-LED, we continue to make good progress, continue to execute our roadmaps and towards industrialization of the program. And with that, we continue to be on track in the time schedule that we have spoken about before.

[Sebastien Sztabowicz, analyst]

And one question, if I may, on the long-term opportunity on micro-LED. Where do you see the market by the end of the decade? We have seen some forecasts from YELL, forecasting an addressable market of $1.1 billion. Is this something that is making sense for you for the cheap and weather micro-LED market by the end of the decade?

[Aldo Kamper, executive]

Well, I think it's logical that with new technologies like this, we will start with smaller diagonals and have a learning curve as an industry with this very new technology. So that will be a few years of smaller diagonals to really prepare us then for larger diagonals in later years to come. And it's obvious that the tremendous investment that we and other partners in the supply chain are making are geared for more than just a few small diagonal displays. So I think that outlook is reasonable. There's still a lot of uncertainty, I think, about how quickly the larger diagonals will be conquered. But it is clear they will be conquered over time.

[Operator]

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

[Robert Sanders, analyst]

I guess the first one is on auto semis. You grew 10% year-on-year in Q4. I was just wondering if you think you can sort of maintain that trend growth in '24. That seems to be the underlying growth rate in your main addressable markets. You flagged China as being perhaps a little bit softer. So I just wanted to try and understand if you think you can maintain that growth rate in '24? And I have a follow-up.

[Aldo Kamper, executive]

Well, I mean, first of all, it was very nice to see that the business was so strong. We had an all-time high in the fourth quarter on the automotive semi side. And that just shows that our global presence, especially also our presence in China, is helping us, especially in China, at a very strong Q4. I think if you look at this year '24, of course, we are now comparing ourselves in Q1 and Q2 against a very weak '23 with inventory corrections in the beginning of the year in automotive. At the same time, overall vehicle build is not rising this year is the expectation. But we do continue to expect content per vehicle growth. So overall, we are hoping that the year will deliver high single-digit numbers in terms of growth for the automotive segment.

[Robert Sanders, analyst]

Great. And just to follow-up, just on the Tier 1 consumer sensing win, we haven't talked about that for a while. I was just wondering if you could just give us some idea of how material that would be in the second half, whether it's more than EUR 100 million or less than EUR 100 million or EUR 50 million, just in the ballpark, just so we can use that in our model.

[Aldo Kamper, executive]

So yes, that's really going to be hitting the revenues in the second half of the year. That will be in the high single or triple digits for the second half of the year. You have to keep in mind, though, that this win is a bit compensated by further run out of the old sockets that we have spoken about before. So you cannot all add that on top, but you have to also mentally subtract some of the run outs of end-of-life products that we also are facing.

[Robert Sanders, analyst]

You mean high double digit and low triple digit, just to clarify.

[Aldo Kamper, executive]

Yes.

[Operator]

And the next question comes from Sandeep Deshpande from JPMorgan.

[Sandeep Deshpande, analyst]

Yes. I'm trying to understand, I read your release, but I didn't fully hear the beginning. I'm sorry I missed some part of the beginning. But you said that you've lost some share in the consumer market, but you mentioned in your beginning that there were some sockets that you're getting back. Maybe you can help us understanding, what socket you're getting back? And then can you talk about the wins in the industrial and medical market that help with which you're expecting to help drive the improvement in the second half?

[Aldo Kamper, executive]

Well, on the first part, nothing really new. We were just kind of reiterating what we have said before. I mean, you know that we've lost some major sockets a few years ago. The face recognition part has moved on to different technology, and that is still slowly ramping down. At the end of that, you know that we have lost a major ambient light sensor 2 years, 2.5 years ago. And of course, that is also continuing to ramp down. That's on the negative side. On the positive, what we have communicated, we've won back the major ALS socket, and that will ramp, like I just mentioned, in the second half of this year and will compensate a lot of those losses. So nothing really new there to comment on. This is basically a quick reiteration of the topics mentioned already in the past.On industrial and medical, I think we will see 2 things there. The main thing is that at the moment, we are working through an inventory correction. So there is demand out there, but at the moment, that demand is consuming the parts that they have in stock because they're overstocked, partly driven by also our own shipments against noncancelable orders in the fourth quarter. So once you kind of work through that overstock situation, you will start to see normal demand again to come back in that space.The other part, of course, is then what new things are happening. Well, first of all, on the medical side, we continue to expand our customer and product portfolio with the customer, so that will be of some support. On the LED side, it is very much the Horti business that we expect to get stronger again this year versus last year. The market kind of has digested the newer higher interest levels [ thus ], we expect already a lot more tendering activity in the first half of this year. And we have just introduced a real market-leading product in the Horti space, and that means also we will take a significant share in this upswing as well in the Horti market. So with that combined, the market getting a bit stronger again, and as having now a really market-leading product again, we expect to really benefit from this upswing in the second half of the year as well.For industrial sensors, it's not -- yes, I think nothing spectacular there to be expected. That really depends on overall capital goods demand, and I think overall industrial environment is relatively weak, and we don't see really any signs that that will dramatically change in the next course.

[Operator]

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

[Jürgen Wagner, analyst]

Yes. You highlighted ramp-up costs for your new fab in Kulim. And yes, can you quantify those? And how significant can the revenue contribution from that fab be in 2025? And the second question would be, when -- what is your best guess, when would you expect to return to organic sales growth again?

[Rainer Irle, executive]

We said that there's kind of 2 factors a bit, right. I mean, the one is, we have a bit over-proportionately high salary cost increase because inflation was high last year, and then we have the ramp-up cost. Both of that together, I would say it's maybe a mid-double-digit million-euro number. That is a bit headwind into this year. Ramp-up cost will probably increase a bit more then in '25 too. We will see first revenues probably in '25, but very low, more kind of from -- still from the sample deliveries in a higher order of magnitude. And then we see significant revenue, where we expect significant revenue then in '26 as the first product launches.Organic growth, it's kind of -- I mean, there's, as I talked about, all the design wins we have, right. So I believe everything is in place. In the first half, I mean, we see weakness in the market, like everybody, and we also see a bit still negative contribution from the old sockets we lost. And then in the second half, that will turn around, right. In the second half, we will have that consumer socket back, which will then gradually ramp over the next 2 years or so. We have the design win, so that is definitely then the point where we see quite a bit of organic growth.How well the second half will really be obviously depends on the overall market situation, because somehow have to look at our design wins plus the overall market reaction. But as we are saying, I mean, we are more optimistic for the second half of the year.

[Operator]

And the next question comes from Daniel Lion from Erste.

[Daniel Lion, analyst]

I would have 2. Maybe could you provide us with an update or just a little bit more insight on the sale process of the non-core asset is developing? And when would you expect to be able to provide maybe the first sale in the course of '24? And the second would be on the Android segment as you've already hinted, an improvement in the fourth quarter for this year, actually, the market expectations would be a further improvement, especially stronger focus on high-end models. How would you expect this to play out on your business in the course of the year?

[Aldo Kamper, executive]

Okay. Yes, on the sales process, like Rainer said, we are in intense dialogue for tools and product lines that we want to divest and make good progress there. We continue to see that realistic, like we said also in the last quarter, that we will divest the businesses throughout '24, so stepwise you will see one after another that we will make announcements on those as soon as we can. But the plan to divest it in this year is in full swing and we're in a very active negotiation.On the Android side, yes, the Android space seems to improve. Q4 already was quite good. Also, in Q1, we continue to see good demand for mid and high-end Android phones and that's good because that's a segment that we are very present in both with display management topics as well as with camera enhancement topics. And so we hope to continue to benefit from that. Let's see how after Chinese New Year the market continues to develops. But at the moment, that part of the market is doing quite well.

[Daniel Lion, analyst]

Okay. So would you expect some softening then later in the year simply because…

[Aldo Kamper, executive]

It's hard to tell, honestly speaking. I mean if you look…

[Daniel Lion, analyst]

Introduction of new high-end phones?

[Aldo Kamper, executive]

If you look at the overall numbers in the various studies, I think the overall numbers of smartphones is very stable. I think within that, actually, the mid to higher-end phones are actually doing quite well. So it's everybody's guess how long the upswing lasts. It's hard for me to predict that. But at least at the moment, we continue to see a good demand out of that segment.

[Operator]

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

[Juergen Rebel, executive]

Yes. Thanks, everybody. I mean, if there is another question, we would certainly be happy to take that because we're still having some time. But I got a signal there aren't. So we thank everybody for joining today's call. For any follow-up questions, you may reach out to us, Investor Relations. And anyway, we are on regular roadshows and conferences during the next weeks. You'll find the calendar in the slide set. And with that, we want to close the call. And thank you very much for your questions and your interest.

[Operator]

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