ams-OSRAM AG

Good morning, everybody. This is Moritz Gmeiner.

I'm very happy to welcome you to this morning's webcast and conference call on the second quarter and first half results. Please note that the webcast information and presentation is also available on our website in the investors section in the presentations and audio sub section.

And with that, I would like to invite Alex to guide us through the developments and some of the things we look forward to as a company. And then, Ingo, will lead us through the financials of the last quarter.

Alex?

Yes, thank you, Moritz. Good morning, ladies and gentlemen.

I'm very happy to welcome you to our second quarter 2021 conference call this morning. In this webcast, I will first lead you through some key aspects of our business positioning AMS OSRAM and how we see it moving forward, and then comment on the developments in the second quarter.

We have a clear vision for our company to create the leader in optical solutions. This is what drives us as the guiding principle for our business, investment and spending decisions.

We are fully committed to achieve this vision through bold investments in disruptive innovation and continuous transformation, delivering best in class profitability and growth. If look at Page 3.

To this end, we pursue leadership in key segments of the optical space, offering an outstanding combination of emitters, optical components and modules, detectors, related ICS and algorithm. With the solution elements we addressing the diversified markets for sensing, illumination, and visualization.

We offer optical solutions for three global end markets, consumer, automotive and industrial medical, where we combine light emission and sensing in an outstanding portfolio. Here on Page 4, you see how we are set up in these markets.

Our broad range of constraints and the diversified growth areas that we see driving our business development in the future. Focusing on growth fields, these includes the following.

The next generation displays, micro LED, mini LED sensor integration, augmented reality, 3D and near to AI applications for consumer. In automotive, it's light applications, high resolution matrix headlights, exchangeable LED lights, head up displays, and in cabin sensing.

In industrial medical we see UVC LED, horticulture, industry applied sub-zero [ph], and robotics, 3D applications and individual diagnostics. We turn to Page 5.

So looking around in a nutshell, we see ourselves best positioned for leadership in the optical solution field. We benefit from balance revenue streams, and a diversified base.

We leverage our portfolio and application expertise that is at the forefront of the industry, supporting a broad range of markets, product cycles, and customer basis and we successful in our markets by being a leader in key optical applications across automotive, consumer, industrial and medical. Based on this, we are putting forward a strong value proposition at AMS OSRAM which consists of four elements which is shown on Page 6.

First a commitment to drive growth, we pursue board investment into disruptive technologies and innovation lead growth. This is reflected in our target level for R&D spending of 11% to 14% of revenues.

We have a clear target of achieving double digit average yearly revenue growth as a group. Business Solutions approach, we address high differentiation opportunities and new markets and we use M&A to add technology to offer for you to build leadership.

The second element is a strong focus on long term value generation. We are thriving a sustains position as leading technology provider.

We reinvest into organic growth opportunities for the company. Our balance and market exposure creates a broadly supported earnings stream with manageable volatility.

We serve a diversified global customer base through different sales channels, and we do continuous active portfolio management to optimize our technology position. Thirdly, we are on the path to a strong source of penalty and profitability.

We are realizing significant synergies and savings of around €350 million until spring 2024. We are committed to drive benchmark levels for operational and support functions cost which is expressed in our target level of SG&A of 7% to 9% of revenues or to drive our clear target of more than 20% adjusted EBIT margin for the group.

And the fourth element is a prudent financial policy. We are committed to deleverage our balance sheet.

We target investment grade rating, and the limited leverage of less than 2x net debt to adjusted EBITDA supporting this is our broad array of financing instruments with a balance longer term maturity profile. At the same time, a further increase in our ownership of OSRAM is not a priority for us.

On Page 7, to underscore this value proposition, I would like to give you a more concrete timeline, how we expect to bid leadership and drive the integration and realization of synergies. In the first step, we create one company.

From when we took control in March well into first half next year. This is where we are today, we execute a business portfolio realignment, we implement common platforms to run the combined business and roll out a new organization including a new culture model.

We try first year synergies which structurally are more related to OpEx and defined joint solution roadmaps in our business. The second step will be to start leveraging our strategic portfolio.

We expect this from around spring next year well into 2023. Earlier step [ph], this portal will be materially completed and our new realized portfolio will be in place.

This means that we have established our new revenue base for the group and this will be the base from which we will grow. We will drive second year synergies which we expect to be both OpEx and cost driven.

And we will also drive developments for first generation joint solutions and can fully leverage the combined IP and resources. The third step will be to drive growth and profit targets.

We expect this from around spring 2023 beyond the spring of 2024. During this period, we expect to see the midterm growth drivers kicking in and dissipate our longer term growth vectors to come into slides.

We will drive third year synergies which was structurally set the more around manufacturing costs and revenue effects. And so in spring 2024, we see the synergy run rate realized that we have laid out I believe this offers a clear view of our plans and we are fully focused on implementing these with the same determination we have shown for the previous steps to combine AMS and OSRAM.

If you move on to Page 8. Now I would like to update you on the strong progress we have already seen with the integration and let me remind you that we have only been in control of OSRAM since March of this year.

We have successfully completed the delisting of OSRAM and our current shareholding has increased to 80.44%. Yet realize the first portfolio disposal and the realignment of the portfolio is progressing as planned.

This shows our commitment to raising the new portfolio for AMS OSRAM with further announcements expected in the next month. The synergy [ph] utilization is on track as an example, we have agreed OpEx related plans step reductions in Germany we the labor representatives.

We are implementing the new internal organization and have completed first steps in the integration of IT. And importantly, we are in the process of rolling out new corporate identity, purpose, values and leadership principles as part of our new cultural model.

Moving to Page 9. Let me now comment on the development of our business.

I'm pleased with our performance in the second quarter as our key matrix of $1.49 billion revenues and 9% adjusted operating margin came in well above the midpoint of our guidance in a complex industry environment. Healthy over-demand drove our positive growth desires with sequentially lower revenues than we expected, reflecting duplicate [ph] seasonal effect.

We particularly noted one point robust automotive demand and their corresponding or dissertation in the quarter. The semiconductor segment showed a very healthy developments where the automotive lines continued to see strong demand with total backlog further increasing.

The consumer lines also record a healthy performance in line with seasonal effect driven by our range of optical sensing solutions. The industrial and medical markets areas generally benefited from increasing macroeconomic momentum.

Demand for the majority of industrial lighting applications has seen a good recovery while horticulture lighting demand is expanding. Medical and other imaging product lines also developed positively in the quarter.

We pursue development activities for new optical solutions in licensing and 3D including solutions forward facing AR and 3D authentication as well as camera enhancement and display management. Our innovation areas include future near to eye visualization and sensing technologies for AR devices.

The lamps and systems segment recorded a very solid overall performance in the second quarter. The lamps and systems automotive business, including traditional markets, performs strongly and contributed very positively to the overall group driven by a sustained demand recovery and in line with typical seasonality.

I'm happy to say that in other areas of legacy systems, we saw a very attractive recovery industrial demand, including building related and semiconductor equipment, other industrial and medical markets, legacy systems are still seeing a mixed demand environment. These developments resulted in a very solid adjusted operating margin for the group and again delivering a little bit strong operation cash flow in the quarter.

This also drove an attractive free cash flow for the quarter while the cash outflow from the delisting offer for us remains moderate. Looking forward, we see an ongoing tightness and chip supply as well as imbalances in the supply chain which continue to limit the ability to fully deliver against ongoing very robust demand, particularly in the automotive market.

I expect these imbalances to extend well into the latter part of the second half based on current information. Short term revenue drivers for us continue to be automotive lighting and consumer optical sensing in areas like display management and camera enhancement.

At the same time, we are moving on integrated product roadmaps that will drive our position in midterm roles markets, including UVC LED, advanced LED, front lighting systems, AR, 3D applications and more. Let me now move to our outlook for a third quarter.

We expect our overall business to show a solid development across segments in the third quarter. This expectation is particularly driven by continuing robust automotive demand globally despite ongoing imbalances of the tightness in the supply chain.

Demand trends in the other end markets are expected to drive attractive contributions from our other business. For the third quarter, we therefore expect group revenues of $1.45 billion to $1.55 billion slightly up sequentially at the midpoint with an expected adjusted EBIT margin of 8% to 11% all based on currently available information.

Importantly, this revenue guidance excludes the revenue of the disposed digital system business in North America as the transaction closed early July. Let me add that we plan to update you on our strategy, our new aligned business portfolio and strong technology possession at the capital markets day visiting [ph] for the early next year.

With this, I would now like to hand over to Ingo.

Thank you, Alex, and very good morning to you all. Before I start going through the financials, a few things up front.

When we refer to adjusted financial metrics, we refer to adjustments, or M&A related transformation, and share based compensation costs and results from sales of business units, and equity investments. Reconciliation to the IFRS basis of the presentation is included in the financial information on Q2 2021 that we published today and which is available on our Investor Relations website.

Comparable prior year financials are not available this quarter due to the acquisition of OSRAM, with the consolidation having started from the third quarter of 2020 onwards. Let me now start with reviewing the financials by going briefly through a snapshot of our key financials for the second quarter.

I'm on Page 11 of the presentation. Alex outlined earlier, that was revenues of $1.49 billion and an adjusted EBIT margin of 8.8% became in well above the midpoint guidance and for both metrics.

Adjusted gross margin was 33.2% in the quarter, also in line with expectation. Adjusted net income was $84 million, with an adjusted basic EPS of $32 or CHF0.29.

Operational cash flow continued to be strong in the quarter at $229 million. Net debt stood at $2.3 billion reflecting amongst others, the settlement of the delisting offer and the buyback of our outstanding convertible bonds.

Overall leverage was a solid 1.7 times as of the 30th of June 2021, particularly when taking the delisting effect into accounts. I'm now on Page 12 of the presentation.

Revenues for Q2 21 came in at $1.49 billion, sequentially this translated into a 3% decline on a comparable basis. This was well within our expectations as it reflects typical seasonality, particularly for the consumer as well as the automotive markets we are operating in.

For the first half of 2021 AMS OSRAM generated total revenues of $3.04 billion. As Alex pointed out earlier, we are still affected by a challenging supply chain environment across the different industries and end markets we are operating in, while demand state strong, particularly for automotive, but also industrial and consumer applications, we still had to deal with allocations, relative to our customer order backlog, given shortages in different areas of our overall industry value chain both down as well as upstream.

We expect the situation to also continue in Q3 '21. Adjusted gross margin in the second quarter came in at 33% in line with expectations.

The sequential decrease reflected lower capacity utilization following the overall seasonal pattern of our top line and volume development. For the first six months gross Margin for the group stood at 34%, generating $1.03 billion in absolute adjusted gross profit.

Adjusted EBIT for the quarter came in at 9% reflecting a sequentially speaking lower gross margin level, as well as a quarter on quarter uptick in R&D expenses while SG&A was lower when compared to Q1 '21 both in absolute numbers but also in percentage of revenues. EBIT as reported was negative at $143 million, reflecting M&A related expenses, share based compensation, transformation costs, as well as a onetime charge related to tangible fixed assets of $182 million pretax.

This non-cash impairment was related to our manufacturing acid base in Asia, following a review of the useful life of specific machine and manufacturing equipment in our semiconductors consumer business. Let me also point out that second quarter EBIT adjustments include a charge of approximately $30 million related to an agreement with the labor representatives in Germany regarding reductions in overhead positions.

Let's have a closer look at the revenue distribution for the first half of 2021 on Page 13. With respect to the segment split 64% of group revenues were recorded in the semiconductor segments and 36 in lamps and systems.

I will look at more details regarding the segments in a few minutes. The group's revenue distribution with respect to end markets has already substantially changed compared to the historic AMS business.

This already today reflects a very balanced and attractive end market mix for the first half saw around 30% consumer around 40% auto and around 30% Industrial and medical revenues. Let me emphasize that this H1 split was driven by industrial and medical being recovering quite strongly through the first half, which moves the split towards industrial while our consumer business remained a very healthy contributor as expected.

Regionally speaking, we also see a rather well balanced geographical distribution of our revenues. Over time, we do expect this to balance out even further also taking into account the anticipated portfolio changes related to plant divestments in the lamps and systems portfolio.

Turning to operating expenses now on Slide 14, we see that our total OpEx run rate showed a stable development when averaging the last quarter's. Adjusted R&D spend in the second quarter was $185 million, which translates into 12% of group revenues.

This was a tick higher on an absolute as well as relative basis due to roadmap driven planned R&D investments in our innovation areas and lower capitalization in the quarter. Overall spending level in the quarter was well within the targeted banned off between 11% to 14% of revenues.

Adjusted SG&A expenses for the group in the second quarter, on the other hand, were $188 million, which is a good sequential decrease, translating into SG&A at 13% of revenues. Our targeted range for SG&A spend for the integrated group is between 7% to 9% over time.

To complete the picture, I would also like to note that we've recorded a book gain due to the sale of a real estate site in Germany, which is reflected in our other operating income. This gain however, was excluded from our adjusted EBIT financial metric.

It is on the other hand, part of the EBIT according to IFRS. Moving to Slide 15 now, on our synergy realization programs are well on track after actually having gained control of AMS OSRAM since March.

First important milestone of the organizational integration have already been reached. One example is the successful go live of a joint CRM platform for our semiconductor business helping our sales and marketing organization to address our joint customer base within the entire semiconductor portfolio of AMS OSRAM, savings are on track towards the overall objective of €350 million pretax gross.

We will provide regular, more detailed updates on our synergy and savings realization progress on a half yearly basis. The next update will therefore come with our Q3 '21 financials.

At the same time, I'm very pleased to also share an important update in the context of our synergy realization with you. We completed a further review of the expected integration expense estimates after obtaining control of OSRAM.

As a result, we now expect onetime costs for the integration to be significantly lower, and only around 0.9 times the €300 million euro total synergy pool over time, or approximately €270 million pretax. This is a substantial reduction of around €120 million of total integration cost compared to the original estimate of 1.3 times.

For the avoidance of doubt, let me also reconfirm our target to total pretax synergies and savings at the level of €350 million in line with our communication earlier this year in conjunction with our Q1 2021 financials. Turning to the net result of EPS now on Page 16 of the presentation.

The adjusted net result for the AMS OSRAM group in the second quarter was $84 million, including a net financing results of $40 million. The sequential decline was driven by the lower overall operating profitability.

Net income as reported was negative at $190 million also reflecting the one-time effects I outlined earlier. Adjusted basic earnings per share in the second quarter were $32, or CHF0.29 Swiss francs reflecting the sequential decrease in the net result.

Let's have a look at the second performance revenues on Page 17. Revenues for the semiconductor segment were $952 million driven by strong demand in automotive and industrial and solid demand with seasonal influences in the consumer market.

Adjusted EBIT came in at a healthy 13% reflecting a strong automotive business paired with seasonally lower consumer business. For the first six months of 2021 semiconductor segment revenues were $1.95 billion resulting into a very solid adjusted EBIT margin of 15%.

In the course of the second quarter, we saw ongoing resilient demand, particularly driven by automotive, building for the backlog with a meaningful portion of customer orders still in allocation. A continuation of a tight supply chain resulting into imbalances both up and downstream, we expect this to continue well into the second half of the year.

Moving now to lamps and systems on Page 18. Revenues for the lamps and system segment were $539 million in the second quarter, driven by solid automotive demand, including traditional lines, and in all market areas, as well as ongoing recovery in key industrial lighting applications.

Adjusted EBIT for the quarter was positive and came in at 1%. For the first six months of 2021 the lamps and system segment revenues were $1.082 billion [ph] resulting into an adjusted EBIT margin of close to 1%.

In the course of the second quarter, we saw the successful disposal of the DS North America business with a transaction closed in the meantime and proceeds part of our Q3 cash position. Ongoing recovery is an important industrial and markets particularly in Asia Pacific, and an ongoing strong performance of the automotive aftermarket business.

Moving out to cash flow and the debt position of the group on Pages 19 and 20. The group's operating cash flow was again healthy in Q2 at $229 million and therefore strong for the first half of 2021, contributing a total of $478 million.

Capital expenditures in the second quarter were $53 million or 4% of revenues. CapEx spending for the first six months amounted to $149 million, or 5% of revenues for the group.

The overall CapEx spent in the first half was mainly driven by the pickup in demand levels, particularly for automotive and industrial markets. For the full year 2021, we see ourselves tracking to a CapEx spending below 10% of revenues.

Free cash flow in the first half of 2021 was very robust, and as a result with $329 million for the group. Moving to Page 20.

The group's cash and cash equivalents stood at $1.6 billion at the end of Q2 '21. Next the positive free cash flow in the quarter, we also recorded cash receipts related to the divestiture of the manufacturing side in Bulgaria and the real estate side in Germany.

Against these cash inflows we had of course the settlement of the delisting offer and for the open market purchases of OSRAM shares amounting to overall approximately $520 million in the quarter and approximately $20 million related to the continuing buyback program of our outstanding convertibles. The settlement of the delisting offer was done via existing cash.

Consequently, I can confirm that the bridge financing we had put in place earlier for purposes of acquiring OSRAM shares remains undrawn. Given the cash movements just outlined, the gross net debt went up by only $280 million compared to end of March, despite the full settlement of the delisting offer within the quarter.

Overall, this translated into a financial leverage for the group of approximately 1.7 times at the end of Q2, a very solid financial position as a group after the successful completion of the delisting offer. Going forward, we expect the financial position therefore largely to be driven by the operational performance of the group, as well as future investment needs.

We also feel very comfortable with the 80% ownership position we have in OSRAM, together with full control through the domination, profit and loss transfer agreements. Increasing this stake further through share purchases, has no priority for us at this point in time.

The development of our cash position over the next few quarters will also be augmented by additional expected disposal activity we mentioned earlier. On Page 21, you find summarized for your reference, again, the outlooks that Alex already outlined for the third quarter of 2021.

Let me quickly repeat it, and we expect group revenues in the range of $1.45 billion to $1.55 billion in the third quarter. The adjusted EBIT margin, we expect to be between 8% and 11% of revenues for the third quarter.

And again, I would like to stress that the revenue expectation excludes the dispose revenues of the DS North America business, which you should assume to be around $40 million per quarter. And with that, I would like to thank you for your attention and open the floor for questions.

Yes, hi. Can you hear me?

Yes, we can.

Yes, hi. I have a couple of questions.

Firstly, this is Sandeep Deshpande from JP Morgan. Regarding your guidance in the margin for the second half, would you say now that now that you've seen what's happened in terms of revenue loss in the second half in your consumer business, that these levels of margin, this level of margin can be sustained for the second half or if there could be further changes into the fourth quarter and beyond?

And then my second question is, on this consumer business itself, have you worked, continue to work with that customer? And do you believe that there are further future opportunities with that customer?

Yes, maybe start with your first question. So I think what I can say, of course, is you seen the guys who gave on the third quarter.

And I don't want to give, let's say also guides already for the fourth quarter. But I think it's all fair to assume that we also expect the fourth quarter to be a good quarter for us.

Yes, and then on the second question, since we can't talk about one specific customers, but what I can clearly say that we have good interaction and good opportunities at our large customers and in consumer space and certainly with the expanded portfolio. Now, as I mentioned over last quarter, we see a various opportunities moving on for the next years to come.

Absolutely.

Right. So, if I just have a quick cost follow-up.

Ingo, we've seen some rebalancing on the R&D and the SG&A has that already started in terms of synergy; these are - is this just some kind of movement you've seen in the SG&A and R&D in the second quarter?

I think on the R&D side that was just some movement where we looked at some of the R&D projects, we did some reprioritization here and there and we had a bit of a lower capitalization. And RDS as you know, is not necessarily the primary target for the synergies, and yes, we see already some of the G&A benefits showing and reflected in the numbers.

Yes. Hello, everyone.

And thanks for taking my question. On [indiscernible] licensing, it seems that one of your competitors is getting a little bit of market share in the market and potentially at large customer, your largest customer three.

Is it possible to expect a little bit of market pressure in your licensing going forward? And the second one would be on the LED market?

Could you provide a little bit some comment on the strength of the LED market today? And notably, where supply and demand are evolving?

Is that market specifically, and more long term view? What kind of goals should we expect from the LED market opportunity in the coming years?

Thank you.

So just request, let me start. So market share, I think we communicated the market share loss in consumer business, we feel confident for the future development.

We don't expect major changes there. On the LED markets, it's a good growing market, specifically on the automotive side.

It's very tied situation and the whole trend goes into LED. If you look at electrification of cars, it certainly have very strong motivation to go into the LED space.

And our supply is fully loaded. Also industrial LED is moving up.

So the whole LED business, we see clearly the trend upwards. And we feel very confident about this.

And that's why I also chose that. In LED we see the short, mid and long term a significant cost opportunity for us as a company and then obviously, most moving into the more sophisticated LED technology like micro LED, mini LED is certainly an opportunity we see for the next years to come where we see a significant growth, and then obviously, going back to LED, where we have specific features like UVC or for horticulture for specific light waves to accelerate growth.

That is certainly an area where our IP is very, very strong. And we see opportunities there where we utilize the specific feature sets we have now at LED technology.

Thank you. One follow-up if I may on the Malaysia because of the COVID-19 and the lockdown that resulted from the pandemic?

Have you seen any impact on your manufacturing capacity or pollution that would put in Asia over the past couple of weeks?

No, we have not. We have implemented a very solid hygiene concepts in our facilities in Asia Pacific, have also been tested by local governments on that.

And we've not seen any shutdowns, we've started also vaccination of our employees at the various sites that we have to act responsibly, obviously as an employer, and hence we are happy to see that the local management did an excellent job there. And employees are quite happy to return to our facilities to help us supply our customers where the demand is still strong.

Thanks for taking my question. And good morning, gentlemen.

First question, I just wanted to you know, could share your thoughts on the impact of the disposal of DS in North America, whether that's big team entirely in Q3 or already having an impact in Q2. And then my second question, looking at the longer term sort of ambition of more than 20% operating margin target.

Can you can you share with us what sort of Embedded revenue growth is assumed to get that to that number on a sort of pro forma basis since you highlight further disposals. And I guess my question is, can you get there with minimal revenue growth, purely on the back of the cost synergies that you're targeting?

Okay, let me maybe start with DS America. Obviously, DS America's was still included in our Q2 financials, the transaction was closed on the first of July.

So at the end of end of Q2, end of June, we held the Americas in the balance sheet as an asset held for sale in the meantime and have closed, we've already received the proceeds. And it will therefore not be reflected anymore in our Q3 financials going forward other than the cash proceeds it received from acuity already in the meantime.

And then to your second question, as I presented in my speech, before we use our disposes to clean up the portfolio, which we will plan to finalize in next year 2022. This is the basis for the growth and we expect double digit growth for the next following years to come.

And that's the basis of the improvement. In conjunction obviously, with the cost reduction, the synergies, the portfolio management, we are executing currently.

Wonderful. My follow-up if I may, just in terms of sequential growth rate, sort of organic to Ag disposal.

You know, at which point do you think we've sort of reached a flow on revenues? Is it already behind us or do you think that sort of next year could find a bit of a flaw on revenues and who can grow that double digit which is highlight from their own?

I think look, I mean, what Alec said earlier, we are still in the process of making very fundamental adjustments to our portfolio in DI, so I don't think you can speak of a flow as of yet. As Alex said, and as we pointed out on one of our slides in the presentation, we expect that to sort of baseline if you like reset to be there in the course of 2022.

And then from then onwards you should see what, maybe you would call a flow. Of course again always taking into account the normal seasonal pattern in the underlying business that will stay with us.

Many thanks.

Great. Good morning and thanks for taking my questions.

One or two from my side. Maybe Firstly, Ingo, just going back to the guidance.

So guiding the second half revenues slightly above the first half, just to complete the picture, can you give us any additional color on that second half, adjusted EBIT margin? I mean, reading through the depressor seems you're implying the second half margin below first half, maybe if you can give us even some puts and takes that we should bear in mind when modeling that.

And I have a follow-up.

Yes, I think thanks for the question. So obviously, we've undertaken quite some measures, since we communicated in earlier this year, about the market share, loss in the consumer business.

And we've taken some significant cost measures to try to mitigate, some of what will be lower utilization in our factories in the second half. If you go back to what I said, when one of your colleagues asked earlier, what the margin is also in Q4, and you look at where we are marginalized in the third quarter, I think I say that we expect also somewhat of a good quarter in Q4, that should give you a sort of an idea of what our current thinking is.

That's helpful. Thanks.

And maybe if, as a follow-up, if I could ask about the imbalances, Alex, that you mentioned supply imbalances impacting their ability to deliver. Can you just give us a bit more color there on where exactly are these supply imbalances that you're seeing is something on the wafer side subcontractors equipment?

You know, and when exactly would you expect these to be resolved? Thank you.

Yes, I think for the question, yes, actually, we see this on both sides on the backend side, subcontracting side, on the front end side, wafer supply. It's very strong up for obvious reasons in the automotive industry, and you have a direct impact and an indirect impacts one is, which affects us directly and then obviously, if other suppliers are affected for the same platform, then it also has an indirect impact on us.

Secondly, I think it's also important that we see also a trend in the suppliers from all sides acknowledging the short supply in automotive and for that we have to support automotive more. That means on the other hand, that we also have a certain impact on the automotive business because wafers are allocated to different kind of target segments.

So as I mentioned, it's very complex supply situation. It's certainly continuous for the remaining part of the year.

But so far, we are able to manage this and our customers is according to the situation supportive. And also, we mentioned that our manufacturing related to those business is very fully.

And for that reason, we cannot supply the whole demand we have in our order books.

Very helpful. Thank you.

Yes. Good morning.

Thank you for taking my question. Actually, I have to two, one follow-up on your midterm margin target.

What portfolio structure can allow that margin given the high auto exposure of awesome, and the lower margin profile of that business, at least historically? And then 3D behind screen and consumer applications, when do you expect first revenues?

Thank you.

Let me start with the second question. You can take the first one 3D behind all that, as I mentioned last quarter, we are working closely with display manufacturers together, it's very come more clearer that also the solutions are very much related to the display itself.

And that means to the display manufacturer. So we're doing progress, but it's still a decent way to move on that.

Maybe the portfolio question you had. So as we said that the portfolio adjustments we are undertaking right now focus very much on the business that was under the digital segment when it was with OSRAM, which is was largely a traditional lighting portfolio.

And we already booked the first progress as you know, with the sale of the DS Americas business, and we expect also more progress on other transactions possibly in the next couple of months. So the portfolio eventually that will be the sort of new baseline as of next year will then also include still, of course, the traditional automotive business, which is a very strong business in terms of market position worldwide, which has a very high share already of aftermarket in there with a strong recurring revenue stream with very little investment needs in the handful are also fairly high margin base.

So overall, this will be helpful for the margin of the overall group.

Okay, thank you.

Yes. Hi, just a couple of questions.

My first one is just on automotive, if you could just comment on automotive LED pricing trends. One of your customers has been complaining that the prices have been going up.

I'm assuming that that is partly response to you guys are partly responsible for putting up pricing maybe because it's tight, and whether you have any plans to add capacity and then just a question on the on the impairment. Am I right to assume that that contributes to around 100 basis points up on the gross margin in Q3 given the lower depreciation charges?

Is that right? And related to that when the country deal gets unwound is that already excluded from your adjusted margin?

So, it doesn't affect the adjusted margin or is it already is included? Thanks.

Let me establish the first question. Certainly as I mentioned before, the LED business is lead to motive is very, very strong.

And in areas where there is the opportunity to adjust pricing upwards according to supply situation and complying with legal agreements, we have a customer, certainly we will take opportunity in a constructive way. But we see this overall in the market that's in general prices are going up from our suppliers as well from us to customers where it's possible to accomplish this.

Yes. And then, on the other questions you had.

So in our current outlook and guidance, and also in the numbers in Q2, the [indiscernible] is of course included, so there is no exclusion or adjustments, what have you. Obviously, we're still in the process of returning what we originally contributed to the joint venture back into the AMS group now.

And that is anticipated to be in two, three months from now. And then, once it's with us, we already preparing for its future and it's likely not going to remain with us.

And if that's clear, and we making progress, we will also announce it. But for now, of course, it's still there and we also fully including it into the financials as well as in the guidance.

On the impairment side, I don't think we would like to give now specific guides on the impact. But I think the number you mentioned is a bit too high in my eyes.

So if I were you, I would work with a number that is lower than that. Thanks a lot.

Yes, good morning. Thank you for taking my question.

Actually, it's about the margins going forward, waiting for your 20% plus, targets when you will reach it like to know for 2022 there's a lot of moving parts with the disposal of digital and more is coming with the restructuring that you're making, and also the first synergies, but at the same time, the impact of the market share loss. So I guess my question is to understand what direction will the margin take in 2022?

Can we expect more pressure on the margin because of the market share losses before it goes better or how do you see that? Thank you.

So I think as you as you rightfully pointed out, there's still quite a number of moving parts, particularly when you think about the portfolio and the ongoing integration efforts that we have. And as Alex mentioned earlier in his prepared remarks, we are sort of setting the base business if you like in 2022.

So as you know, we don't give guidance at this point in time we're ready for next year, or so I think it's fair to assume that we will definitely not be at the 20% level or so that we aspire to in that year for the reasons I just mentioned. Changes we are conducting right now are very fundamental in various pods, and they will not be concluded by then.

Okay. And you've been talking of the disposal of the rest of the digital division.

And you've said that the US part was had an impact of about $40 million per quarter if I'm correct, what will be the additional impact of the next disposal that that you will do, when you will do them? Thank you.

In terms of revenue of course.

Yes. Well, obviously, that very much depends on a number of factors we have.

A number of let's say, divestiture processes going on in parallel right now, at different stages. It's a bit too early to indicate for obvious reasons also, because we don't want to intervene into the process itself.

So, rest assured that once we have concluded, we will also indicate what the impact will be. And as I said, we do expect some further progress there in the second half of the year.

Thank you very much.

Ladies and gentlemen, this concludes our question-and-answer session for this morning. We thank you very much for joining us for this conference call and we look forward to updating you and our business development again after the third quarter.

Thank you very much and have a good day.