Speculation Continues on Possible IPO for Siemens' Osram Lighting Business Unit

March 11, 2011
News reports that Siemens is considering an IPO for its Osram business unit and the Sylvania lighting business may be one more indication of the lighting

News reports that Siemens is considering an IPO for its Osram business unit and the Sylvania lighting business may be one more indication of the lighting market's evolution toward LEDs and other solid-state lighting sources.

A Feb. 28 Bloomberg report said Munich-based Siemens AG is considering an IPO for its Osram lighting unit and that the company has retained Deutsch Bank AG, Goldman Sachs Group Inc. and Commerzbank AG to prepare the IPO. The Bloomberg article also said Osram is the second-largest lighting company in the world as measured by sales after Royal Philips Electronics NV, and said Morgan Stanley estimates Osram has an enterprise value of €6.5 billion ($9 billion) to €7 billion (approximately $9.75 billion US). Osram's most recent financial results have been solid, as new orders and sales at the company both rose 14 percent to €1.28 billion (approximately $1.78 billion US) in the first three months of fiscal 2011, although profit did slip 2 percent to €141 million (approximately $196.38 million US). Osram's 2010 total revenues were €4.7 billion (approximately $6.5 billion US) in fiscal year 2010. Siemens declined to comment on the IPO speculation.

Reaction to the reason for the IPO is mixed. Some investment community analysts have speculated in published wire service reports that the move is another example of the overhaul Siemens CEO Peter Loescher is engineering to improve earnings, refine the company's operations and improve its image after the 2008 bribery scandal forced it to pay approximately $1.6 billion in fines to U.S. and European authorities.

While some analysts in the investment community believe an IPO might be the first step of a gradual exit from the lighting market for Siemens, at least one lighting market veteran, along with information gleaned from Siemens' financial statements, paint an entirely different picture.

Siemens said in a 2010 financial review posted on its website that profits at Osram improved “more substantially” year-over-year than at any of the other divisions within its Industry business segment and that Osram's revenue had grown at a double-digit rate over 2009. The company also said its Osram Opto Semiconductors subsidiary is currently building “the world's first pilot production line for organic LEDs (OLEDs) in Regensburg, Germany.” OLEDs are a light source that incorporate LEDs on flexible substrates, opening up all sorts of design possibilities.

Bill Attardi, president, Attardi Marketing Services, Colts Neck, N.J., and for years a senior executive with Philips Lighting, believes Siemens would use an IPO to invest in Osram, and even possibly to acquire a large fixture manufacture so it could offer a complete package of lamps, ballasts and lighting fixtures. The Osram package historically did not focus as heavily on fixtures, although the company recently acquired Siteco, a German lighting fixture manufacturer (see page 3).

“I think Siemens is going to maintain control,” he said. “It gives them the opportunity to raise some really big bucks on the IPO. I think the next shoe to drop is that they will probably buy Acuity or some other fixture manufacturer.”

One of the greatest challenges currently facing the “Big Three” lamp manufacturers in the United States — GE, Osram/Sylvania and Philips Lighting — is that the lighting market is moving toward lighting systems based on LEDs that require radically different manufacturing lines than those that cranked out millions of incandescent light bulbs, fluorescent tubes, HID lamps and compact fluorescent lamps (CFLs). LEDs are basically computer chips that emit light, and some of the companies with the most experience in manufacturing them are giants from the consumer electronics industry like LG, Samsung, Sharp and Toshiba that build them into computer displays, televisions and automobile lamps.

Said Attardi, “The big bucks right now is in LED development. You have major $100 billion players like LG, Sharp, Samsung and Toshiba that make LED TVs, so they are very good at LED technology. From what I hear, it's very easy for them to take LED technology and create a light bulb. I think they are going to get into it. When the game changes the way it will, you are going to get new players that were never in the lighting business in any big way. The Big Three are going to be playing in a much bigger competitive market.”

The growth forecasts for LED lighting are off the charts. Last May, a report from Cleantech Investor said 25 percent of the lighting market could be LED-based in five years' time, and that this percentage could reach 50 percent by 2020.

Osram began developing a presence in the U.S. market in the late 1980s. Part of the marketing campaign for its fluorescent ballasts line included an aggressive ad campaign in electrical trade publications. It became a major U.S. player in 1993 when it finalized the deal for the acquisition of the Sylvania lighting business from GTE Corp. in 1993.

This gave it access to a national network of independent electrical distributors, which differentiated it from GE and Philips, which had strong ties to the national chains of that era. Philips Lighting emerged in the U.S. market through the 1983 acquisition of Westinghouse's lighting business, and the company has maintained strong ties to WESCO Distribution Inc., Pittsburgh, since. Graybar Electric Co., St. Louis, Mo., has stocked GE Lighting products since that time.