Daily Management Review

LED Strategy of Osram Cause of Clash between Company CEO and Siemens


LED Strategy of Osram Cause of Clash between Company CEO and Siemens
The controversial strategy of expanding in the general LED lighting market by the chief executive of German lighting group Osram led to the chief executive running up against the company's biggest shareholder Siemens on Tuesday.
The announcement in November of an investment of a billion-euro ($1.1 billion) in a new LED (light-emitting diode) semiconductor plant in Malaysia dismayed many of its investors and send its shares plunging by up to 30 percent.
The commoditised market for lighting for streets and homes with stiff competition from the Chinese competitors is considered risky for Osram by analysts as the company would expose itself to the uncertainties and competition of the industry unnecessarily.
Close consultations on strategy with the supervisory board since the start of the year had shown that rapid technological change meant there were no risk-free investments said Olaf Berlien who defended the move telling this to the shareholders at the company's annual general meeting in Munich.
"Just carrying on would have been the worst option," 53-year-old Berlien, who has been in the job for just over a year, said in a speech.
Siemens -- which still owns 18 percent of Osram -- remained critical of the move while the company was convinced large shareholders would warm to its new strategy, Osram said last month.
"The shift in strategy, as long as it takes place, would significantly increase the risk profile of Osram," said a representative for Siemens CEO Joe Kaeser, adding they wouldn't formally approve Berlien at the meeting.
Despite being a symbolic move without legal consequences, it would hurt the reputation of Berlien. They were prepared to approve Berlien despite the steep share price fall, said several other funds and shareholder groups.
Following the problems faced at German chipmakers Qimonda, which filed for insolvency in 2009, and Infineon, which became heavily indebted have made many investors wary of the semiconductor industry.
He had used Osram's share price weakness to build up his position in the stock said Tim Albrecht, portfolio manager at Deutsche Asset Managemen,. He however added that he had doubts about the strategy - and now held around 180 million euros' worth of Osram shares.
"In my 15 years as a fund manager until now I often experienced, unfortunately, that certain companies, like Icarus, flew too close to the sun with their ambitious investment plans in semiconductors or the solar business and then crashed. It is to be hoped that Osram will be spared this fate," he told the shareholder meeting," he said.
After years of painful restructuring and the planned sale of its traditional Lamps business, many investors had hoped Osram - the only remaining global company focused solely on lighting - would concentrate on its profitable niches in the automotive and specialty lighting markets.
The company is seen as attractive to Chinese buyers for its strong brands and sales channels and likely to fetch about 500 million euros despite the fact that the business is in decline as longer-life and more economical LED bulbs gain in popularity.