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Osram

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OSRAM should commit to China market to achieve its 2017 goal • • • Industry trends demand for more energy-­‐efficient, intelligent products SSL, a disrup3ve technologies, to achieve 66% market penetra3on in 10 years APAC region grows rapidly to +40% of global market share by 2020

Fundamental shiV in ligh3ng industry

OSRAM – a leading integrated ligh3ng expert

• • •

World’s No. 2 provider of ligh3ng products & solu3ons, “end-­‐to-­‐end” integra3on along product value chain Differen3a3on by superior technological innova3on (i.e. patens, new product introduc3on) Aspire to increase APAC revenue to global revenue from 24% to 40% by 2017

How can OSRAM achieve its 2017 goal?

Set aggressive target in China market and commit high level of resource & investment

Focus on OS & GL components to gain market share now, plan for growth in GL luminaires & higher value products

Use greenfield strategy to gain market entry, while preserving IP & managerial control

Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

1

Driving by key trends, global lighAng is facing a fundamental shiH 1

Energy efficiency • Rising energy prices • Legisla3ve regula3on • Growing consumer awareness

Technological advancement • Disrup3ve technological change towards semi-­‐conductor focused ligh3ng products • Accelera3ng price erosions 4

3

Changing demographics • Popula3on growth in emerging markets • Rising standard of living & educa3on level • Aging society

UrbanizaAon • Ongoing urbaniza3on in developed world • Accelera3ng moderniza3on in emerging markets • Rising number of megaci3es

1

Replace

2

Restructure • Move from tradi3onal technologies towards higher-­‐value SSL products • Mid-­‐term

3

Transform

• Tradi3onal basics replaced by more energy-­‐efficient green products • Short-­‐term

• From components to intelligent, networked solu3ons and services • Long-­‐term

Facing industry transformaAon, companies need to re-­‐examine their strategies and posiAons to ensure

short-­‐term viability & long-­‐term compeAAveness

Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

2

APAC is a fast growing market with early adopAon of LED technologies Global LighAng Market by Sector 110 100 90 80 70 60 50 40 30 20 10 13 0 4 2010 52 69 108 97 10

General LighAng Market Size by Region/Country

APAC Market Size by Technology

LAFTA Europe North America APAC -­‐ 45% (China /Rest) 2 13 26

General Ligh3ng -­‐ 82% 76

9 88 7 15 12 19

20 15

LED-­‐68%

14 19 15 15 2016 19 2020

Automo3ve 18

18 2 2020

12 10 2011

20

17

12 2020

Non-­‐ LED

Backligh3ng 4 2016

2011

2016

Key CharacterisAcs • Steady growth rate, faster than that of global GDP • APAC is a key geographic growth driver -­‐ Early LED adop3on

-­‐ Increasing demand of M3 with compe33ve pricing

ImplicaAon • Moderate capital investment opportunity • Key growth market in Asia • Key growth area in LED • Tailor products to local demands

Companies need to adjust market share by region, technology & product porZolio to meet changing demand Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

3

LighAng industry has moderate to high entry barriers along the product value chain Upstream DescripAons Barriers to entry • Technological know-­‐ how & patents • Short product cycle • Sales channel access • Brand recogni3on • Economies of scale • Level of exis3ng compe33on Light source components (ballasts, chip) Moderate -­‐ High

Midstream Light modules, engines, control systems Moderate -­‐ High

Downstream Luminaires, fixtures, LMS, services & solu3ons High

Profit margin Likelihood of new entrant Possible compeAAve advantage

Low -­‐ Moderate Moderate Established semi-­‐conductor players (i.e. TSMC)

Moderate Moderate Forward integra3on of component providers

High Low -­‐ Moderate Forward integra3on, acquisi3on, related electronic/soVware players • Differen3a3on through branding & product innova3on

• Cost leadership – high volume & opera3onal excellence • Differen3a3on through quality & reliability

Cost leadership or differenAaAon through quality & innovaAon can be achieved based on strategic posiAoning Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

4

China represents a bright spot for growth within thriving APAC region Region/ Country Market CAGR 9.6%

Target CAGR • • 18.8% • • • • • •

Market CondiAon Fast adop3on of SSL High growth in M3 Largest vehicle market Ongoing urbaniza3on Key swing market Early conversion to SSL Intense compe33on Exit tradi3onal lamp JV

OSRAM PosiAon • Notable M1 presence • Strong in automo3ve OEM • Hard to par3cipate in luminaire • Gained a foothold in SSL components

Assessment

Suggested Target CAGR

China

SSL – 20%, GL – 9%, SP – 14%, OS – 10%

Not aggressive enough

25%

Japan

10%

0%

Realis3c

0%

India

7.8%

20%

• Growth for M1 & M3 • Market leader in SSL • Growing car sales projects • Government push for energy • Strong in tradi3onal savings ligh3ng component • Mul3tude of cultures, • Market leadership in GL distances, preferences in Korea • Strong Korean & Taiwanese • Weak in Taiwan OEMs

Realis3c

20%

Rest of APAC

5%

16%

Not Realis3c

8%

Capture growth opportuniAes in China requires aggressive goal and high resource commitment

Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

5

Focus on OS & GL components now to pick the low hanging fruits, plan for growth in GL luminaire to ensure long-­‐term profitability By Product Group GL – Components GL – Luminaires SP – AutomoAve SP – DO OS

0.0 10.0

Ranking /Share 2, 10%

CompeAtor Philips, 26% Panasonic Panasonic Toshiba Philips Philips

Market Strategy Remain Might exit Japan Enter market -­‐Cross sell, professional -­‐Gain access, private Remain posi3on Slip in aVermarket Become No.1 -­‐Technology integra3on Become No.2

Growth PotenAal

Ease to Capture

Market Share by Product Group in 2011 Total OSRAM, in €Bn

4.7

0.5, 10%

N.A.

16.1

0.0, 0%

2, 14% 2 3, 7%

4.0 0.6, 14%

Ushio Nichia, 26% Samsung

1.2 N.A.

6.4

0.4 7% 1.5 4.5%

33 20.0 30.0

Capture market share is the top priority for a rapidly growing & evolving APAC lighAng industry, higher profitability can be achieved through higher value-­‐added products/services in a longer Ame horizon Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

6

Invest in R&D, market access & producAon capacity to maximize growth opportuniAes Focus Invest heavily for growth High OS GL component

Invest selec3vely Develop for and build income GL luminaires

Market aeracAveness

Medium

Invest selec3vely Develop selec3vely Harvest or divest and build for income

• Geography – China market • Technology • Short-­‐term: tradi3onal green • Medium-­‐term: SSL • Product Group • Short-­‐term: OS & GL component • Medium-­‐term: GL luminaire & higher value-­‐added products

Strategy • R&D investment • Tailor product specs to local market demand • Market access & sales channel • Hire & train local talents on technical know-­‐how • Cross selling • Target key influencers (i.e. architectures, developers) • Produc3on capacity & sourcing • Close to customer manufacturing • Establish circle of preferred suppliers

SP automotive

Low

Develop selec3vely Harvest and build on strengths SP DO

Divest

High

CompeAAve strengths

Medium

Low

A concerted approach for selecAng focuses in geography, technology, product group is needed to ensure long-­‐term viability & profitability Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

7

Greenfield strategy gives OSRAM maximum IP protecAon, control & local responsiveness strong weak

Speed to IP ProtecAon Market

Control

One Time Local Long Time Rank Cost CustomizaAon Cost Saving

Joint Venture

AcquisiAon

Greenfield

Licence

ExporAng

3

2

1

5

4

Build & uAlize its own facility to be a glocal player that is strong on a global brand and agile to customers’ demand Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

8

OSRAM can effecAvely miAgate risks & achieve success Risks Lack of experAse in M3 products Likelihood Impact MiAgaAon • Through market & compe3tor to understand local customer needs & want • Hire experienced local managers to gain local market insight & managerial know-­‐how • CraV an extensive global sourcing & supply chain prac3ce to iden3fy and select preferred suppliers • Build and sustain rela3onship with suppliers • Con3nue to invest in R&D to stay ahead of technological advancement • Test localized new products in local market, u3lize feedback data to fine-­‐tune process • Vigorous security approach towards IP & patents • Con3nuous IP protec3on training for new & experienced employees • Effec3ve usage of NDA • Build effec3ve communica3on channel, frequent site visits and mee3ngs between headquarter and field office • Establish APAC R&D facility to specialize on M2/3 product development

Global sourcing risks

Short PLC & high rate of innovaAon

IP protecAon

Lack of market responsiveness in matrix OrganizaAon

Summary Ι Industry Trends Ι Market Analysis Ι Market SelecAon Ι Entry Strategy Ι Risks & MiAgaAon

9

Appendix – Market size & OSRAM market share in 2011 and 2020 by region Total OSRAM, in €Bn 41.72 40 1.60 0.19 30 6.50 26.80 13.80 8.02

1.08

20

7.80

1.10 0.08

0.46 0.41

18.30

11.40 10

0.23

0

0.46 China Japan India Rest of APAC

1.22 Total 2011

2.77 Total 2020 Rest of APAC India Japan

1.08 China

10

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