EQUISEARCH Capital

Both FeSi and Mn alloys prices have eased 67% and 53% from their peak in late 2021 to US$1,280/mt and US$890/mt in Aug’23 due to the gradual relief in logistic challenges post-covid as well as a weaker market demand from the troubled property market in China and rising interest rates. The current prices of FeSi are slightly higher than its pre-covid average of ~US$1,200/mt while Mn alloys trade below its pre-covid average of ~US$1,000/mt. However, the rise in overall costs due to recent inflation in most parts of the world has caused producers at the higher end of the cost curve to produce at negative margins. In regions where power costs are relatively higher, producers are forced to shutdown part of their operations including India’s top producers, Maithan Alloys (BSE:590078) and Facor Alloy Limited (BSE:532656), and peers in parts of China. #OMH

I can hear Elon coming

Chances are GTRONIC is kitchen sinking this year.

On Micro LEDS: “Micro LED is certainly one of the prominent examples where we are clearly leading and that’s the reason why we are the first and only one building an 8-in. very differentiated manufacturing [facility],” he said, referring to the Kulim expansion. “The manufacturing side just building up in Malaysia will be able to ramp production in 2024.” Some analysts believe that micro LEDs will play a big role in display technology. Although some say that advances and lower costs in other technologies such as OLED and LCD could curb their importance in televisions, they could be critical enablers of small screens in wearable devices such a smartwatches, AR/VR glasses and headsets, and the like. Everke has identified AR/VR as an important growth sector for ams Osram.

Connecting the Dots: Everke revealed that Kulim production of micro LEDs will start in 2024. He emphasized that ams Osram will in general focus its LED efforts on segments where it feels it has a competitive advantage with differentiated products. Been questioning myself for the past few months why entities such as Ooi Keng Thye, General Produce Agency, the Founder Ng Kweng Chong has been aggressively accumlating GTRONIC. Now I believe why: GTRONIC is the sole OSAT for ams OSRAM.

Below are the job openings for Globetronics just over the past few weeks. All high-value labour: 1. Application Engineer / Application specialist 2. Programmer / Software developer 3. Data architect / Database administrator 4. Business & Operations Senior Director 5. Wirebond Engineer 6. Process Engineer 7. IT Technical Support Specialist 8. IT Solution Engineer Link: https://www.linkedin.com/company/gsb-gmsb/?viewAsMember=true

The upshot: Yes, Kamper told the analysts, ams Osram is currently committing atypically high “capital expenditure” to the facility. Yes, he assured them, construction is on schedule. And yes, he said, it is well worth it, because the plant will help secure a leading place in micro LEDs, which ams Osram and others consider to be the future of display technology — especially for small devices and possibly for large ones, too. The Kulim expansion has come under repeated scrutiny ever since ams Osram announced in spring 2022 that it would spend nearly $1 billion there to build what it says will be the world's first LED production facility to use 8-inch wafers. Ams Osram plans to use the factory to churn out micro LEDs and LEDs. The facility will sit alongside the €370 million plant that Osram opened in 2017, a few years before Premstaetten-based ams acquired Munich-based Osram. The existing facility uses 6-inch wafers; the coming 8-inch wafers can be more economical because they yield more chips. In what looks like a race to complete construction in time for startup in 2024, ams Osram’s capital expenditures (capex) shot up noticeably above the company’s normal levels. Kamper, who took the reins on April 1, told analysts on last week’s first-quarter results call that the €302 million in capex for the quarter was 33% of revenues, a big jump from the 20% in the last quarter of 2022, and off the charts when compared to the 9% for the first quarter a year earlier. The average in 2022 was 11%. The quarter ended before Kamper arrived, but he seems fully supportive of the capex level, which he expects to be just under €1 billion for the full year 2023. Spend money to make money Ams Osram believes the outlay is necessary to help return the company to growth. Sales and earnings crashed in the first quarter, continuing a downward spiral. Kamper is considering shedding some of the expansive portfolio of optical chips and sensors from the ams side of the stable in a potential repointing of the business. Paring back in those areas could help buttress operations in Kulim. “We are continuing our significant investment into state-of-the-art and industry-leading manufacturing capabilities, which is a key element of our long-term strategy,” Kamper said on the call. “In line with this, we saw a strong sequential increase in capex in Q1, predominantly driven by the investment for the industry first 8-inch LED front end facility we are building at the moment in Kulim, Malaysia. “We are very satisfied with the progress of this very large scale project. Construction continues to progress on schedule, as I saw for myself during a visit there two weeks ago. We are closing in on completion of the building. After this, we will see the build-out of support infrastructure, and more and more plant equipment deliveries.” In visiting Kulim, Kamper picked up where he left off about four years ago before leaving his post at the then stand-alone Osram, where he ran the chip division but departed to run German automotive supplier Leoni AG. While at Osram, he played a key role in opening Kulim in 2017. With Kulim shaping up as vital to ams Osram's future, the company hired him back as CEO, replacing former CEO Alexander Everke. Margin delay One analyst asked Kamper whether the plant would be a drag on profit margins in 2024, since it is scheduled to ramp up during that year, but is not expected to generate significant revenue until 2025. “There will be a certain headwind that we have to manage through,” Kamper replied. “That is, I think, part of the plan. It is clear that you have ramp-up costs if you build up a new fab, and especially on new technologies; if you start to work through the kinks in the cable in ’24 to be ready for ’25, it will be costly so there will be some headwinds out of that. Of course we'll work hard to minimize that, but ramping a large facility like that will have a certain impact.” Ams Osram has communicated that trajectory previously, he added.

A shrewd purchase?