Osram spin-off to heat up competition in China

Updated: 2013-07-08 17:34

By Wang Yu (chinadaily.com.cn)

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As Siemens' lighting business Osram was finally listed on the German stock exchange via a spin-off today, the company can now grasp more opportunities in the global LED lighting market with greater sufficient funds and a more flexible organizational structure, analysts say.

Meanwhile, Osram may step up to expand its LED lighting market share in China, adding to the competition, according to CBN Daily report.

"In terms of sales revenue, Osram ranked second in the world lighting industry after Philips. However, Osram's expansion in the Chinese market was slower than Philips," said Zhang Xiaofei, director of Gaogong LED Industry Institute.

"Although it has become the first majority shareholder of Foshan Electrical Lighting in 2006, the result has not been striking," Zhang added.

But an unnamed member of Osram management in China said the company has sped up its activities on the Chinese LED market.

Osram's packaging plant in Wuxi, Jiangsu province is expected to start production in October; it has set up an R&D center in Shenzhen, Guangdong province while the production of LED terminal lighting products at its Foshan plant is accelerating.

"It will help the company react to the market faster and investment will be more sufficient," the manager said.

After the spin-off, the competition of international companies will become fiercer, which will further increase the competitive pressures on domestic LED companies.

"Global LED chip giants such as Philips, Osram and Cree all want to expand their stronghold in China," said Zhang. "Osram also wants to enhance sales channel development on the LED lighting market in China."

As early as December 2012, Siemens announced that it planned to spin-off 80.5 percent of its wholly owned subsidiary Osram and let it begin trading independently

According to the spin-off plan, Siemens shareholders can get one Osram share at a 10:1 ratio. After the spin-off, Siemens will still hold 17 percent of Osram and 2.5 percent of the shares will go into a Siemens pension fund.

Siemens' shareholders approved the proposed Osram spin-off by a vote of 98% at a Siemens general meeting back in January.

Siemens estimated that, by 2016, the LED market will account for 45 percent of the global lighting market,worth 99 billion euros ($127.07 billion), which will continuously increase to 66 percent totaling 113 billion euros by 2020, the CBN Daily report said.

Overall, it's a move Siemens will benefit from. "The spin-off will help Siemens exit the non-core lighting manufacturing business, eliminating the impact of a loss-making unit on its profitability," according to a report from Spin-off Research Blog.

"Siemens recouped an abundant amount of funds with the spin-off. Although the shares holding by Siemens are reduced, Siemens still can make a profit, only if Osram can fare well," Zhang said.

"Siemens is such a giant engineering group with a large system. Compared with mid and small size companies, its flexibility is weaker. However, the LED industry changes quickly which needs lighting companies and can immediately adjust themselves and adapt to new changes. The spin-off can improve the development of Osram," said Zhang Xiaofei.