ams-OSRAM (SIX Swiss: AMS) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the AMSS Osram Conference Call on Second Quarter twenty twenty six Results and Cybercast. I'm the Chorus Call operator. I would like to remind you that all participants will be in a listen only mode and the conference is being recorded.

0:19 The presentation will be followed by Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jurgen Rebel, Head of Investor Relations. Please go ahead. Good morning. This is Jurgen speaking. Welcome to our second quarter twenty twenty six earnings call. Aldo, our CEO, will comment on Vision's performance and strategic progress and Rainer, our CFO, will walk you through the financials. Please refer to the Q2 earnings call presentation that is available on our website.

1:05 And with that, Aldo, please take us through the quarter. Thank you, Jurgen, and also good morning from my side. We delivered another strong quarter with revenue and adjusted EBITDA both landing at the high end of our guidance range, while continuing to execute on our digital photonics strategy. Let us turn to slide three. Our semiconductor core business grew 13% year on year on a like for like basis driven by automotive strength and improving industrial demand. This is nearly twice the growth implied by our current midterm semiconductor model and underscores share gains. We also delivered record first half design win performance, securing more than €1,600,000,000 of future business just in the second quarter alone. Momentum is building across both our core semiconductor franchise and our digital photonics growth platforms reinforcing confidence in our long term growth trajectory.

1:59 In Digital Photonics, we achieved several important milestones during the quarter. First, we strengthened organizational setup by creating dedicated business lines around key Digital Photonics teams, accelerating execution, enabling faster scaling of innovation. We also strengthened the team with external talent. Ashkan Shayedi from NVIDIA now leads our AI Photonics business, bringing deep industry expertise and application know how. Second, we reached key performance milestones in the development of micro LED array based light engines for next generation AI enabled AR smart glasses, bringing the platform closer to mass production readiness. This positions us to enable a new class of AI powered user experiences. Third, in AI Photonics, we expanded our roadmap by starting development of micro photodiode arrays for the receive channel of slow and wide optical interconnects.

2:50 This broadens our target portfolio, increases our bit of material opportunity and supports our long term objective of providing the complete optical engine. Fourth, on the sensing side of digital photonics, we secured initial design wins for our benchmark three d multi zone TOF platform in both robotics and smartphones. Taken together, these milestones demonstrate that Digital Photonics is progressing from technology development towards productization and commercial scale. As part of our balance sheet improvement plan, we successfully placed €1,000,000,000 senior notes due twenty twenty thirty two with a 7.25% coupon replacing much more expensive 29s. This reduces our annual interest cost by €40,000,000 We also continue to sharpen our portfolio and capital allocation focus through the divestment of non core businesses.

3:39 On July 1, we completed divestment of our non optical sensor business to Infineon for €570,000,000 In addition, we signed the divestment of our subscale CMOS Image Sensor business to Indi, further sharpening our strategic focus and doubling down on the most promising digital photonics opportunities. In summary, the quarter reflects strong execution across our strategic priorities with profitable growth in the core business, continued progress in digital photonics and a further balance sheet strengthening. Let me now ask Rainer to walk you through some of the financial details. Thank you, Aldo. Good morning from my side as well. Now turning to Slide four. Q2 was another strong quarter with revenues reaching $8.00 €5,000,000 lending well in the upper half of our guidance range.

4:28 Adjusted EBITDA was close to 17%, the high end of our guidance supported by strong performance across all three divisions. Revenue increased 4% year on year and nine percent on a like for like basis at constant currency. Adjusted EBITDA was slightly lower year on year, primarily reflecting the deconsolidation of the Specialty Lamps business. Higher gold prices and foreign exchange headwinds all the weight and profitability. Now let's have a look at the segment performance on Slide five. OS benefited from strong demand across the board. Revenues improved 11% sequentially and 6% year on year. In several product lines, supply remains constrained. We are effectively sold out. Adjusted EBITDA improved in line with operating leverage, partially offset by higher raw material costs, particularly good.

5:25 Year on year adjusted EBITDA declined by €40,000,000 despite higher revenue, reflecting FX headwinds and more than 25% increase in gold prices and product mix effects. TSA benefited from a broad based industrial recovery, including some inventory replenishment in the non optical sensor business prior to its divestment to Infineon. Revenue increased 14% sequentially and 7% year on year. Profitability improved on higher volumes, strong factor utilization and a favorable mix from industrial and medical applications. Year on year adjusted EBITDA remained broadly stable. And Lamps and Systems certainly requires a closer look. Sequentially, revenue declined as expected due to nominal seasonality and the deconsolidation of the specialty lamps business.

6:18 Year on year, the revenue declined a bit due to the deconsolidation effect. Importantly, our traditional automotive lamps business delivered structural growth, supported by market share gains following the bankruptcy of a key competitor. Profitability reflected the deconsolidation of specialty lamps and lower seasonal volumes quarter on quarter. Year on year adjusted EBITDA increased 16% driven by strong aftermarket demand and higher factory utilization. Overall, we delivered a strong quarter across our core portfolio with all three divisions contributing to revenue growth and profitability. Turning to Slide six. Adjusted for the weaker U. S. Dollar and the exited non core portfolio, our core CME portfolio grew by a really strong 13% year on year.

7:13 As a side note, the non core portfolio is now largely wound down contributing only around €10,000,000 of residual revenue. Looking at our end mark. Automotive continued to perform well and increased sequentially, supported by strong order intake during the quarter. We continue to benefit from share and content gains, although we believe some restocking also contributed against the backdrop of macroeconomic uncertainty. Importantly, our automotive LED business grew 5% year on year on a like for like basis, demonstrating the impact of the design wins accumulated over the recent years. Performance improved across all regions except China where end market demand remained softer and competitive intensity elevated.

8:03 Industrial Medical continued to recover strongly with revenues increasing approximately 30% sequentially and nearly 20% year on year. We saw a strong upswing in Haughty and continued strength in Professional Lighting where we are gaining share, particularly in mid power applications. Order intake in non optical sensors was also very strong, reflecting elevated customer demand ahead of the business transfer. Overall, we continue to gain market share across multiple end markets. Consumer performed better than typical seasonal patterns would suggest. Revenue grew sequentially, supported by strong sell through at selected customers, despite a softer smartphone market overall.

8:52 Our portfolio remains focused on premium smartphones and high end wearables. Year on year, revenue increased slightly despite foreign exchange headwinds and the phase out of non core portfolio elements. And with that, let me ask Aldo to comment on design wins and the latest process progress in digital photonics. Thank you, Rainer. And we're now turning to slide seven. We have just seen how past design wins are translating into growth, market share gains and stronger business performance today. Our design momentum accelerated significantly in Q2. We secured more than €1,600,000,000 of new business, bringing the first half total to approximately €2,500,000,000 a first half record.

9:38 The wins were broad based with more than 13 individual projects awarded during the quarter. Automotive was strong once again with demand across the entire portfolio and particular strength in advanced forward lighting. Industrial design wins were driven by professional lighting and horticulture applications. Consumer design wins included significant programs in display management and ambient light sensing for smartphones despite ongoing memory related constraints in part of the ecosystem. We also continue to make progress across our digital photonics portfolio. EVAIO further strengthens position as the leading advanced forward lighting technology with design wins exceeding €50,000,000 during the quarter. We're also seeing strong interest from new customers in China. Advanced Optical Sensing, our new multi zone TOF platform secured its first design wins in robotics and smartphones.

10:28 Augmented Reality, we achieved key development milestones bringing our MicroLED light engine platform closer to volume production readiness. AI Photonics expanded our roadmap and moved microphoto diode arrays into full product development, further increasing our opportunity to participate in the complete optical engine in the future. Taken together, these wins reinforce two important trends: continued share gains in our core semiconductor business and growing customer traction in digital photonics. Let's take a closer look on slide eight. EviOS is our flagship digital photonics product and the market leader in advanced forward lighting. Revenues continue to grow and we continue to secure new design wins. Beyond its contribution to our ongoing share in content gains, EVIAL is enabling a new generation of intelligent automotive lighting applications.

11:20 The recently launched NEO ET9 flagship showcases the platform's advanced projection capabilities. System enables visual communication with pedestrians and other road users, enhances situational awareness and contributes to improved road safety. It also supports the driver in complex traffic situations through dynamic projected guidance information. Importantly, as OEMs gain experience with eviOS and software defined lighting architectures, we continue to see new use cases emerging and addressable opportunity expanding. Turning to slide nine. Augmented Reality smart glasses represents one of our most important long term digital photonics growth opportunities. While the market is still at an early stage, adoption is accelerating and first AI enabled smart glasses with integrated displays are now entering the market.

12:09 Last quarter, we outlined our potential bill of material opportunity per device. Depending on the customer architecture and component content, we estimate a potential contribution of €50 to €100 per smart glass spanning sensing, illumination and light engine solutions. On this slide, you see an Omnia projection for AI smart glasses and VR headsets. In their view, by 2030, combined unit shipments could reach approximately 60,000,000 devices. Importantly, the study suggests that around half of these devices could incorporate advanced display technologies implying a mark of roughly 20,000,000 AI smart glasses with displays. We believe we are uniquely positioned to lead this opportunity. Our objective is to become the leading supplier of micro LED based light engines for the emerging AR smart glass ecosystem.

13:00 We're confident in that ambition because our micro LED array technology combines superior performance, scalability and system integration capabilities. With that, let's move to the next slide. Turning now to slide 10. Our leadership in AR light engines built on more than a decade of innovation. The journey started with our vision to revolutionize automotive lighting through highly pixelated intelligent headlamp solutions. That vision led to the development of the BIOS, which today is the market leading microLED solution for advanced forward lighting. By extending the technology to red, green and blue emitters and combining it with a unique eight inches microLED manufacturing platform, we're now applying the same core capabilities with next generation of AR smart glasses. Our solution integrates red, green and blue microLED arrays with ultra small pixel sizes in a CMOS backplane into a highly advanced light engine platform.

13:54 This architecture delivers several key performance advantages, up to three times higher power efficiency and in lighter and more attractive wearable devices as the batteries get smaller, significantly higher brightness supporting outdoor use while maintaining low power consumption and up to two times higher angular resolution enabling sharper images and a more natural viewing experience. These capabilities are highly relevant for the consumer adoption and represent key requirements for scalable AR smart glasses platforms. Importantly, our differentiation goes beyond device performance. It combines proprietary micro LED technology, system expertise, manufacturing Nova and a clear product roadmap. Taken together, we believe this position is strongly to lead the emerging AR smart glasses market.

14:42 With that, let us turn to the next slide. 11. Let me now move to another important digital photonics opportunity. We are expanding our development activities into the receive side of slow and wide optical interconnects for AI infrastructure. Our long term ambition is clear to participate in a complete optical engine covering both the transmit and receive functions. This vision is illustrated on the left side. Over the last quarters, we have systematically expanded our development roadmap. We've initiated programs in micro emitters, micro optics and now micro photodiode arrays, while continuing to evaluate the remaining building blocks, including CMOS ASICs, advanced packaging and testing. Step by step, we are broadening our technology footprint and increasing our opportunity to participate in a larger share of optical engine value.

15:29 With that, let us move to the next slide. Now on slide 12. Let me highlight another interesting digital photonic opportunity, multi zone time of flight sensing. Our multi zone time of flight platform is setting a new benchmark for high resolution depth sensing with up to 48 by 32 pixels. Performance makes us particularly well suited for robotics applications. Our secure design wins in household robotics including autonomous lawn mowing systems as well as advanced four legged robots. The higher depth resolution enables safer and more reliable autonomous navigation. The same performance advances are relevant to smartphones, where more accurate depth sensing support enhanced imaging capabilities. Importantly, we've now secured our first design wins in both robotics and smartphones, demonstrating the versatility of the new platform and validating our technology leadership.

16:20 With that, let me hand over to Rainer for a deeper look in the financials. So we start with free cash flow. That was at minus €190,000,000 And I think I announced last time that we will be reducing factoring. So the operating cash flow was at minus 77,000,000 And part of that was because we will build up working capital ahead of the smartphone and lighting seasons. We had €40,000,000 reduction of factoring. We have the annual bonus payout as well as net interest payments of close to €40,000,000 CapEx remained fully in line with our full year guidance of approximately 8% of revenue. Now let's have a look at Simplify on Page 14.

17:09 Simplify is designed to reshape our operating model and deliver €200,000,000 of additional annual savings by 2028. Cost, speed and agility are our guiding principle. Implementation is progressing as planned, and we have already realized approximately €10,000,000 of annualized savings. An important milestone in the continued execution of the program was reaching an agreement with the German Workers Council. By year end 2026, we target around €30,000,000 of realized savings. And by end of twenty twenty seven, then we expect to have delivered approximately half of the total program or around €100,000,000 of annualized savings. The program remains an important lever for improving competitiveness, increasing agility and supporting future margin expansion.

17:58 Now let's look at liquidity and capital structure on Slide 15. We made significant progress, as you know, on our balance sheet optimization in the second quarter. We successfully placed €1,000,000,000 of senior notes due 32 as a coupon and seven at the quarter. The transaction was very well received by investors. Demand exceeded the initial offering by six times, allowing us to increase the issue size to €1,000,000,000 We used the proceeds to fully redeem the €12.25 senior notes in 2019 and partially redeemed the €10.5 senior notes due 2019. Following these transactions, $725,000,000 of the 29 senior notes remain outstanding. And we repurchased €127,000,000 of our 27 convertible notes through bilateral transactions at a price well below par.

18:53 After these transactions, we maintained a strong liquidity position. At quarter end, cash amounted to approximately €1,000,000,000 Including the revolver, total liquidity stood at approximately 1,500,000,000 Now following the closing of the nonoptic sensor business divestment to Infineon a day later on July 1, cash increased to approximately €1,600,000,000 and total liquidity to approximately €2,100,000,000 including our recently extended revolver. The outstanding balance of the convertible notes has been reduced to approximately €430,000,000 We have also updated the maturity profile to reflect our current expectation that any potential tendering of the remaining Osram shares is more likely now to occur in '27 potentially during the first half of the year.

19:49 The liability associated with the helium-two sale leaseback remains largely unchanged with small quarterly accruals, partly offset by the movements in the currency basket. Overall, we have meaningfully strengthened our capital structure, reduced financing costs and increased financial flexibility. And with that, let us have a look at a closer look at the coverage of our upcoming maturities on Slide 16. July 1, we received the EUR $570,000,000 from Infineon upon closing. As a result, we currently hold €1,600,000,000 cash. This fully covers all foreseeable near term funding requirements. And that is the remaining four thirty three million euros of the outstanding 27 converts.

20:38 Following the closing of the divestment, we have one hundred and twenty days to make a mandatory par offer relating to the guarantor assets. The offer will be in the range between 120,000,000 and €150,000,000 Second, the expected transition effects in 2026, including lower adjusted EBITDA from the divested business, stranded cost transformation expenses related to Simplify program, the repayment of approximately $100,000,000 of customer prepayments and the planned reduction of factoring of the order of €100,000,000 Excluding disposal proceeds, we currently expect free cash flow to remain more than €100,000,000 negative in 2026, excluding the disposals. However, we continue to expect a substantial improvement in free cash flow in 2027.

21:28 And assuming business trends remain broadly consistent, we see a clear path to a positive free cash flow, excluding again any future disposal proceeds, which are not planned. Third, the expected settlement of the remaining Osram minority shares following a final court decision. For planning purposes, we currently assume that this will occur in the first half of twenty twenty seven. Even after covering all these items, we expect to retain meaningful cash buffer. Let me reiterate the key point. All foreseeable near term funding requirements are fully covered by existing liquidity. This allows us to remain focused on further optimizing the cost and maturity profile of the remaining €29 senior notes.

22:16 We'll keep you updated on our progress. Now on the outlook for the third quarter. Turning to Slide 17. We expect revenues of of €770,000,000 to €870,000,000 and adjusted EBITDA around 16 plusminus 1.5 percentage points based on the euro euro dollar exchange rate of 1.15. In semi's, we expect the underlying business to continue growing both seasonally and structurally. However, please have a look at the right side. Following the divestment of non optical sensor business, reported revenue will be lower as we will now record only a manufacturing service margin from Infineon, which is obviously much lower rather than the full revenue contribution.

23:05 This will reduce quarterly revenue by approximately €40,000,000 and EBITDA by approximately 1.5%. This is illustrated on the diagram on the right. Order intake remains healthy and our book to bill ratio supports a solid third quarter. In Lambs and Systems, we expect the traditional automotive aftermarket business to show its usual seasonal recovery. And for the full year 2026 outlook, that remains broadly unchanged. The revenue modestly lower due to the portfolio divestments and foreign exchange effects. Adjusted EBITDA is somewhat lower than last year, reflecting the divestments trend across precious metal prices and other transition related effects.

23:55 And the net results, they are expected to be positive in the high double digit million euro territory, supported by a high gain from the sale of the non optical sensor business. So net result positive. And looking ahead to '27, we continue to see a clear path to positive free cash flow, excluding any future divestment proceeds. Our core semi business is growing, our digital photonics opportunities are gaining traction, and our capital structure is significantly stronger than it was a year ago. And with that, let me hand back to Aldo for some final remarks. Thank you, Rainer, and let me summarize the key messages from today's call. I'm on Slide 18.

24:43 In Q2, we delivered revenue profitability at the high end of our guidance range. Our core semiconductor portfolio grew 13% year on year on a like for like basis. We secured more than €1,600,000,000 of new semiconductor business, reflecting continued market share and content gain. In Digital Photonics, we aligned organization around key growth teams through dedicated business lines accelerating execution and scalability. We achieved important development milestones for the micro LED based light engines for AI enabled smart glasses, bring the platform closer to mass production readiness. We expanded our AI photonics roadmap by adding microphoto diode arrays to our optical engine development activities and we secured the first assignments for a high resolution multi zone TOF platform in robotics and smartphones.

25:31 Together, these milestones demonstrate continued progress in building the next generation of digital photonic growth opportunities. And we executed at the same time our balance sheet improvements as intended. Completed the divestment of our non optical sensor business with Finion and received the proceeds. We signed the divestment of our CMOS Imaging business to Indy Semiconductor. We successfully placed €1,000,000,000 of new senior notes at a coupon of 7.25%. And we redeemed the expensive U. Dollar senior notes and part of the euro senior notes Q29 reducing annual interest expense by approximately €40,000,000 Before we continue with the Q and A, I would like to briefly note that as announced last week, the Supervisory Board has extended my contract to 2031.

26:16 I appreciate the first place in me and the continued support from our investors and stakeholders. Together, we've built a strong foundation and look forward to executing the next phase of our strategy and capturing the opportunities ahead.

26:29 With that, we're happy to take your questions now. Ladies and gentlemen, we will now begin the question and answer session. In the interest of time, please limit yourself to two questions. If we have time, we are happy to take further questions. Anyone who has a question may press star at this time. And we have the first question coming from Jean Arda Minot from Jefferies. Please go ahead. Hi, good morning. Thanks for taking my questions. I've got two. One is on the SmartGlass microLED projector. You've said you have achieved milestones towards mass production.

27:25 I was just wondering how many what are there further milestones that are still to be achieved on the smart glass side, both on your part as well as with your customer? Or are we sort of reaching the end of the development process where if all is well, we can move into commercial production? And then on the second question is on the optical opportunity. You started development work on the photodiode array as you had said you may do in your previous call. I'm just wondering regarding the revenue opportunity from this. Is it significantly more than just the emitter side? I mean, it be 20 or 50% higher? Any kind of indication? I know it probably gets covered in the triple digit million euro number that you've already indicated, but just how much it enhances it? And is there an opportunity to sell this in your initial development with your first partner that you announced a few months ago? Thanks.

28:37 Yes. Thanks, Generator for those questions. Let me perhaps start with the second one. You're right. I mean, the photovolta diode is not of the same value as the micro LED array. But at the same time, it is I think a very important part also towards our optical engine ambitions. We feel there's a very nice opportunity for us as a company that combines III V and CMOS capabilities do more than just a component, but to integrate those components into a larger subsystem that can be used by our customers and to optimize the photodiode towards the emitter, we feel is a natural extension and we are looking at further extensions as we go. So yes, it is still a nice additional revenue, but it's also especially a way towards higher system integration on our side and with a more stickier approach.

29:32 On the smart glass topic, we progressing well. There's still work to be done both on our side as well as on the customer side, but things are progressing well. And as we said already in the last call, I mean, device is kind of the technology of today. The opportunity for tomorrow is in Smart Glass. The opportunity for the day after tomorrow is in the data center space. So we continue to work on our roadmap here and are making progress to mass production

30:00 here. And on the OMDA numbers that you showed on the AI smart glass, do you think the entire the display part of that forecast can be captured by your micro LED solution? Or will the micro LED be more sort of on the high end of that display part of the market and some of the others will be captured by LCOS or micro OLED or other display technologies? Well, yes, you're right. I mean, there are some alternatives, but I think the technology we are developing is quite superior in terms of picture quality and energy efficiency and brightness.

30:47 So I do expect that this goes pretty broad into this market. And this micro LED is the in my mind the winning technology for this application. Understood. Thank you so much. Sure. Welcome. The next question comes from Sebastian Stabowicz from Kepler Cheuvreux. Please go ahead. Hi, everyone. Thanks for taking my question. On the free cash flow side, you had again quite substantial cash burn in Q2. Where do you see the cash burn for the full year 2026 including net interest and excluding the divestment on the business? And attached to that on the CapEx front, you forecast 8% of sales for this year.

31:34 Is it a run rate that we should expect for 2027 onwards? And the second question is linked to the smart glasses again. When do you expect to recover the cost of significant revenue because it seems you have progressed well. Is it something for 2027 or is it too early more 2028 and on over? Thank you. Yes. Sebastian, starting with the free cash flow. So I mean this year excluding the proceeds from the divestment, I guess it will be negative a bit more than €300,000,000 And that is really why we are putting everything into this year, right? I mean we're reducing the factoring by a good €100,000,000 We are repaying the €100,000,000 customer payment.

32:22 We are paying a lot of the restructuring expenses and everything else that should be paid clean up to have a proper start into next year. Obviously, the free cash flow, including the disposal proceeds, will be significantly positive this year. Now going into next year, CapEx, yes, CapEx might be a bit higher certainly for the new opportunities, but it's not that we pay all of it so far. And I think although I'd share that, we are sharing a lot of the cost, both on the R and D side and also on the CapEx side with the customers and we continue to we expect that also for the future that we share the risks and the opportunities with our customers.

33:14 And on the SmartGlass timing, like I said before, we're making good progress. We are not allowed to share the details of the launch, but yes, still a bit of work to do, but have progressed very well overall.

33:26 Okay. And last one on the AI Photonics. You mentioned an expansion of your bill of material. What kind of bill of material do you have in mind for this kind of optical engine for you in the next few years for instance? I think we haven't shared the details of that yet. But we do see that overall if this market scales, this is overall a triple digit million euro opportunity in the end of the decade time of time frame. How exactly that will ramp is just to be seen. It's still early days. And of course, the more value we can capture, the bigger that number gets. So it's something where we feel excited about. We feel the technology has a place here that we're offering.

34:20 But yes, it's still also a journey and we will see this business develop nicely over the next years. Okay. Thank you. The next question comes from Bibya Shenama from Bank of America. Please go ahead. Hi. Thank you for taking my question. It's for Mediobanca. Just one question on automotive. I think it came in really strong in the quarter, but just some commentary around this. I mean, we've been hearing from peers, some attributing it to content growth, some restocking, some citing pull ins ahead of maybe shortages. Just what you are seeing around here, I saw it was very strong in semiconductors, but maybe in Lamps and Systems, is it just really because of seasonality?

35:10 Or is there a bit of a weakness there in the end markets for Lamps and Systems? Thank you. Yes. That's right. The two businesses have different reasons to show these very nice growth rates. The semiconductor side, I think it is a lot about share and content gains. I mean the Evalu's platform is a much higher ASP than our conventional LEDs. That category is growing as an example. But it's also about share gains. You might remember that one of our competitors Samsung has exited the market or mentioned it already about a year, year and a half ago. We won a lot of that business and that is now as he's pulling out also coming our way. So that's also kind of a special positive effect in that we are gaining a significant share is our feeling in these markets.

36:02 On the lamp side, it is the case that our main competitor first brands that are choosing the Philips brand in the retail channel fell apart about nine months ago or so. You might recall the scandals around that. And we of course are asked by their customers to help them in this period and we're happy to do so. And of course, looking also to longer term commitments in this context to make sure that doesn't only short term help, but also long term business. And we are very successful in that. So, we are expanding our share significantly in this market at the moment and we'll defend it going forward. But it's an extraordinary opportunity and it's really because the strength of organization, strength of the brand that this business comes our way.

36:56 Thank you. You're welcome. The next question comes from Craig MacDowell from JPMorgan. Please go ahead. Hi, good morning. Thanks for letting me on. My first question was on the hire of a new lead for the AI Photonics business. And I'm wondering, could you elaborate more on his role? What are the priorities that you've given him for developing that business? Is it R and D focus or business development? If you maybe just elaborate on his priorities and then perhaps somewhat prompted him to leave NVIDIA to join AMSS? And then I've got a follow-up as well. Thank you. Sure. No, Ashkan joined us now a bit over a month ago. He came from NVIDIA where he was instrumental in optical interconnect revolution that is now going on at the moment.

37:47 I think he felt really attracted and inspired by the technology that we have in stock for the next coming revolution in this space and wants to be part of that. In somewhat different role at NVIDIA, he was the enabler and the technical mastermind if you will. Beyond many of these things now in our organization, he's able to actually run a P and L on this business and make a real business development out of it. And we have chartered him with of course now at the moment defining a product roadmap going forward and building the customer relationships that are necessary to make this a broad based success. It is also an ecosystem play. So it's not only about our technology, but also about how to interact with the people around us in the system to make the overall success. And I think yeah, him joining is for us extremely helpful as he's very ingrained in this whole ecosystem, knows the ins and outs, knows the application super well and that really helps us to focus even more on our development activities and with that get to market quicker.

38:59 Very clear. Thank you. And then my follow-up, I wanted to ask on the comments around supply constraints in the OS business. Maybe you could just elaborate on what products that might relate to and whether you see that as temporary or structural, how quickly or easily can you expand capacity to meet demand? Thank you. Yes. No, I think that the ones that we're referring to are temporarily in nature mainly. On the one hand, we are positively surprised by how quickly Vials is adapted and we got some pretty positively chunky orders especially from China. So we need to quickly expand here and pull in some of the capacity expansions where anyway planned already pull them forward. The other part that at the moment is in high demand is our Horti LEDs.

39:49 Here again, it's always a performance race. We can have the winning product and that translates also into high shares and that's also a quite impatient market that you need to fulfill demands in quickly and we're doing so. So, that's at the moment fully loaded, but under control. And yes, those are two good examples here and there to some other product lines, but those will be the main categories at the moment. Very clear. Thank you very much. Sure. Welcome. The next question comes from Harry Blakestock from UBS. Please go ahead. Good morning. Thanks for taking my questions. I'm wondering if you can give a bit more color on your comments around weakness in China.

40:37 It's kind of consistent with the weakness we can see in auto unit sales numbers, but a lot of your semi focused peers have been reporting pretty strong numbers in the China market. It would be helpful to get a bit more color on what's driving that for you. Yes. I mean, is the combination of I should say lower build volumes that of course kind of pulled down everybody plus a lot of price pressure that is going on the car OEM side already. I mean they're fighting to somehow build their factories on the one hand by export of course, but also by local demand and that filters through. So we also have to make sure that we counter those pressures by optimizing our portfolio, by introducing now several echo lines to be able to also compete at lower price points at healthy margins.

41:33 So far we're holding up I would say. The losses on the low end are not that large. We're more than making up for it by gaining share against internationals in China broadly, but also specifically the Evalu platform that as I said before is doing very well in China and where I should know we and Netshi are the only games in town. That is definitely helpful. China used to be very strong compared to that. It's a bit weaker now, but it's still by far not a disaster. It is a market that we're fortunately quite strong in. But as we are quite strong in that market, our market share similar to that of Europe 35%, 40%. We also kind of fluctuate of course with the build volumes. There's no real way to escape that to some extent.

42:25 Got it. Makes sense. And then a follow-up on the micro LED optical interconnects opportunity. I'm just wondering what metrics you're tracking to decide whether to shift the other components within the optical engine into development stage? And then also what the content uplift would be for you if you were to also include the seamless driver as well? Yes. I mean, a bit of a step by step approach. I think it's important that we get the core pieces where we are super differentiated right and that's especially on the middle side clearly the case. And we want to make sure that that happens and that kind of is the entry into this space.

43:11 And then we will stepwise expand this as we explained now on the receiver side and then stepwise into further components. On the one hand, the more we can do there, the better it is. At the same time, I also want to make sure that we don't overextend ourselves and can deliver on our promises. So, give us a bit of time to figure that out step by step. It's a very active area where we're putting a lot of resources on. And yes, of course, the opportunity increases significantly the more driver content we also include to this. But yes, let's take that step by step and we'll keep you posted as we go along the journey. Great. Thanks, Heather. Sure. Welcome.

44:07 There are no more questions at this time. I would now like to turn the conference back over to Jurgen Gabel for any closing remarks. I will have a last minute registration from Robert Sanders from Deutsche Bank. Hi there. Yes, could you just talk a bit about the cash burn in Q3 versus Q4 and how we should think about that into the first half? Thanks. Hi, Rob. Yes, I mean the cash burn will continue to be quite a bit in the second half of the year. We will continue to reduce factoring. We will also have quite some significant payout for restructuring, as I said, for the entire year, excluding the proceeds from the divestment, I expect it to be a bit more than €300,000,000 negative and again including divestment proceeds quite positive.

45:07 And into the first half of next year? Next year? Yes. First half, the first half, next year? Yes. We're not guiding further over the second half, but next year we continue to see a path towards the free cash flow. Okay. Thanks a lot. There are no more questions at this time. I would now like to turn the conference back over to Jurgen for any closing remarks. Thank you, operator. Thanks everyone for dialing in for your questions and for your continued support. If you have further questions, long reach out to us at Investor Relations or we'll see each other on the road shows and conferences during the quarter.

45:54 With that, have a great day and speak to you next time. Thank you. Ladies and gentlemen, the conference is now open and you may now disconnect your lines. Goodbye.