Siemens Osram Light Unit Said to Plan First China LED Plant
April 3 (Bloomberg) -- Siemens AG, which is seeking to sell shares in its lighting subsidiary Osram this year, is drafting plans for its first production plant for light-emitting diodes in China, two people familiar with the project said.
Osram has given the go-ahead for the project and is negotiating which parts of LEDs and related components it will produce in the country, said one of the people, who declined to be named as the plans haven't yet been finalized.
The facility would fill a gap for Osram in China, the world's largest lighting market at 8 billion euros ($10.6 billion). Osram now only has production sites for the semiconductor-based technology in Regensburg, Germany, and Penang, Malaysia. The company said yesterday that it appointed Samuel Wu, a Chinese native who last ran Honeywell International Inc.'s process solutions business in China, to oversee operations in Asia.
Wolfram Trost, a spokesman for Siemens, had no comment. Siemens competes in lighting with Royal Philips Electronics NV, the industry leader. In LEDs, the company's rivals include Nichia Corp. of Japan and Cree Inc. of the U.S.
Such a plant may cost "several hundred million euros," said Martin Prozesky, an analyst at Sanford C. Bernstein in London. "The question is how Osram plans to grow the business going forward. Given Nichia or Cree have a multiple of Osram's production capacity in LEDs, it's hard to see how Osram could become the cost leader." Prozesky rates Siemens "market perform" and expects the shares to drop to 73 euros in a year.
Constantin Birnstiel, a spokesman for Osram, wasn't available for comment.
With an LED plant in China, Siemens would be expanding in a region that includes South Korea's LG Electronics Inc. and Samsung Electronics Co. as competitors. Unlike the traditional lighting market, which was dominated by Philips, Osram and General Electric Co., the market for LEDs is fragmented, and booming. GE has decided not to produce LED chips.
The plan for an initial public offering later this year in Osram, the world's second-largest lighting company, is intended to allow the unit to better capture growth in an industry moving from traditional bulbs to LEDs, Munich-based Siemens has said. The company, Europe's biggest engineering company, put the plan for Osram's IPO on hold last year, citing volatile market conditions.
Siemens rose as much as 0.7 percent to 76.99 euros and was trading 0.3 percent up at 12:39 p.m. in Frankfurt. Shares of Aixtron SE, a German maker of equipment for the semiconductor and lighting-technology industries, rose 2.9 percent to 13.37 euros, the third-biggest gain on the TecDAX index for German technology companies.
Revenue at Osram increased 8 percent to 5.03 billion euros in the year through Sept. 30, driven by demand for specialty lighting products and LEDs. Osram generated net income of 309 million euros for Siemens in fiscal 2011, a 2.8 percent drop.
Osram employs about 8,000 people in China, including at an assembly plant for retrofit bulbs using LEDs in Shaoxing, China. The Chinese lighting market will more than double by 2020, Osram predicts. The company has about 41,000 employees worldwide.
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