Apple Supplier AMS Sees Positive Momentum with Android Phones

April 30, 2019

ams reported first quarter results with revenues at the upper end of the guidance range and operating profitability above guidance. Driven by amsí consumer business, these results reflect ongoing customer success in optical and 3D sensing despite a generally more subdued end market environment and typical seasonality in the consumer market. ams expects a positive sequential and year-on-year development for the second quarter with expected revenues of USD 390-430 million and a strongly higher adjusted operating margin of around 10%.

First quarter group revenues were USD 390.2 million, at the upper end of expectations, down 20% sequentially compared to the fourth quarter 2018 and down 7% from USD 418.2 million in the same quarter 2018. Adjusted gross margin for the first quarter was 32% (excluding acquisition-related and share-based compensation costs) with IFRS reported gross margin at 29% (including acquisition-related and share-based compensation costs), compared to 36% and 33% respectively in the same quarter 2018.

The adjusted result from operations (EBIT) for the first quarter was USD 23.5 million or 6% of revenues (excluding acquisition-related and share-based compensation costs), above previous guidance, while decreasing from USD 71.4 million in the same period 2018 (USD -4.5 million or -1% of revenues including acquisition-related and share-based compensation costs, down from USD 43.0 million in the same period 2018).

Adjusted net income for the first quarter was USD -9.5 million (excluding valuation effect of option element of foreign currency convertible bond), compared to USD 92.3 million for the same period 2018 (first quarter 2019 including valuation effect: USD -9.5 million). Adjusted basic/diluted earnings per share for the first quarter were CHF -0.12/-0.12 or USD -0.12/-0.12 based on 80,235,377/ 81,864,338 shares (weighted average; first quarter 2019 including valuation effect: CHF -0.12/-0.12 or USD -0.12/-0.12; first quarter 2018: CHF 1.20/1.12 or USD 1.15/1.08 based on 80,064,021/83,082,083 shares, weighted average).

Operating cash flow for the first quarter was USD 96.1 million, significantly up from USD 52.0 million in the same quarter last year. Total backlog on 31 March 2019 (excluding consignment stock agreements) was USD 288.4 million compared to USD 331.4 million at the end of the year 2018 and USD 319.6 million on 31 March 2018.

amsí business performed very well in the first quarter of 2019 with results at the top end or above amsí expectations. Driven largely by its consumer business ams recorded this positive development despite generally more subdued end market environments in addition to typical strong seasonality in the consumer market.

amsí consumer business once more provided the largest contribution to its overall results. As the leader in optical sensing amsí unmatched portfolio spans high performance solutions for 3D sensing including VCSEL (Vertical Cavity Surface-Emitting Laser)-based illumination, high quality display management including behind-OLED and TrueColor technologies, micro-scale proximity sensing, bio- and spectral sensing, and other optical applications.

ams is a leading provider of 3D sensing technology supplying significant volumes of 3D sensing solutions to consumer OEMs. ams leverages its extensive 3D sensing portfolio and system know-how including 3D hard- and software for all three approaches structured light (SL), time-of-flight (iToF), and active stereo vision (ASV). With a current focus on 3D illumination, ams supports both front-facing and world-facing 3D systems. As previously indicated, the market is moving along a multi-year adoption timeline for front-facing as well as world-facing 3D sensing where the adoption of front-facing 3D is expanding at a good pace, and world-facing 3D sensing, as anticipated, is seeing instances of early adoption.

ams is experiencing the anticipated positive momentum for wider adoption of 3D sensing this year. In line with previous comments ams saw the start of expected Android smartphone launches that include ams 3D technology in the first quarter. The previously mentioned illumination solution for a world-facing 3D sensing system at a major Android OEM has started volume shipments as expected. As anticipated, ams expects additional 3D sensing-enabled Android devices with ams 3D illumination to be launched over the course of 2019. The range of amsí 3D solutions across Android devices either already launched or expected to be launched in 2019 comprises several front-facing 3D illumination systems including iToF solutions, the first world-facing illumination solution mentioned above and a first use of ASV. These successes are creating an expanded customer base for amsí 3D sensing portfolio that includes the worldís leading smartphone OEMs. At the same time, they underscore amsí position as a leading provider of 3D sensing across technologies.

amsí advanced high power VCSEL portfolio is a core driver of its market success in 3D sensing. amsí VCSEL technology offers advantages for 3D sensing illumination in all technologies SL, iToF and ASV. Moreover and in contrast to VCSEL-focused vendors, ams is able to provide full 3D illumination solutions to OEMs which incorporate VCSELs, VCSEL drivers, optics, module design and/or manufacturing. As these solutions offer high differentiation and fully optimized design for performance amsí capabilities create an additional meaningful competitive advantage. ams therefore sees ongoing customer traction in 3D sensing where amsí solution portfolio supports dot projection, pattern projection, different types of flood illumination and ToF proximity sensing. Based on this portfolio covering SL, iToF and ASV, ams is establishing a strong market position in 3D sensing illumination.

ams recently launched an industry-leading long-distance 1D ToF solution which provides accurate distance measurement up to around 2.5 meters. Interest from consumer OEMs is already significant looking at applications such as laser detect autofocus (LDAF) for smartphone backside cameras. In addition, ams is seeing increasing interest from other markets such as IoT.

In display management, amsí innovative technology for high performance behind-OLED-display proximity and light sensing is a resounding success shortly after launch. ams allows OEMs to place light and proximity sensing invisibly behind the OLED display and thus enables maximized screen-to-body ratio and bezel-less phone designs. Several major smartphone platforms launched by different Asian OEMs in the first quarter already use amsí behind-OLED sensing and shipment volumes are expanding. Removing bezel-placed elements from the front side has become a trend in smartphones. Customer traction therefore continues to be strong and ams expects adoption to broaden further from this into next year. At the same time, ams is shipping significant volumes of customized TrueColor sensing solutions for advanced display management. Another new area showing good momentum in customer adoption is flicker detection light sensing for smartphone cameras. ams has started high volume shipments of these solutions to major Asian OEMs this year. Positioned next to world-facing picture cameras, the detection of artificial light flicker for later elimination enables even higher picture quality in all lighting conditions.

ams continues focused development efforts for new optical sensing technologies and applications and sees increasing customer traction for amsí highly differentiated biosensing solution. Here ams offers fast high quality measurement of blood pressure, a very valuable health indicator, complemented by heart rate and a range of additional personal health parameters. amsí solution provides a comprehensive set of personal health data and is able to support next generation wearables and other mobile devices. ams is pursuing several OEM engagements in this area for the next years and expects to complete the certification for medical grade blood pressure measurement in the United States this year. Audio sensing showed a good performance in the first quarter and amsí other consumer product lines offered positive contributions. ams is recording strong OEM interest in its latest active noise cancellation (ANC) innovation which enables high quality noise cancelling for smallest size wireless earbuds.

amsí automotive, industrial and medical businesses performed in line with expectations in the first quarter. In automotive, ams is seeing a less favorable market environment as demand trends continue to be mixed across world regions. However, focused on safety, driver assistance/ autonomous driving, position sensing, and chassis control amsí sensing solutions cover a range of applications, Tier 1 suppliers, OEMs, and market segments. Significant R&D investments for the reported major 3D LIDAR program for a high power VCSEL illumination system continue this year, supporting advanced true solid-state LIDAR architectures. amsí VCSEL illumination capabilities for LIDAR applications are attracting strong interest from a number of major automotive players and ams is actively pursuing several engagements in different geographies. ams also notes increased traction for its VCSEL technology for alternative LIDAR architectures like macro-mechanical spinning solutions and MEMS micro-mirrors as ams can help solve systemic challenges. New optical and 2D/3D sensing applications inside the vehicle are gaining momentum and ams is engaged in multiple design activities in this field which appears to offer leverage opportunities for amsí technology portfolio. ams also sees potential to include global shutter image sensors in upcoming automotive optical sensing. In the growth area of automotive projected lighting, ams is expanding its market position in safety and comfort applications such as light carpets outside the vehicle. Here ams offers advanced illumination systems leveraging its optics and manufacturing expertise.

amsí industrial business showed an attractive performance in the first quarter, reflecting a limited impact from a less favorable demand situation in industrial end markets. As a leader in high performance industrial sensing ams serves a wide range of applications in industrial and factory automation, HABA, other industrial sensing and industrial imaging. This extensive portfolio and application base is proving supportive to amsí business in the current environment. Industrial imaging where ams hold a leading position in high performance global shutter solutions offers attractive growth opportunities for ams going forward. amsí medical business recorded another solid quarter focused on medical imaging for computed tomography (CT), digital X-ray, and mammography as well as miniature camera endoscopy. amsí market penetration in Asia is expanding further as ams added another program win at an Asian medical imaging OEM. ams is the leader in micro cameras for next generation medical endoscopy and sees continued growth in the market for high quality disposable endoscopes.

Implementing last yearís strategic decision to de-emphasize its environmental sensing activities in order to focus on mid- and long-term growth opportunities particularly in optical sensing, ams recently announced the creation of a joint venture for its environmental, flow and pressure sensor solutions with Wise Road Capital. ams will transfer IP, sensor products and solutions, relevant customers and employees to the joint venture and expects the transaction to conclude in early fall 2019.

In operations, ams has implemented a range of cost improvement measures in its Singapore operations since the beginning of the year and has started to recognize positive effects from these efforts. ams sees ongoing benefits from better cost efficiencies in its Singapore manufacturing including lower staffing levels together with overall improvements in the utilization of these sites. As expected, the attractive VCSEL volumes ams anticipates for this year will be fully supported by amsí outsourced supply chain. amsí internal VCSEL production line for new highly differentiated designs is on track for completion and the planned front-end ramp from around the end of this year. Through the combination of scalable outsourced and internal VCSEL capacity ams is very well positioned to support expected volume growth in the future. Capital expenditures are developing fully in line with expectations and ams is on course for significantly lower capital expenditures that the company expects for full year 2019 compared to 2018.

For the second quarter 2019, ams expects a positive development of its business as the consumer market environment appears to have stabilized and smartphone demand is expected to show lower seasonal impacts. In addition, ams has started to ramp design wins of the recent quarters which drive broadening engagements across amsí Android customer base. amsí other end markets generally reflect a less favorable macro-economic environment and a higher level of cautiousness but are expected to continue their positive contributions.

Based on available information, ams expects second quarter revenues of USD 390-430 million, showing attractive sequential growth at the midpoint and a very strong year-on-year increase of 62% at the midpoint. The adjusted operating (EBIT) margin for the second quarter is anticipated to increase strongly on a sequential and year-on-year basis to around 10%, benefitting from further improvements ams expects in its manufacturing operations.

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