Apple Supplier AMS-Osram Plunges 45% After Key Project Axed

(Bloomberg) -- Shares of Apple Inc. supplier AMS-Osram AG lost the most on record Thursday after the Swiss chipmaker said a customer canceled a key project that could force it to sell part of its Malaysian production site.

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AMS-Osram is weighing the potential sale of the second phase of the Kulim plant in Malaysia after the surprise decision by one of its biggest customers to cancel the project, according to Chief Executive Officer Aldo Kamper.

“We will need to take decisions in the next days and weeks which will impact a lot of people,” he said Thursday on a conference call.

Apple had been working with AMS-Osram and other suppliers since around 2018 on components for a revamped display set for future versions of the Apple Watch Ultra, Bloomberg News has reported. The technology for the micro-LED screens includes more bespoke Apple technologies to enable a brighter picture that more accurately reproduces colors.

The cancelation with AMS-Osram doesn’t necessarily indicate that the new Apple Watch was nixed. Instead, Apple is likely relying on multiple other suppliers as AMS-Osram was only a small player in the overall product development, a person with knowledge of the matter said.

AMS-Osram executives declined to identify the client. A spokesperson for Apple didn’t immediately respond to a request for comment.

AMS-Osram has invested heavily in the micro-LED space. The company committed €800 million in 2022 to expand its manufacturing facility in Kulim to produce micro-LED displays. It had expected its first revenue from the technology in 2025.

Development, however, has taken longer than expected. According to an August report by Taipei-based research firm TrendForce, the rollout of micro-LED on the Apple Watch was pushed back to 2026 from 2025.

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Shares tumbled as much as 45% in Zurich to 1.21 Swiss francs, the lowest since its 2009 initial public offering. Aixtron SE, which supplies chipmaking equipment to AMS-Osram, slumped as much as 22%, also weighed down by results that showed a worse-than-expected operating margin outlook and lacked any guidance on orders.

AMS-Osram will incur an impairment charge of €600 million ($651 million) to €900 million in the current quarter as it reviews the value of assets linked to the project involving micro-LED technology, it said in a statement on Wednesday. It cut its guidance for medium-term sales growth to as much as 8% from 10%.

The firm’s business struggles were exacerbated by a downturn in the semiconductor industry and a slowdown in consumer device demand. The debt-laden firm has been in a turnaround process, with €2.25 billion raised in a refinancing plan completed in December. Both Kamper and Chief Financial Officer Rainer Irle assumed their roles less than a year ago.

“With this project now canceled, we believe that the shares will take a major hit as long-term growth prospects will be much lower without the micro LED opportunity,” said Stifel analyst Juergen Wagner, referring to AMS-Osram.

Bond Drop

AMS-Osram’s bonds also took a beating on the news, with a €625 million 10.5% bond maturing in March 2029 dropping 8 cents on the euro to a cash price of 102.6 cents, according to Bloomberg pricing source CBBT at 11:20 a.m. London.

A zero-coupon convertible bond maturing in March 2025 also fell by 3 cents, to a cash price of 92.5 cents on the euro.

This convertible bond was issued in the low-rate era in 2018, when many technology-related firms were able to essentially get free debt in exchange for exposure to their stock. Since rates have risen, many of these bonds have tumbled as the underlying stocks have cratered.

In the case of AMS-Osram, these convertible bonds were designed to convert into shares at €50.1886 upon maturity in 2025. This is a nearly 3,000% premium to the current share price.

--With assistance from Allegra Catelli, Alexey Anishchuk and Mark Gurman.

(Updates with details on Apple product plans.)

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