Good morning, ladies and gentlemen. Thank you for standing by. I'm Francine, your conference operator. Welcome, thank you for joining the conference call on the full-year and fourth quarter 2022 results. Throughout today's recorded presentation, all participant will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one. Press the star key followed by 0 for operator assistance. It's my pleasure, I would now like to turn the conference over to Alexander Everke, CEO, Ingo Bank, CFO, and Moritz Gmeiner, Head of IR. Please go ahead, gentlemen.
Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'd like to welcome you to this morning's conference call on our fourth quarter and full-year 2022 results. With me are Alexander Everke, our CEO, and Ingo Bank, our CFO, will give you an overview of our business and financial developments for the fourth quarter and full-year 2022. With that, I'd like to hand over to Alex.
Yeah. Thank you, Moritz. Good morning, ladies and gentlemen. I'm happy to welcome you to our fourth quarter and full-year 2022 conference call this morning. In this webcast, I will comment on our business before Ingo will guide you through the financials. Starting off with the key figures. Our fourth quarter revenues were EUR 1.18 billion, and the adjusted EBIT margin was 7.3%, both fully in line with our guidance. For full-year 2022, we achieved revenues of EUR 4.82 billion. This is a slight 2% increase year-on-year on a like-for-like portfolio basis, which means comparing the business portfolio we had at the end of 2022. Adjusted EBIT margin was 8.4%. I will begin with an update on the disposals and the integration of OSRAM.
We can report that the planned disposals are indeed near completion at this point. We have now signed all planned disposals, with the last one announced in December for entertainment lighting. One disposal was closed in Q4 as expected. We now have only two closings remaining for full completion of the disposal program. This closing we expect over the course of H1. We remain fully in line with our expectation of total proceeds from the planned disposals of over EUR 550 million, despite a clearly more difficult market environment last year, also in this area. The creation of synergies and savings has continued in line with our plan through last year. We are focused on realizing further progress as we move through 2023. We were also very successful in advancing various integration programs across our combined business last year.
This included significant IT systems and ERP harmonization, aligning the fiscal year for the group, streamlining corporate structures, and aligning policies and processes. Here, I am glad to confirm that we achieved the full set of milestones in integration, which we had set ourselves for 2022. Let's move to the development of our business. 2022 has been a demanding year for the global semiconductor sector, and negative macroeconomic trends continue to shape the situation in our end markets as we enter 2023. Our full-year and fourth quarter results show an overall solid performance of our business against the backdrop of the impact from last year's geopolitical and macroeconomic developments, which translated into, among other effects, substantial inflationary pro-pressures. Looking at our segments now. Our semiconductor segment was the key part of our business last year and last quarter, providing 66% of full-year revenues.
Our semiconductor automotive business recorded solid results last year, particularly in light of the demanding market situation we faced. The market environment in the global auto sector was clearly a challenge last year as it was characterized by impacts to vehicle production volumes year-on-year and continued supply chain volatility, plus meaningful inventory adjustments in automotive supply chains in the second half of the year. Looking at the fourth quarter, our semiconductor automotive business performed well in line with our expectations, as the mentioned inventory adjustments continued through the quarter. By managing through the situation, we confirmed our position as global leader in automotive LED lighting and expanded our design pipeline for this future. We are able to drive strong customer penetration in all key regions based on high-performance solutions for a full range of exterior and interior applications.
To give an example, the revenue pipeline for our next generation, highly pixelated LED front lighting, grew nicely last year, and we are successful at several OEMs. We offer a fully integrated light source and driver solution with outstanding performance, where around 25,000 addressable light points enable a new level of performance and safety functions. Our semiconductor consumer business recorded its full-year results that were in line with our evolved expectations, which reflected the less favorable market development during the year. Major segments of the smartphone and consumer market held up well through the largest part of the year, and we benefited from our broad offering for top smartphone vendors. However, the China and Android markets did not see a demand recovery from late first half through the second half of the year, which meaningfully impacted our consumer business last year.
In the fourth quarter, our consumer business tracked muted expectations, given that COVID-19 related manufacturing reductions in China created additional negative volume impacts in the smartphone market. We confirmed our position as a market leader in optical solutions such as display management and camera enhancement sensing to the leading smartphone OEMs, and also saw good market and design traction for future devices last year. Here, I can also confirm that we expect to see a further improved increase of our market share in the consumer market in 2024 for sensing application. Let me now provide additional information related to our development and industrialization program for our leading small structure size microLED technology. Based on latest available information and its assessment, we can add that we currently expect to start recording relevant revenues from our microLED technology in 2025.
I can also confirm and emphasize that the customer engagement in this area is very deep, significant, and active. The market feedback we receive clearly confirms that we hold a strategic leadership position in smaller structure size microLED technology, and that we are the front runner for high volume industrialization of this next generation technology. We continue to spend significant amounts of R&D expenses on this program to drive the ongoing process of industrialization further downwards completion over time, and together with the partners in the ecosystem. It will continue to be a major engineering focus for us to address the technical challenges that still exist. Please keep in mind what we said all along regarding the complexity of the technology itself and the manufacturing it in high volume.
This includes both our portion of manufacturing and the other steps in the manufacturing chain that need to be in place for the industrialization of this technology. Moving on to our Semiconductor Industrial and Medical business. This area recorded an overall good performance last year. Our industrial markets offered attractive demand support for a large part of the year across our differentiated portfolio. This included our industrial LED solutions, outdoor lighting, and horticulture, as well as a healthy contribution from our industrial imaging lines. Our medical business performed well last year, mainly driven by medical imaging solutions for CT and digital X-ray. In the fourth quarter, however, an increasingly negative demand momentum impacted the semi-industrial business in several areas, which include horticulture solutions and LED industrial and outdoor lighting. These negative impacts were largely driven by the deterioration macroeconomic environment and the negative regional dynamics in China.
Moving to the Lamps and Systems segment. This segment provided 34% of full-year 2022 revenues and showed a solid performance. Our Lamps and Systems automotive business, which includes legacy traditional lighting, achieved overall positive results last year, particularly in light of the sector environment. It also performed well in the fourth quarter with good support from seasonal effects in the aftermarket. The other areas of the LNS segments in industrial, building and medical showed solid results for the year, giving better demand year-over-year for most of 2022. In the fourth quarter, these parts of the LNS segment also started to see negative influences from global macroeconomic trends. Offering an update on our industry-first 8-inch LED fab at our existing location, Malaysia. Construction of the fab building progressed fully in line with plans last year and is nearing completion.
We are glad to say that we are able to build the shell as planned, despite a more demanding situation for large-scale building projects in 2022. We'll continue further significant expansions in line with our strategic plans this year, as construction of the 8-inch LED fab is progressing towards production availability during 2024. Let me now come to the outlook of our business. For the first quarter 2023, ams OSRAM is experiencing a weakened demand environment in important markets as negative macroeconomic trends continue to create visible market corrections effects. The overall demand situation in our automotive markets remains muted while inventory adjustments are showing certain signs of stabilization.
At the same time, our consumer and industrial business were impacted by prevailing lower levels of demand driven by weak smartphone volumes, negative macroeconomic influences, and COVID-19 related impacts in China, in addition to negative consumer seasonality quarter-on-quarter. These dynamics are expected to drive sequentially lower expected production and shipment volumes for the first quarter. With additional negative quarter-on-quarter effects from the adverse exchange rate developments and the revenue loss of around EUR 15 million due to a fire-related capacity loss at the supplier. We therefore expect first quarter group revenues of EUR 900 million-EUR 1 billion, excluding year-on-year disposal related deconsolidation, as well as an adjusted operating margin of 4%-7%. These expectations are based on currently available information and exchange rates, and it reflect a revenue deconsolidation effect for the first quarter from closing the disposal of the Traxon Lighting business.
This effect reduces first quarter revenues by around EUR 10 million on a comparable portfolio basis quarter-on-quarter. The expectations also include year-on-year disposal related deconsolidation with the first quarter revenue effect of around EUR 80 million. Looking further out and assuming an expected recovery of demand exiting the first half, particularly in China and Europe, as well as current exchange rates, we currently expect an improved business environment in the second half of 2023 compared to the first half, similar to what we hear from other industry participants. We expect to achieve our midterm financial targets for 2024 within the lower half of target ranges for revenues and adjusted EBIT margin. These expectations are based on the currently expected business mix for the target period.
Here we expect that this year's macroeconomic trends and eternal dynamics and inflation pressures will further underline the previously mentioned negative impacts to midterm volumes. Before I hand over to Ingo, let me add some personal remarks. This is my last earnings call for ams OSRAM, as I will be stepping down from the CEO position on 31 March Over the last seven- years, I have been leading an excellent team in a highly attractive company as we continue to realize our strategy to clear leadership in the optical space, first as ams and then as ams OSRAM. I would like to take this opportunity to thank my colleagues on the management board and management team, as well as our employees around the globe for their dedication and commitment.
It has been an exciting journey, and I'm convinced that the compelling technology portfolio of ams OSRAM offers excellent opportunities for attractive long-term growth and profitability. Thank you very much. Now over to Ingo.
Thank you, Alex. A very good morning to all of you. Before I start going through our financials, a few comments up front. When we refer to adjusted financial metrics, we refer to adjustments for M&A related transformation and share-based compensation costs, as well as results from investments in associates and sale of a business. You will find the reconciliation to the IFRS basis of presentation available on our IR website. Let us first have a look at some of the key financials. I'm now on page twenty-three of the Q4 2022 earnings release presentation. With revenues of EUR 1.177 million, EUR 1 billion and 177 million and an adjusted EBIT margin of 7.3% in the quarter, we came in within our guidance for both metrics.
For the full-year revenue was EUR 4.8 billion with an adjusted EBIT margin of 8.4%. Adjusted gross margin was 28.5% in the quarter, similar to the prior quarter. Adjusted net result was at EUR 29 million in the quarter. Operational cash flow continued to be strong in the quarter at EUR 201 million. Net debt was EUR 1.7 billion at the end of the fiscal year 2022, lower when compared to the same quarter a year ago and slightly up when compared to prior quarter. Overall, this net debt position translated into a solid leverage factor of 2x . Moving to group revenues on page twenty-four of the presentation.
For the full-year 2022, group revenues were EUR 4.8 billion, nominally lower by 4.4%, largely reflecting deconsolidation effects from the portfolio realignment. When comparing the equivalent portfolio 2022 to 2021 for a like for like comparison, we actually saw sequential growth like for like of 2%. You look at the revenue distribution on page twenty-five, you can see that in 2022, 66% of the group's revenue were driven by its semiconductor segment, with the balance coming from lamps and systems. From a net market perspective, automotive was the strongest contributor with 41%, followed by industrial and medical with 35% and consumer with 24%. Moving now on to group profitability. I'm on page twenty-six of the presentation now.
Sequentially, adjusted gross margin was stable at 28.5%, amongst others, reflecting lower factory utilization levels in a weaker demand environment, in combination with planned inventory reductions in our operations. The group's adjusted EBIT margin of 7.3% for Q4 2022 was very similar to the prior quarter. For the full-year, the group's adjusted EBIT margin was 8.4%, 160 basis points lower than in 2021, reflecting a far more challenging macro environment in 2022, particularly in the second half, and a less favorable mix when compared to 2021. Turning now to the operating expenses on slide twenty-seven , we see that the adjusted R&D spend for the year was stable across the quarters at around the 12% of revenue mark.
The overall targeted range for the group remains to be between 11% and 14%. Adjusted SG&A expenses for the group came down in the second half of the year as integration-related synergy effects and resulting cost advantages contributed to an overall lower spend, excuse me, for the group. For the full-year, adjusted SG&A as a percentage of revenue was 10.8%, a very clear improvement by 110 basis points when compared to fiscal year 2021. Our targeted range for SG&A spend for the group remains to be between 7%-9% over time. Turning now to the net results on page twenty-eight. The adjusted net results for the ams OSRAM Group in the fourth quarter was EUR 29 million, including a net financial result of negative EUR 43 million.
Adjusted basic earnings per share in the fourth quarter were EUR 0.11 and CHF 0.11. Revenues for the Semiconductor segment were EUR 767 million in the quarter. full-year 2022 revenue in our Semiconductor segment amounted to EUR 3.17 billion, which is lower compared to a year ago, as it reflects the very demanding market situation, particularly in the second half of 2022. As Alex already pointed out, the automotive market environment in 2022 was characterized by continued supply chain volatility as well as notable inventory adjustments in its end-to-end supply chains. In the consumer market, a lack of demand recovery in the China and Android markets meaningfully impacted our consumer business.
Adjusted EBIT came in at 6% for the quarter, reflecting lower demand as well as lower utilization of our industrial base, which we took on to actively manage inventories in a weaker demand environment. For the full-year 2022, this segment delivered operating profitability of 10%. In the course of the fourth quarter, we saw ongoing inventory corrections in end markets and increasingly unfavorable demand effects driven by the macroeconomic environment and regional dynamics in China, impacting the segment's industrial business in certain areas, including LED industrial and outdoor lighting and horticulture solutions. Moving now on to the lamps and systems segment. Revenues here were EUR 412 million in the fourth quarter, up sequentially. Quarter-over-quarter growth was driven by the seasonally stronger traditional automotive lighting aftermarket business.
This seasonality helped to more than offset the disposal-related deconsolidation effects of around EUR 10 million from the prior quarter. For the full-year 2022, revenue was around EUR 1.65 billion in this segment, reflecting our strong market position in automotive and various industrial lighting end markets. On a like-for-like portfolio basis, in other words, reflecting the deconsolidation effects throughout 2022, we actually saw a meaningful growth year-on-year. Adjusted EBIT for the quarter was 10% and 6% for the full-year. This is a strong improvement compared to 2021, reflecting positive effects from the portfolio disposals as well as efficiency measures. In the course of the fourth quarter, we saw the successful closing of the Traxon transaction, our business for dynamic lighting solutions, as well as the signing of the sale of Claypaky, the entertainment lighting fixture business.
Let me now complete the review of the company's financials with a look at the cash flow and debt position of the ams OSRAM Group on pages 34, 31 and 32 of the presentation. The group generated EUR 201 million of operating cash flow in the last quarter of 2022. For the full-year 2022, the group's operating cash flow continued to be very strong at EUR 599 million or a very, very solid 12.4% of revenue. 2022 CapEx spent in the group was EUR 537 million, translating into a spending level of approximately 11% of revenues. Overall, spending increased as expected in the second half of 2022, but we stayed below our previous expectation of EUR 600 million in the end.
The CapEx spending also reflects the progress made on the building of the new 8-inch LED fab in Malaysia, which had a meaningful share in the group's CapEx spend in 2022. We expect this upward and elevated trend for CapEx spending coming out of Q4 2022 to continue into 2023, in line with our previous communication. This is firstly due to the building completion of the new 8-inch facility and subsequently to equipment being installed over time. Overall, we are still targeting to keep the overall CapEx spend below EUR 1 billion for 2023, also in line with our previous communication. Turning to page thirty-two now. The group's cash and cash equivalents amounted to EUR 1.09 billion at the end of the year.
We actually repaid well over EUR 400 million of debt in 2022, most importantly, the matured USD convertible bond as well as some other liabilities. The group's net debt stood at EUR 1.72 billion as per the end of 2022, slightly up when compared to the September quarter, but importantly on a lower level when compared to the end of 2021. Overall, this translated into a financial leverage for the group of approximately 2x net debt to adjusted EBITDA, which we regard as a solid situation in the industry environment. Our fully committed EUR 800 million revolving credit facility in euros remains undrawn. On page thirty-three, you find the overview of our outlook for Q1 2023 that Alex already outlined earlier, with expectations based on current exchange rates and available information.
We expect group revenues in the range of EUR 900 million-EUR 1 billion for the first quarter using the currently prevailing euro dollar exchange rates. The adjusted EBIT margin we expect to be between 4% and 7% for the first quarter of the new fiscal year. As this is my last earnings call with ams OSRAM, I would like to take the opportunity to thank my colleagues and the board and the management team for their strong support over the past years. Also, a special thank you goes out to my amazing finance team. Finally, I would also like to thank our employees who've done a stellar job in 2022 in what was one of the most volatile market and macroeconomic environments we've seen for quite a while. With that, I would like to open the floor for questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. We have the first question from Janardan Menon from Jefferies. Your question, please.
Hi, good morning, and thanks for taking my question. I just wanted to narrow in a little bit on the microLED, your statement that you will get revenues in 2025. There was previously, I think, even alluded to on your Capital Markets Day presentation that there will be a ramp in 2024. just want to clarify whether this is a delay in the expectation for that microLED revenue. If that is, if that is at all the case, and since you're saying that the fab will be in place in 2024, will there be a margin impact because the fab will be actually delivering revenue only 1 year later? I have a brief follow-up.
Okay. Well, what we've always said in the past is that we're building a new eight-inch facility and readying for ramp up in 2024. That's what we said. That goal has not changed. We said that we expect to be in the position to have that ready, but we've never communicated a timing expectation for a ramp of microLED technology. As to your second question, as I said, we're still working on being able to be ready for a ramp in 2024. As it is usual, if you ramp facilities in a year, you have some costs, some idling costs in a normal ramp-up environment, that estimate has not changed really.
Understood. On the second half recovery, are you seeing any clear signs such as, you know, you started the automotive inventory correction quite early? Are you seeing any signs of that bottoming out by the first half of this year? You know, anything else which gives you confidence that, you know, your end markets will start improving into the second half and then take you to the low end of your guidance range in 2024?
Alex, first of all, we see that the inventory in the chain is addressed by industry players. As you correctly said, we started relatively early because we announced a weakness in automotive market as one of the first companies. We see that from the supply chain point of view, that inventory is addressed. We also see that the chip shortage in the automotive space is getting easier. We see that from the demand point of view, a kind of stabilizing in the automotive space. For that reason, we can assume in the automotive area a recovery in the second half.
From today's point of perspective, we see that in the consumer's business, assuming that China gets resolved, the COVID-19 situation within the first half, that also there should be a recovery in the consumer space. How strong? It's hard to say. If you look at the facts and the inputs we're getting from customers and industry players, we can assume a recovery in the second half of this year.
I think it's important that demand recovery is starting to materialize when we exit the first half. That's clearly important. Right now, as we said before, the demand situation is rather challenging, which I think you also see reflected in our first quarter guidance. Clearly, if you look at the second half, that means that we do expect a recovery out of key markets, particularly China and Europe as well.
Understood. Thank you very much.
The next question is from Sandeep Deshpande from JPMorgan. Your question, please.
Yeah, hi. Thanks for letting me on. My question is regarding the continuing improvement of your business. Given the challenging environment that you face in 2023, do you see, you know, the improvements you've seen, for instance, in autos year-on-year to continue or whether that will reverse? And then, of course, in the consumer side or rather the semiconductor side of your business, how do you see that through that through full-year behavior given the weak first quarter that you're seeing?
Look, I mean, As we just said, we've seen very early on last year, first corrections in the automotive distribution chain in terms of inventories that, as Alex just said, seems to be stabilizing right now. We are very early in the value chain, so we think early, see early when they are adjusted either up or down. From that perspective, sort of we see that there's an opportunity in the second half. Of course, driven on by a sort of end demand at the end of the day.
For consumer, I think we said that also if you look at the fourth quarter, there are certainly impacts also coming out of the COVID situation in China and still a rather muted Android market. At this point in time, if you look at sort of first quarter, we don't necessarily see that recovering. But there's obviously an expectation that overall China throughout the year will start recovering, including consumer end demand. That should help also for the second half or for the last one for industrial.
We also flagged in the fourth quarter already that there are certain developments, particularly from rising energy costs for certain applications that we sell as well as for outdoor lighting, where construction plays a little bit of a role. There we also see some adjustment process still ongoing. Also as we go into the first quarter, and that adjustment process will still take a bit. Then we should also see some of that coming back into probably the second half. Again, that's the current assumption. It's really very much dependent on particularly Europe and China demand recovering when we have exited the first half.
Just a quick follow-up on your costs, Ingo. You'd announced the synergies as well as cost-cutting plan. Where are we on that front at this point in terms of, you know, is there gonna be further positive impact to the margin from there or, we are running out of steam on that front?
Yeah. On the synergy side, we are progressing in line with plans. I mean, we updated you in the third quarter where we were at around, I think the EUR 248 million or so mark of synergy run rate that is still progressing in line with plans. As you know, the target is to be at around EUR 350 by the first quarter of 2024. That is, that's all on track. That's particularly still ongoing on the SG&A side, as well as some operational costs. We also told you that we would start the footprint, industrial footprint process in the fourth quarter, which we started, which we did.
Where we basically reduced one location we have in Asia-Pacific, and that should also help, let's say reduce operating expenses also going into particularly 2023. When we spoke about the EUR 100 million cost savings program, that's also in full implementation. 'Cause obviously, you know, if you're working in such an environment macro-wise, you focus very clearly on the things you can control, and that's cost and cash, and that's what we're doing. We've done it always in the past. That's all on track.
Thank you.
The next question comes from Robert Sanders from Deutsche Bank. Please go ahead.
Yeah. Hi, good morning, and good luck to Alex and Ingo on your future endeavors. My first question would just be on microLED. There was a report from DSCC, which is an industry analyst, saying that microLED for Apple Watches would be 5 times more expensive than OLED, and that it would only feature in a premium device, a sort of $800 device. What is your kind of current thought process on the adoption rate within the watch lineup and within, and in terms of moving to iPhone? 'Cause it does seem like the main OEM in this area seems to be pushing out their adoption rate. I was just wondering, what are the key kind of drivers of that adoption, getting the cost down?
Is it gonna be mainly pick and place, or is it somewhat to do with what you guys are producing?
Yeah, Rob. Alex here. Thanks for the question. As you know, we can't give comments on specific end products. If you look back, when the transition happened between LCD and OLEDs, we had actually exactly the same question. Obviously, every new technology, when you introduce it to the market, it has a higher cost level than the to be replaced technology. It shows, and that's also the plan, the more you go in high volume production, which is on our side, but also applies for the whole supply chain, the cost will come down to a level that a broad adoption is absolutely possible.
When you, when you look from the past when OLEDs took over the share of LCD screens, it started, which is normal on the high-end side first, but then deployed and got deployed to mid-range. Now basically, most of the mobile devices have an OLED screen. We see the same or very similar transition for the new microLED technology, entering obviously in a higher end first, but then go migrated into the other segments over time. The main driver for cost reduction is obviously yield improvements, high volume production, which will happen then naturally.
Great. Just a quick follow-up. Just on the 28% gross margin, could you say what that gross margin would be, you know, without underloading? It feels like that, you're still relatively underloaded, and you haven't quite completed the kind of, manufacturing location optimization program. Is there gonna be a big step up in the future when you pull out some fixed costs, you know, you close sites, et cetera? When is that gonna come through? Thanks.
Yeah. Rob, I think, if you look at the differences in, let's say, adjusted EBIT margin for the semiconductor segment, year-over-year, for instance, in the fourth quarter, to some extent also in the third quarter, you can assign a not unsubstantial part of that difference to a difference in the underlying gross margin, which indeed also has to do with utilization. Indeed, part of the plan is from an industrial footprint conservation part where we started now to take more of the cost out. There's more also to come also in 2023.
Of course, another part also is of course driven also by how the volume overall will then develop when we move in the second half of 2023 and then into 2024. Clearly over year-over-year, it's, you can assign a not insubstantial part due to underutilization. Please also bear in mind that in the fourth quarter, we've reduced our inventory position with more than EUR 100 million. Obviously that's next to, let's say, a somewhat weaker demand environment, another impact that we took on consciously to make sure that we run our balance sheet with the proper inventory levels in such a macro environment. That had an additional effect, of course. I think that's kind of the effect you have to take into account.
Thank you so much.
The next question comes from Juergen Wagner from Stifel. Your question, please.
Yeah, good morning. Thank you for taking my questions. A follow-up on the microLED you mentioned in your prepared remarks that due to technical challenges, the product is delayed. Where are those challenges, and what does that mean for you? Second question on the sensor socket win for 2024 that you basically confirmed with your market share gains in consumer. How is that progressing, is that also at risk for delay? Thank you.
I don't think we said that there are technical challenges or that there is a delay. The only thing we did today is that we added information available to us and based on an assessment we did that we expect now relevant revenues to be for microLED in 2025. We still expect our 8-inch LED manufacturing facility to be ready for ramp in 2024. Also, if you go back, we said all along that when coming back to microLED, it's of course a highly differentiating technology, which will have technological challenges and process challenges. That's what we always said.
We also said that, we're working here in an ecosystem, where it's not just us, but also others that need to make sure that it can be, you know, industrialized, et cetera, et cetera. That's, I think, what we've also said. Sorry, your second question was? Or maybe Alex
The second was on the, on the sensing, improvement in the consumer market share. As you know, sensing devices and design wins in this area, are projects which are designed to plan platforms, so we don't expect changes there. This is based on IP and manufacturing capability, which is running for the company since quite a while.
Okay. See you. Thank you.
The next question comes from Sébastien Sztabowicz from Kepler Cheuvreux. Your question, please.
Hello, everyone, and thanks for taking my question. It seems that some other microLED players, and notably one called PlayNitride, is considering ramping up an 8-inch microLED fab as well. How do you see the competition building up on microLED? Attached to that, when do you expect to see the first prepayment from your LED strategic partner, microLED strategic partner? Thank you.
Yeah, Alexia, thanks for the question. If you look at the facts, and what we hear from industry player, we are clearly far ahead of competition in IP technology and obviously in the investment in the first 8-inch LED manufacturing capability. I think it's good news that more and more companies getting interested in this technology. It shows that the market sees the market potential, and the wide range of market application, which is good news. Getting the feedback from various customers, suppliers, industry players, I clearly can state that we are clearly upfront with our positioning as a company in microLED technology.
For the prepayment, when do you expect to receive the prepayment?
There's no update on the prepayment. You didn't see it in the Q4 financials. I cannot give you an update when. It's we just announced that we received it in terms of an agreement and how and when we will make use of it, we will see.
Okay. one last question, if I may. On the modeling side, how should we model the OpEx moving into Q1? Also, do you have any indication on the modeling for the full-year, given all the cost-cutting action ongoing, the disposals that have been already completed? What need to be done with the two remaining results? How should we model the OpEx for Q1 and this year? Thank you.
Well, you know, I mean, you've seen that we did quite some steps on the SG&A side in the second half of 2022. We've now more or less completed the ERP rollout that we had in mind. There's still some sort of aftercare we are doing right now. That has been very successful. That should give us further improvement possibilities in the sort of also starting in the first half somewhat. I just mentioned the started the adjustments on the footprint that should move. That takes a little bit longer typically before you see that in the financials. On the synergies, you know, I don't expect, let's say, a kind of a different rhythm into the numbers than we've seen in 2022.
That's all I would say at this point.
Okay, thank you.
The next question comes from Adithya Metuku from Credit Suisse. Your question, please.
Yeah. Good morning, guys. 2 questions, please. Firstly, just on the microLEDs, you talked about process challenges, et cetera, to expect as you ramp these things as usual with any technology. I just wondered if you could talk a bit about how we should think about profitability in the microLED landscape whenever it is that you ramp. Are you able to give us some color on, you know, what sort of yields you're seeing at least on in your R&D processes when you're trying to replicate these steps so that we have some idea of how these numbers might trend as you industrialize this technology?
Secondly, I just wondered if, Ingo, you could give us some idea of the underutilization charges you had in 2022, to give us a sense of how much uplift, you know, there might be on the gross margin side, as utilization levels increase. If you could also give us some sense of where you expect this to go in 2023, if you're able to, that would be helpful. All the best in your future endeavors to both Alex and Ingo. Thank you.
Yeah. Thank you. Look, I mean, I think we need to remember a few things. First of all, the 8-inch LED facility we're putting in place 2024 is meant to cater for very differentiated LEDs and microLED. It's built for a very long period of time for the next 10-20 years to shape our LED business also based on the growth opportunities we clearly see in the longer horizon. Acknowledging that we knew that at some point in time, in the not too distant future, we would otherwise run out of existing capacity overall. I think that's, that we should not forget when we just talk about microLED.
Like, with any kind of technology, when you ramp in the first year, one should not expect that that will generate a profitable contribution to your bottom line. That's normal. You have the typical learnings that you have. You don't have the most fantastic yield initially. That's, that's not gonna be different here than it's been also with other technologies. What we've seen, however, in the past also when we look back in our Singapore engagement back then, we've seen quickly the team being able to improve yields and get the learning effects in there. You can see certainly in the so year one is always a kind of a ramp here and then in year two you see very meaningful improvements.
Obviously in a part obviously is then also bit dependent on the underlying volume. Here I would not see any kind of difference. On your gross margin question, on the utilization, I would just reiterate what I said to Rob. Basically, I think if you look at the difference in profitability in the semiconductor area, which is the biggest part where we talk about, let's say, underutilization given the asset structure there. You know, you can certainly sort of take a not insubstantial part of the difference in adjusted EBIT we have there as part of a gross margin difference. That is largely driven by underutilization which we started especially to see in the second half of the year.
Third quarter we already flagged that. Fourth quarter, we clearly saw it now also in the numbers. I think that's the best indicator what it is. Obviously, there's also in the semiconductor area, there was what I said earlier in my prepared remarks. There was a mix impact there, and there were a mix in this business was a little bit unfavorable when compared to a year to go. It has also to do with a little bit with our consumer business. It's not just all underutilization, but certainly, that played a very big part. Now in moving into 2023, clearly in the first quarter that's not going away. It's the demand environment out there is difficult, as we said.
When you look at what we said about our expectation that there should be some kind of recovery in the second half, you know. Of course, pending demand recovering in China and Europe, what we said. You also quickly see if that happens, how the underutilization sort of turns around completely and the elevator goes up again, and not down. From that perspective, that's just the nature of our industry, and that's how we should see it evolve. Certainly, some impact still in the first half and then second half should be different.
Understood. Thank you.
The next question comes from David O'Connor from BNP. Your question, please.
Great. Thanks for taking my questions. Maybe first one, Ingo, on, you know, just following on from the last question on the second half improvement. I mean, do you see anything in your orders or visibility of customers to support that? Can you remind us of your lead times across the business? That's my first question for everybody.
Yeah. Look, I mean, as I said, it's very early on in the year. I think nobody has a real clear view. Like any other, like a number of other industry participants and also based on customer engagements, there is an understanding or an assumption that the demand will recover in China and in Europe when we exit H1 and then we move into H2. That's clearly what underlying assumption here is. Of course, then in that direction, the orders have to be built. You're still early on in the year, so it's January just ended. That's the situation we're in right now.
Okay. Fair enough. Maybe a question on the FY 2024 target model. It seems like you've lowered that around EUR 300 million. Could you split that out for us across the kind of big buckets, overall industrial and new growth drivers, just to get a sense of kind of where the, where that shortfall is coming from?
Yeah. Look, the reason why we've qualified our midterm guidance for 2024 today, is simply because we've seen a bit of a worsening of the macro environment since the fall of last year. Therefore, we expect some kind of trailing effects of that evolution in 2023, possibly also into 2024. If you look at China right now, if you look at sort of the ongoing inflation pressures it has certainly on some consumer demand, for instance. If you let them translate into our assumed business mix for 2024, we expect that will have some trailing effect into 2024. That's why we qualified it today and said it's more in the lower half of the targeted range.
Okay. Got it. One last clarification on my side. Just clarifying on the microLED, that there has been no change in the timeline of microLED ramp-up versus the CMD last year. Is that correct?
What we said at the CMD is that we would expect our 8-inch LED facility being ready for ramp, and that's still the goal, and we're working towards that. I mean, Alex pointed out, too, that we're making the good progress on, let's say, the build of the facility and the infrastructure in that, and that's still ongoing. That what we said in the CMD is still valid. The only thing we did today is we provided some additional information based on recent information and our assessment of that, as to when we expect out of that facility coming relevant microLED revenue, and that we now said is in 2025.
Got it. Thank you.
The next question comes from Francois-Xavier Bouvignies from UBS. Your question, please.
Thank you very much. I have one quick clarification, if I may. If we look at your EBIT margin at the group level, I mean, it was, you know, 8% in Q3, 7% in Q4, and now you are getting a bit lower at the midpoint. You mentioned that you did, you know, some work on of course on the synergies, also deconsolidation, which in theory should be better margins. You also mentioned some offset in terms of business mix. We still don't see, you know, the improvement with all your work you have done and of course you have the underutilization charges and the mix that you mentioned.
I was just trying to understand when do you think we will be able to see this work fruits basically and should we treat the Q1 as maybe the low base for this year if we expect a recovery and also, you know, this synergy then deconsolidation impact coming through?
I think, actually we saw some of that in the numbers clearly last year. If you look at, for instance, SG&A expenses that came down with 110 basis points, which obviously is related to, let's say the cost reduction and synergy efforts, we've been taking. Secondly, we've also said that the synergies are gross pre-tax numbers and some of that obviously gets reinvested. We talked a lot about the readiness for the facility obviously that also requires underlying R&D spend for the products that we want to launch into that facility. That's important. You clearly saw it in the Lamps and Systems margins, where you see the improvement year-over-year being quite substantial actually, from a profitability perspective.
I think you've absolutely already seen, of course against that, we've seen the macro environment, right? Which, when we started the entire acquisition, was of course not in the cards. We've seen inflation, which was clearly a headwind for everybody last year, especially on the procurement side of the house. These are all effects that go against some of the things we're doing. Going into 2023, I already, I believe, answered the question as to what we, what I see on the synergies. It's progressing as planned. We talked about EUR 100 million of cost savings that we have been implementing, and that should see some improvements also going through in 2023.
Then we took the first step into, let's say, the footprint consolidation in Q4, that we announced also earlier on when we gave guidance for Q4 and Q3. That should also see some impact. Again, this is against the macro back-backdrop now that kind of dilutes a little bit obviously what we're doing on the cost front, but we're moving on. I mean, they're of course doing, as I said, all the things we should be doing given that's the things we can control.
I mean, if I look at Q1 with the macro impact, the recovery that you see from, you know, through the year and the mix potentially turning more positive, I mean, should we treat Q1 as a, as a low point of the year and improvement from there or is it still quite uncertain at this stage?
I would be I mean, we're very early in the year, and the environment is still very dynamic. I think for now, as I said, we're working on the things we can control. We have sort of formed a view on the second half, also supported by some of the things we see from other industry participants and customers as well. Look, 2022 has been very dynamic, and I'm very early on, it's only January, I think it's too early to form a very clear view yet.
Okay. Thank you. Maybe one last clarification for 2024. You mentioned in the past a new sensor design win in the smartphones is still on track. I mean, there is no impact from this program to your 2024 downgrade, right? I mean, if I summarize correctly, it's just a macro driven nothing with this design win for 2024.
Yeah. Yeah.
Thank you. Yeah.
What is, win, for 2024 obviously also compensates negative effects we mentioned. But it shows at the same time that we are really on track in our customer engagement, in our portfolio positioning, and that we are regaining market share in the consumer space as we have planned. That's a very strong confirmation in the right direction.
Great. Thank you very much.
The next question comes from Didier Scemama from Bank of America. Please go ahead.
Yes, thank you. Most questions have been answered. Just wondered if you could maybe, Ingo, give a bit of color on the interest payment in Q4. It was a bit above what I expected. Also if you, maybe a question for the entire management team. I know you sort of said it's early days, but would you say that you would expect, you know, fiscal year 2023 to be, you know, a revenue decline, you know, of substance? Or, I mean, is there anything you can help us, you know, sort of quantify the revenue for 2023?
On the interest payments, we typically pay not every quarter the same. That's different how we accrue, of course, for the interest expense. That's why the interest payment we had in Q4 was fully in line with what we actually planned for. You can't assume every quarter the same interest payments. Overall, it was completely in line with what we had. We have right now gross an interest, if you look at the total portfolio we have of around between 3.8% and 3.9%, I believe, at this point in time.
Obviously for 2023, the only thing I can say about full-year, as we're just starting the year, is that there will be some effect, of course, from the deconsolidation of some of the activities we still had in the year 2022, similar to what we had in 22 when comparing to 2021. That will depend a little bit on when we expect the closing of these. It's also for me right now a bit too early to say. That's the only thing I can say at this point in time.
Thank you.
The next question is from Harald Eggeling from ZKB. Please go ahead.
Yes, good morning. One follow-up on the prepayment. To understand it correctly, I guess, the prepayment is related to some kind of milestones. Probably you could elaborate a bit on this and the amount you then might receive if a certain milestone would be achieved. Is it related to future sales, or what would it be related to, please? Thank you.
Yeah. Look, I appreciate the interest in that topic. As you said already in Q2 when we first announced it, I'm not at liberty to disclose right now what the specifics of it is. I would just like to highlight that we didn't utilize it in Q4, so it's not in the financial statements.
Okay. Many thanks.
Thank you very much, ladies and gentlemen. This concludes our question and answer session of the call this morning. We would like to thank you for joining us this morning and look forward to speaking to you again with the next set of results. Thank you very much and have a great day.