Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the conference call on the 1st Quarter 2023 results. Throughout today's recorded presentation, all participants are 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 do so by pressing Star 1 on your telephone keypad. Please press Star 0 for operator assistance. I would now like to turn the conference over to Aldo Kamper, CEO and Interim CFO, and Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.
Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's conference call. With me is our new CEO, Aldo Kamper, who will lead you through the business and financial developments of the quarter. With that, I would like to turn over to Aldo.
Thank you, Moritz, and good morning, ladies and gentlemen. I'm very happy to welcome you to our First Quarter 2023 Conference Call this morning. As I'm sure you're aware, this is my first earnings call as the CEO of ams OSRAM, and I'm very glad to be able to speak to you this morning in my new role. Let me start with some personal remarks before we head into the update on the quarter. I'm extremely pleased to be at ams OSRAM. It's partly a coming home or coming back, as I've worked for more than 20 years for OSRAM before, mainly as the CEO of the Optical Semiconductor Division. But it's also much more than that, as it's now ams OSRAM, the combination of the emitter-based world of OSRAM with IC and sensor world of ams, an exciting combination that holds a lot of promise.
Impressed with the enthusiasm, drive, and desire of our team to move these technologies forward, to innovate and thereby bring new ideas to market, enable new applications of our customers. Impressed with the speed of integration, especially considering that the combination of the two companies happened during the global pandemic. The next step will be for me to get to know the view of our investors and, very importantly, customers, which I will now focus on. I'm looking forward to the exchange with our investors this week and meeting with customers that follow thereafter. Based on all these inputs, internal and external, I will work intensely with the management team on further sharpening our way forward. Not to change course dramatically, but to see how we can continue to unlock further potential that the company, in its combination of capabilities, inherently has.
Given the current market environment and the associated challenges it poses on our financial performance, unlocking this further potential swiftly and widely becomes even more important. Please give me some time to develop these thoughts with the team and come back to you with a clear, concise plan on our way forward. Please bear with me in today's earnings call, as it's only after a month with the company, I might not have all the answers yet that you could be looking for. With that said, let's now move on to today's presentation of our first quarter results. I will start with key developments in the quarter as an overview. I'm on page 2 of the presentation here.
Our first quarter results were in line with the guidance range that we had given, they also reflect the continuing difficult market environment and the effect of global economic trends. We are experiencing the demand situation in important areas that remained unfavorable in the quarter and in turn resulted in a significant negative impact on profitability. Our automotive business showed very good strengthening of the market side of the business, while the semiconductor side declined moderately, sequentially, in line with our expectations, mainly due to continued inventory adjustments. The consumer business was very muted in the quarter due to clearly lower customer and end market demand year-over-year and quarter-on-quarter, enhanced by seasonal and certain mix effects. Our industrial markets recorded mixed results with expected lower sequential demand for LED industrial, outdoor, and agricultural lighting, certain signs of improvement in other product areas.
Very positive is that we closed the last communicated disposals and with this step fully completed the planned disposals. Also, our synergy creation successful and remains fully on track. As communicated, we are investing heavily in new capabilities this year, which logically shows up in the significant sequential increase in CapEx, mainly driven by the investments into our new 8-inch LED front-end fab. Let me now update you on the divestments in more detail on page 3 of the presentation. We have now closed the last 2 remaining disposals. Entertainment lighting in March, so within Q1, and the Digital Systems business in Europe and Asia at the beginning of April, so at the start of the current quarter.
This means we have successfully completed the planned portfolio realignment following the acquisition of OSRAM in just about 2 years' time, which is a tight timeline to implement this whole set of transactions. I have to compliment the team on that. Especially as the evolution of the M&A and market environment was not making these transactions easier to implement. I'm therefore very happy to report this completion here today. We expect a total cash inflow this year of high double-digit million euro figure from disposal proceeds, the majority of which still have to be received. Including the last transactions, the total combined proceeds from all divestments since 2021 are expected to close to EUR 600 million. It's an excellent result and well above the expectations formulated at the outset, which were EUR 500 million-plus.
Please note that we will see a substantial last deconsolidation effect in Q2 from these disposals. This will amount to around EUR 80 million revenues that are deconsolidated when comparing Q2 to Q1 revenues. Looking at our synergy creation on now page 4, providing our latest update, we have created EUR 305 million of total synergy and savings at the end of Q1 2023, which is fully in line with our plans. This means 87% of the total target of EUR 350 million on a run rate gross and pre-tax basis. With this, our synergy creation and integration program are fully on track, and we're confident to achieve our target total at the end of Q1 2024 as planned. We have incurred around 70% of the estimated one-time integration costs at the end of Q1, again, in line with our planning.
This means that a further approximately EUR 80 million remain based on our total cost estimate of around EUR 270 million. Moving to our capital expenditures on page 5 of the presentation now. We are continuing our significant investment into state-of-the-art and industry-leading manufacturing capabilities, which is a key element of our long-term strategy. In line with this, we saw a strong sequential increase in CapEx in Q1. This was predominantly driven by the investment for the industry-first 8-inch LED front end facility we're building at the moment in Kulim, Malaysia. We're fairly satisfied with the progress of this very large-scale project. Construction continues to progress on schedule, as you could also see myself during a visit there two weeks ago. We are closing in on completion of the building.
Next to this, we will see the build-out of support infrastructure and more and more plant equipment deliveries, which will driving further substantial CapEx as we move to 2023. Let me emphasize that the development of CapEx in Q1 and what's expected for the remainder of the year is fully in line with our plans. Total CapEx for 2023, we expect it slightly below EUR 1 billion currently. You'd expect CapEx to be strong through the year but track to that number in total. We reduced the CapEx spending compared to the previous assumption of over EUR 1 billion, reflecting the current market environment. Establishing the new capabilities requires still very significant spend, which leads to a peak in CapEx when compared to the last and the next years.
This also means that we expect a meaningful year-on-year decrease in 2024 in line with existing plans. Let's now take a look at the development of our business, starting with the Semiconductors segment on page 6 of the presentation. Semiconductors automotive business recorded modest results overall that were in line with expectation. In our part of the automotive Semiconductors market, we saw further inventory adjustments in our downstream supply chain in Q1, which impacted our top and bottom line. We saw these adjustments stabilize at the end of the quarter, which is a positive development. Our Semiconductors automotive volumes were sequentially lower in Q1, and order momentum in our automotive market remained mixed in the quarter.
Despite this unsupported shorter momentum, we are seeing continuing good design traction for advanced automotive lighting solutions for exterior and interior applications, which are adding to our overall mid and long-term pipeline. This also includes more market success for efficient automotive display backlighting solutions. Large displays are becoming more and more relevant factor in the interior design of upcoming car platforms, and we're happy to support this. Furthermore, we see a high level of interest for intelligent multicolor LEDs for automotive interior applications, which we are addressing with a new family of products. We are also preparing to ship our highly pixelated headlamp solution into the first vehicle platform for a large European OEM, beginning a measured ramp in the second half of the year. Our consumer business remained subdued in Q1 as shipment volumes for several consumer lines showed a negative sequential trend.
This development reflected the lower year-on-year volume demand in the global smartphone and mobile device market, which continued to be largely driven by macroeconomic impacts on consumer spending habits. Our smartphone business saw sequential, seasonal, and product mix effects influencing our business, and at the same time, the China and Android market did not show a notable improvement in the quarter. Our business in the wearables segment saw meaningfully weaker quarter-on-quarter volumes, again due to end customer demand. Our development activities and customer engagement in the consumer market remain on a high level, and we are seeing good traction for future opportunities in a number of areas, including display management and different optical sensing applications for mobile devices. We also continue on our development programs, which support our previously mentioned expectation of an improved market share in the consumer market in 2024.
At the same time, current demand momentum does not point to a rebound in mobile device volumes in Q2 on a global basis. Semiconductors, industrial, and medical business showed a mixed performance in the quarter. As Phil called out before, certain industrial markets, including LED industrial and outdoor lighting and horticultural solutions, experienced sequentially lower demand in the quarter, which had an impact on total segment performance. Other industrial and medical products were more supportive and in line with expectations. Let me add here that the strong development in industrialization efforts for our leading small structure size microLED technology are continuing very much in line with our plans.
Market feedback is confirming the strength of our technology position in this very exciting area, and I can just say, I'm excited to see how far this technology has come now from the early R&D efforts I was involved in a number of years ago, and I'm still thrilled for that. These activities will remain a key area of R&D spending investment as we move along our path towards realizing high volume manufacturing of our microLED technology in the world's first 8-inch LED front-end facility. Looking at microLED in general, we see increasing and broader activity in the market around different larger structure size microLED technologies. We appreciate this positive dynamic because these developments only confirm our strategic focus in this area, and our expectation of microLED will be the next generation of display technologies for consumer and other markets.
Looking at the Lamps & Systems or LNS segment on page 7 of the presentation. Inside LNS, the largest portion is the automotive business built around legacy, mainly halogen-based traditional lighting. Here we recorded a very nice performance in the quarter, which was clearly driven by our global automotive aftermarket business for lamps. This business, where we hold a clear market leader position globally, saw strong seasonal demand in the quarter despite macroeconomic trends affecting demand development in certain regions. In terms of seasonality, the aftermarket generally has to skew to the winter semester, that is the 4th and the 1st quarter of each year. Our other conventional lighting business within LNS showed mixed signals as demand is certainly to market is slowing due to macroeconomic development.
With Ingo Bank leaving the company at the end of April, as communicated before, and Rainer Irle joining on July 1st, I will also present today our financial results in more detail. Before I do that, let me thank Ingo for his significant contributions to ams OSRAM, and I wish him all the best in his new endeavors. A few comments up front to keep in mind during the financial section. 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 investment associates and sale of businesses. You will find the reconciliation to the IFRS basis of the presentation available on our IR website. Let us now take a closer look at the development of our group revenues on page 9 here of the presentation.
With revenues of EUR 927 million, we came in within our guidance range. The sequential revenue development reflects a difficult market environment with lower volumes in important markets given the prevailing macroeconomic trends. I would also like to highlight the substantial deconsolidation effects of over EUR 70 million due to disposals when comparing the revenues on a year-over-year basis. We'll now turn to our revenue distribution on page 10. You can see the revenue contribution from our two reporting segments with Semiconductors at 59 and Lamps and Systems at 41%. This split reflects a strong contribution from LNS, which was particularly driven by our automotive aftermarket business in Q1. Our end market split shows that our automotive business contributed 50% of revenue in the quarter, Industry and Medical 34, and Consumer 16%.
We already commented earlier on the development of our business in these end markets. Moving on to group profitability, now on page 11 of the presentation. Adjusted gross margin was 29.3% in the quarter, slightly better compared to the prior quarter by lower revenue, while the lower revenue base for Q1 result in a decrease in absolute gross profit. Cost mitigation efforts in our manufacturing helped reduce, but by far did not compensate the meaningful underutilization effects we referred to earlier. At the same time, we remain ready to serve higher demand and volume needs as they materialize. Group's adjusted EBIT margin came in at 5.4% in line with the guidance range and also reflecting the lower gross profit base.
Here we were able to benefit from our cost mitigation efforts related to OpEx, which we will see more clearly on the next page. We achieved a further significant reduction of total OpEx in Q1 as latest addition to a successful sequential improvement of OpEx over the last quarters, supported by cost mitigation and synergy creation of efforts. These included tight cost controls across the business, further focusing on certain corporate activities and functions, and a review of external services, as well as overhead cost improvements. Adjusted R&D spending therefore came in at EUR 115 million or 12% of revenues in the quarter, with a quarter on quarter decrease in absolute terms. We also continued to streamline our R&D and development activities in accordance with our overall strategic approach.
Absolute adjusted SG&A expenses also came in lower than for the prior quarter at EUR 160 million or 9% less sequentially and 12% of revenue. In relative terms, we did see an increase in Q1, which was, however, due to sequentially lower revenue base in the quarter. Let's have a closer look at the development of our reporting segments in the quarter on slide 13. Revenues for the Semiconductors segment were at EUR 574 million. In the quarter, a sequential decline compared to the prior quarter, as well as to the previous year. To my earlier comment on the end markets, the meaningful sequential decline was driven by quarter-over-quarter and year-over-year reductions in volume across important markets for the segment.
This impact our Automotive, Industrial, and Medical, as well as, in particular, our Consumer Semiconductor business in the quarter. We also created noticeable underutilization in manufacturing in the quarter, which in turn had significant impact on the operating profitability of the segment. We implemented mitigation and cost reduction measures also in Q1 and were able to partly compensate this impact. As a result of the above, adjusted EBIT margin came in at -3% for the quarter, which is a strong sequential decline, but one in line with our expectations.
Let me add here that while I'm still building my full understanding of our business and its levers, I'm not satisfied with our current financial performance. It will be a clear focus for me and the management team in the next months to define a path forward to address our challenges and deal especially with the muted demand situation in the best possible manner. The Lamps & Systems segment, on the other hand, showed a very robust performance in Q1, coupled with substantially stronger profitability. Revenues for the segment were EUR 380 million, which has declined sequentially and year-on-year. When you exclude the divestment-related portfolio effects, that is on a like-for-like revenue basis, revenue were almost unchanged to the period one year ago.
This is a very good result that was clearly driven by our L&S automotive business, particularly here by the strong performance of our aftermarket business in an unfavorable market economic environment. I'm also very pleased to report the substantial improved profitability of this segment, which recorded an adjusted EBIT margin of 17% for the quarter. On the one hand, this excellent performance reflects the strong market position and execution power of the business. On the other hand, it shows clearly the positive margin effects resulted from our disposals and portfolio streamlining when compared to last year. Turning to the net results and EPS now on page 15. The adjusted net results for the group was positive at EUR 6 billion in the quarter. The unfavorable development of adjusted net results in the quarter was largely related to the negative adjusted EBIT development we recorded in the quarter.
It includes a net financial result of minus EUR 32 million, which was mostly determined by interest payments. As a consequence, this translates into lower logistic basic earnings per share to the first quarter of EUR 0.02, EUR 0.02, or CHF 0.02, which reflects the muted profitability of the quarter. IFRS reported net results, on the other hand, came in at minus EUR 134 million. Let me now complete the review of the company's financials with a look at our cash flow and debt position on page 16 and 17 of the presentation. Operational cash flow continued to be strong in the quarter at another EUR 62 million or a very solid 18% of revenues and actually up year-over-year.
Free cash flow came in negative as expected at -EUR 139 million, which is based on our high strategic CapEx in Q1 as planned and communicated. As mentioned before, we also expect CapEx to come down meaningfully again from this year's level in the coming years, starting in 2024. In line with our overall target spending of around 10% of CapEx compared to revenues on average through a cycle. Turning to page 17 now. The group's cash and cash equivalents amounted to EUR 861 million at the end of the quarter. The sequential decline you see here particularly resulted as a consequence of the high CapEx spending in the first quarter. Net debt stood at EUR 1.9 billion, reflecting an expected increase when compared to the prior quarter, which was largely due to the lower cash balance.
Overall, this development translated into an expected uptick in group leverage to a leverage factor of 2.5 times, which still reflects a solid level. As a reminder, next to our cash balance, we have around EUR 1 billion of available multi-year lines at our disposal. This includes our fully committed multi-year EUR 800 million RCF, which remain undrawn at this point. With regard to our debt structure and planning, we do not have major maturities coming up before 2025. We're already engaged in defining the refinancing approach for these maturities in more detail. This includes potential instruments, their potential combination, as well as timing considerations. We may opt for a staggered approach here and are keen to take refinancing steps in a timely manner before we are getting close to the 25 maturities.
Let me now conclude with the outlook for our business on page 18 of the presentation. All of the following expectations are based on the current exchange rate and available information. We're experiencing a demanding market situation, which is continuing in the second quarter as macroeconomic trends are impacting demand on a broader basis. In our automotive business, demand is expected to stabilize further, but we still need to see meaningful positive momentum coming on. Order patterns with automotive customers still appear inconsistent. Our aftermarket business will be influenced by summer seasonality. Our consumer business continues to be impacted by reduced levels of end customer demand. This is due to ongoing weaker year-on-year volumes of smartphones and certain consumer devices, given macroeconomic impacts on consumer spending. Historically, the smartphone market has also shown negative seasonal effects in the second quarter.
It typically resulted in a seasonality stronger, in a seasonally stronger second half compared to the first half of each year. Our industrial and medical business is trending towards the stabilization of order intake and compared to beginning of the year. In the current quarter, however, demand for industrial and medical lines still remains mixed. Given these dynamics, we expect lowered production volumes to continue in the second quarter with associated utilization levels in our manufacturing and ongoing negative impact on profitability as shown in our guidance. We therefore expect second quarter group revenues of EUR 800 million to EUR 900 million, including quarter-on-quarter disposal related deconsolidation effects. This is equivalent to revenues of EUR 880 million to EUR 980 million, excluding the deconsolidation effects, which means sequentially flat revenue development at midpoint.
Based on this revenue expectation and other factors mentioned, we expect an adjusted operating margin of 3%-6% for the quarter. These expectations reflect deconsolidation effects, including from closing Digital Systems Europe/Asia divestment, which reduced expected second quarter revenues by around EUR 80 million on a comparable portfolio basis. The expectations reflect disposal related to consolidation effects on a year-on-year basis with a second quarter revenue effect of around EUR 150 million. Looking further ahead and take into account current macroeconomic and market trends, we continue to be cautiously optimistic that we will benefit from an improving demand environment in the second half of the year across a number of our markets based on current information and exchange rates. With that, I would like to now open it 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 on their telephone keypad. If you wish to remove yourself from the question queue, you may press star then two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Janard an Menon with Jefferies. Please go ahead.
Hi. Thank you very much for taking the question, and welcome aboard, Aldo. Just wanted to go a little bit more into the second half. You said you're still cautiously optimistic that you could see some improvement in the second half of the year. What is the basis of that? Is it that new smartphone models will be ramped in the second half, which, you know, your consumer revenues have fallen to a very low level of 16% of revenue in Q1. Is it that number will start moving up in the second half because of new models, or is it because you see some renormalizing of demand after the inventory correction?
Just any clarity on what you're seeing, or is it more coming from the automotive side? Any clarity there will be great. Thanks. I have a couple of follow-ups.
Actually it's both. It's as you say, seasonal, to have your ramps in the smartphone and wearable area in the second half of the year. We are planning for that. Also we hope that inventory corrections for automotive will basically be done by the 2nd quarter, we will see some volume coming back in general and also further new product introduction on the automotive side that also should be supportive of the second half of the year. Both aspects will contribute. At the late part of the second half year, we will again also see the aftermarket automotive business of course return as well in Q2 and Q3. Normally, that's the low point for that business and affordable return.
On the, on that aftermarket in the LNS business where you reported a very strong margin of 17%, you know, what is the sustainability of that margin level? Is that a sort of, I mean, even if there is some seasonality into Q2 and Q3, is it that, you know, you're broadly gonna be sort of at the mid-teens range of margin, going forward, or was there something exceptionally strong in Q1, which took you to that level of margin?
Well, it is in general quite a healthy business. You might notice that we are globally by far the market leader in this segment and actually are able to continue to expand our market share here, and also have been quite active in passing on cost increases even in this environment. That helped, combined with the strong demand of the first quarter to really drive the profitability. I would expect that business stays healthy. Of course there is a volume effect in Q2 and Q3 when you have lower demand out of the seasonality that this business inherently has.
Second part to the LNS segment is of course that also, we profit from the sale of the less performing parts of the LNS business over the last quarters and years. That you start to see now as well in the improved margins, that you've seen in the segment reporting here.
Just a last question from me is on the outlook on 2024 from the impact of the ramp of the Kulim fab, because you are sort of, you know, spending the CapEx and building out that fab this year. Previously you had said that the microLED revenues, the volumes will come in in 2025. You know, my question is, will this be a margin headwind in 2024 because you have a reasonably kitted out fab without meaningful production levels? Is it that the, you know, advanced LED production will start kicking in next year and compensate for some of that, so it won't be a margin headwind?
I would expect that, as you say, the factory and the ramp of the factory will be a certain headwind that we have to manage through. That is, I think, part of the planning. It is clear that you have ramp-up costs if you build up a new fab, and especially on these new technologies, you start to work through the kinks in the cable in 2024 to be ready for 2025. That will be costly. There will be some headwinds out of that. Of course we will work hard to minimize that. Ramping a large facility like that will have a certain impact.
I think that has been so far also already communicated. There's nothing new about what I'm saying here. Ingo, I think on last quarter's call, if I remember correctly, already said that 2024 we will see these effects, and then in 2025 we will see first volumes out of the fab.
Understood. Thank you very much.
You're welcome.
Questions from the line of Francois-Xavier Bouvignies with UBS. Please go ahead.
Hi. Thank you very much. I have two quick ones. The first one is on the Semiconductors division. I mean, you delivered a -3% in EBIT margins, and one of the main reason you mentioned is the underutilization charges. I was wondering, can you quantify the underutilization charges impact into the quarter for the Semiconductors and maybe more broadly at the group level, and by looking at the Q2 guide, EBIT margins, what will it be in Q2 would be also very helpful. The second question, Although, I mean, I understand, you just joined, and you may not have all the answers yet, but I just wanted to have your view from a high level perspective.
You talked about the discussion you will have with the management team in the upcoming months, to, you know, unlock the potential and deal with the unsatisfactory financial performance as you quote, especially in the context of your CapEx being relatively high. When you look at the balance sheet, your cash, gross cash was maybe EUR 1.2 billion two quarters ago. We are now at EUR 800 million. You know, with the guidance, it seems that it's gonna be lower. Can you maybe help us understand the timeline that you give to yourself to decide, you know, a bit the decision you would have to make?
I understand you won't give the options, but at least give us an idea of when you want to take decisions, especially in light of the current challenging environment.
Well, let me, that's a multifaceted question that you're asking there. Think that there are two parts to that. First of all, as I said in my introduction, I will work very closely with the management team over the next months to fine-tune our plan and to see where we can make further optimization adjustments to really have a very targeted point of way forward that helps us deal with the current demand situation the best possible way, while still, of course, supporting the long-term trends that I strongly continue to believe in given our technological capabilities.
That will be an exercise over the next months, and I think in next quarter's call, we will already see quite a bit out of that discussion that we can then share with you as a basis for further discussion. In terms of the financing side of things, I think it is not unexpected what happened in this quarter. We had communicated a very significant CapEx spending that happened. Actually, operational cash flow was quite strong in Q1, and actually slightly above Q1 of last year. I think we're showing that we are managing cash, and that we are, of course, continuing to push that. With the high CapEx, it's obvious that cash flow will be negative.
We still have significant headroom. We are standing at the moment, EUR 861 million in the cash balance. There are still proceeds coming out of the sale of the businesses that we have communicated that will help. But obviously, still given the high CapEx, we will see further step down in the cash flow or in the cash balance, sorry, in the second quarter as well. And as we said in the call, of course, we are noticing it and already now starting to think about how best also to work on the refinancing.
It's, I mean, the maturity of 2025, but we want to be ahead of the game and also start to already think through what that could mean. That's also part of the exercise that we'll have to go through with, especially the finance community in the next months and quarters to get a clear plan.
Francois, let me chip in on the utilization question you had. I think if you compare, gross margin Q1 this year to Q1 last year, a large portion of the delta you could attribute to the underutilization cost, that we carry. If you look at Q2, you probably would expect that to be on a similar level in terms of impact on the group compared to Q1.
Great. Thank you both.
Next question is from the line of Sandeep Deshpande with JP Morgan. Please go ahead.
Hi. Thanks for letting me on. My question is regarding firstly on Lamps & Systems. When we look at that big improvement in profitability, I mean 6% in Q1 last year to 17%, can you walk through that delta as such in terms of almost EUR 40 million of EBIT in terms of improvement, where that 40 million has come from? How much of it has come from removal of losses associated with any disposals? How much of it has come from actual improvement profitability of the ongoing business? I have the same question regarding the Semiconductors business as well. I mean, there has been a big change in the Semiconductors profitability as well. How that, how the delta has moved from utilization, from pricing, from, you know, weaker revenues.
Okay. With the Lamps & Systems business, it is a big step up. The larger portion actually comes out of the better performance of the business that we continue to carry, but there is a positive mix effect by the sale of disposals of less performant business. And it is in the Automotive aftermarket business is combination of strong volumes, and same time also good pricing quality. That really both contributed to a good profitability as well as overall good execution of the team. On the Semiconductor side, the large part, I mean, you've seen the drop year-on-year in terms of volume, and that just in a very capital-intensive business really hurts.
The vast majority of that is utilization or demand driven. And you should see similar uptick if volumes start to return. There is a bit of pricing in there, but that is by far not a major concern. It is really mainly volume driven, and with that utilization driven.
Thank you, Aldo. I mean, since you've just come on board, I guess you're looking at the portfolio overall. Are you going to come to us, to the investor base at some point and talk about what is important for the company in your plan going forward, and what is going to be less important for the company going forward?
Yes, definitely. I mean, it is clear that we have to be very targeted in our approach. There's only so much money to go around, and we need to spend it very wisely and with the optimal return in mind. We have a very large portfolio of technologies and a large portfolio of opportunities associated with that, which is on the one hand a pleasure and a strength. At the same time, it also requires you to make choices. That's what I want to have as an intense discussion with the management team, what choices are we making? Are the ones that we have already made the right ones? Do they need some adjustments? What will be the result out of that?
We will, of course, come back to you as investor community, with our findings there to give you a clear picture of what we focus on going forward.
Thank you.
Again, the good part is we have almost too many choices, not too little choices. It's a very pleasant problem to have in that sense, but still, it requires stringency and consequence.
Thank you.
The next question is from the line of Adam Androv with Bank of America. Please go ahead.
Hi, thanks for letting me on. Two please. Firstly, just, I guess more generally how you're thinking about 2024 from here. Specifically, you had the previous revenue and margin targets, how are you feeling about them today? Secondly, just wondering if you could share any commentary or updates on the sensing win that was previously communicated for 2024. Likewise, if there's been any changes to the microLED timeline for the revenue in 2025. Thanks.
Yeah. On, on the guidance, I still have to get with my arms around all the levers and dynamics. I mean, demand is volatile as we have seen over the last months, and also expected to continue in the second quarter. We would have to see how the demand signals develop, and then judge how feasible the 2024 guidance is. It really depends to a large extent on overall market demand. At the same time, as I also outlined in my introductory remarks, we are working in both consumer and automotive segments on new product categories that also would be supportive of growth in 2024. In that sense, it will be supportive.
At the end of the day, still overall market, of course, has a huge impact on the feasibility of those targets. To your microLED question, as I said, we continue to be on track with our developments. No news there to be shared. On the other one, I have to hand over to Maurice because I wasn't aware on communication there.
Adam, on the sensing win, I think, and Aldo even made a comment in his remarks. This is one of the programs where we continue to in our development efforts. Yes, indeed, we have this expectation of improved market share in the consumer space 24 on that basis.
Got it. Many thanks.
Next question is from the line of Jürgen Wagner with Stifel. Please go ahead.
Yeah, good morning. Thank you for letting me on. I have two questions on automotive. How has pricing developed most recently, or how do you expect it to progress as the inventory correction is nearing an end in Q2? From your OSRAM experience, how significant should we model this demand recovery once the inventory correction is over in automotive, I mean? Thank you.
Pricing on the Lamps & Systems side I already touched upon. On the Semiconductors side, what I've seen from the team is that, I mean, usually Semiconductors get better and cheaper at the same time usually. There was a significant slowdown in the becoming cheaper part in the negotiations last year, given the cost increases on energy and gases and other raw materials. There was with that a very measured decline in prices compared to normal productivity years. That also continues into this year. In the automotive Semiconductors space, you normally have annual contracts that you negotiate with customers that you have long-term relationships with.
You have to anyway find a reasonable balance between short-term pressures and long-term relationship and business aspects. I think the team has been able to find a good balance there, and that will also help us in this year. In terms of the demand recovery, it's, I think both a question of inventory adjustments that we think we are working through right now in the last quarter. Hopefully second quarter we will have all of that or most of it behind us.
Then for the second half year, it kind of also depends at the end of the day on the number of cars that are being built and the availability of overall semiconductors beyond the optical semiconductors we supply, of how much of an strengthening in the production volumes of cars we will see in the second half year. At the moment, market studies still indicate a stronger second half than the first half. There's at the moment I would also say at the moment, nothing that contradicts that, although it is not a huge jump up, but it at least it's a turning of the direction, which is good and it's important as volumes are very important for this very capital intensive business.
Okay. Understood. Thank you.
Most welcome.
Next question is from the line of Sébastien Sztabowicz with Kepler Cheuvreux. Please go ahead.
Yes. Hi, everyone, and thanks for taking my question. On your cost-cutting action, you have already executed 90% of your synergies for Q4 2024, and your margin are still in the low to mid today. Do you see any room for incremental cost-cutting action? Your margin should be more driven by a recovery in volume and top-line going forward? That would be the first question. The second one is on three different thing behind OLED because it has been a long time that we have not discussed this topic. I would just wanted to know if you have made any kind of progress on the development of the technology three different thing behind OLED because some of your peers seems to be ready for commercial deployment.
Just wanted to have, an update on this one. Thank you.
On the second one, let me get back to you next time. I don't have all the roadmap yet digested. I can't comment spontaneously, intelligently on that question. On the first part of your question, yes, the team already has done a lot. It is not obvious what are the next steps in further cost optimization. I think it will have to go hand in hand with making choices in the portfolio. What do you work on? What do you stop working on? Or what do you slow down working on? That's part of the discussion that we will be having in the management team over the next months.
At the same time, still of course, also again and again looking at further optimization potential. We need to be the leanest that we can be in this current environment. Of course, with the divestments, the structures have to be adjusted given the lower revenue base that we have now compared to where we were two years ago. Part of this has been done, but I think that's a continuous effort that we need to continue to focus on. It is really again, about making the right portfolio choices going forward and then adjusting spending towards that. Then yes, of course, volume will definitely be part of that journey as well.
We have to also get some tailwind out of the market plus out of the products we're introducing, to increase the utilization of our factories. With that also we will see, of course, an associated profit improvement as well.
Okay. Just to follow up on the CapEx, do you expect to return already to CapEx to revenue of 10% in 2024? Or it is too early and you will have some incremental CapEx linked to your microLED fab in Kulim?
It will go down in 2024. There's no question. 2023 is the highest spending year on CapEx. I would expect that in 2024 there's still also some work to be done above the average. The exact number I don't know by heart, but we will work through that as well. Directionally, yes, it will be significant step down, but it will still be above the average cycle.
Okay. Thanks for that.
You're most welcome. Thank you very much, ladies and gentlemen. This concludes our question and answer session for this call for today. We thank you very much for joining us this morning, and we look forward to updating you on our business development with the next quarter's results. Thank you very much and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You