Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the ams OSRAM conference call on the second quarter and first half 2021 results. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question- and- answer session. I would now like to turn the conference over to Alexander Everke, CEO, Mr. Ingo Bank, CFO, and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.
Good morning, everybody. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's webcast and conference call on the second quarter and first half results. Please note that the webcast information and presentation are also available on our website in the investor section, in the presentations and audio subsection. With that, I would like to invite Alex to guide us through the developments and some of the things we look forward to as a company, and then Ingo will lead us through the financials of the last quarter. Alex?
Yeah. Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our second quarter 2021 conference call this morning. In this webcast, I will first lead you through some key aspects of our business positioning as ams OSRAM and how we see it moving forward, and then comment on the developments in the second quarter. We have a clear vision for our company, to create the leader in optical solutions. This is what drives us as the guiding principle for our business, investment, and spending decisions. We are fully committed to achieving this vision through bold investments in disruptive innovation and continuous transformation, delivering best-in-class profitability and growth. If you look at page three, to this end, we pursue leadership in key segments of the optical space, offering an outstanding combination of emitters, optical components and modules, detectors, related ICs, and algorithms.
With these solution elements, we are addressing the diversified markets for sensing, illumination, and visualization. We offer optical solutions for three global end markets: consumer, automotive, industrial, and medical, where we combine light emission and sensing in an outstanding portfolio. Here on page four, you see how we are set up in these markets. Our broad range of current strengths and the diversified growth areas that we see driving our business development in the future. Focusing on growth fields, these include the following. The next generation displays, micro-LED, mini-LED, sensor integration, augmented reality, 3D, and near-eye applications for consumers. In automotive, it's LiDAR applications, high-resolution matrix headlights, exchangeable LED lights, head-up displays, and in-cabin sensing. In industrial and medical, we see UVC LED, horticulture, Industry 5.0, robotics, 3D applications, and in vitro diagnostics. We turn to page five.
Looking around in a nutshell, we see ourselves best positioned for leadership in the optical solution field. We benefit from balanced revenue streams and a diversified base. We leverage our portfolio and application expertise that is at the forefront of the industry, supporting a broad range of markets, product cycles, and customer bases. We are successful in our markets by being a leader in key optical applications across automotive, consumer, industrial, and medical. Based on this, we are putting forward a strong value proposition as ams OSRAM, which consists of four elements, as shown on page six. First, a commitment to drive growth. We pursue bold investment in disruptive technologies and innovation-led growth. This is reflected in our target level for R&D spending of 11%-14% of revenues. We have a clear target of achieving double-digit average yearly revenue growth as a group.
With a solutions approach, we address high differentiation opportunities and new markets, and we use M&A to add technology to our portfolio to build leadership. The second element is a strong focus on long-term value generation. We are driving a sustained position as a leading technology provider. We reinvest in organic growth opportunities for the company. Our balanced end market exposure creates a broadly supported earnings stream with manageable volatility. We serve a diversified global customer base through different sales channels, and we do continuous active portfolio management to optimize our technology position. Thirdly, we are on the path to strong sustainability and profitability. We are realizing significant synergies and savings of around EUR 350 million until spring 2024.
We are committed to driving benchmark levels for operational and support functions costs, which is expressed in our target level of SG&A of 7%-9% of revenues. All to drive our clear target of more than 20% Adjusted EBIT margin for the group. The fourth element is a prudent financial policy. We are committed to deleveraging our balance sheet. We target an investment -grade rating and a limited leverage of less than 2x net debt to Adjusted EBITDA. Supporting this is our broad array of financing instruments with a balanced longer-term maturity profile. At the same time, a further increase in our ownership of OSRAM is not a priority for us. On page seven. To underscore this value proposition, I would like to give you a more concrete timeline for how we expect to build leadership and drive the integration and realization of synergies.
In the first step, we create a company. From when we took control in March, well into the first half of next year. This is where we are today. We execute a business portfolio realignment. We implement common platforms to run the combined business and roll out a new organization, including a new culture model. We drive first-year synergies, which structurally are more related to OpEx, and define joint solution roadmaps in our business. The second step will be to start leveraging our strategic portfolio. We expect this from around spring next year, well into 2023. Early in the step, disposals will be materially completed, and our new realigned portfolio will be in place. This means that we have established our new revenue base for the group, and this will be the base from which we will grow.
We will drive second-year synergies, which we expect to be both OpEx and COGS driven. We will also drive developments for first-generation joint solutions and can fully leverage the combined IP and resources. The third step will be to drive growth and profit targets. We expect this from around spring 2023, beyond the spring of 2024. During this period, we expect to see the midterm growth drivers kicking in and anticipate a longer-term growth vector to come into sight. We will drive third-year synergies, which will structurally center more around manufacturing COGS and revenue effects. In spring 2024, we see the synergy run rate realized that we have laid out. I believe this offers a clear view of our plan, and we are fully focused on implementing these with the same determination we have shown for the previous steps to combine ams and OSRAM.
If you move on to page eight. I would like to update you on the strong progress we have already seen with the integration. Let me remind you that we have only been in control of OSRAM since March of this year. We have successfully completed the delisting of OSRAM, and our current shareholding has increased to 80.4%. We have realized the first portfolio disposal, and the realignment of the portfolio is progressing as planned. This shows our commitment to creating the new portfolio for ams OSRAM, with further announcements expected in the next month. Synergy realization is on track. As an example, we have agreed on OpEx-related planned staff reductions in Germany with the labor representatives. We are implementing the new internal organization and have completed the first steps in the integration of IT.
Importantly, we are in the process of rolling out a new corporate identity, purpose, values, and leadership principles as part of our new culture model. Moving to page nine. Let me now comment on the development of our business. I'm pleased with our performance in the second quarter, as our key metrics of $1.49 billion in revenues and 9% adjusted operating margin came in well above the midpoint of our guidance in a complex industry environment. Healthy overall demand drove our positive group results with sequentially lower revenues than we expected, reflecting typical seasonal effects. We particularly noted ongoing robust automotive demand and the corresponding order situation in the quarter. The Semiconductor segment showed a very healthy development, where the automotive lines continued to see strong demand, with total backlog further increasing.
The consumer lines also record a healthy performance in line with seasonal effects, driven by our range of optical sensing solutions. The industrial and medical market areas generally benefited from increasing macroeconomic momentum. Demand for the majority of industrial lighting applications has seen a good recovery, while horticultural lighting demand is expanding. Medical and other imaging product lines also developed positively in the quarter. We pursue development activities for new optical solutions in light sensing and 3D, including solutions for world-facing AR and 3D authentication, as well as camera enhancement and display management. Our innovation areas include future near-eye visualization and sensing technologies for AR devices. The lamps and systems segment recorded a very solid overall performance in the second quarter.
The Lamps & Systems' automotive business , including traditional markets, performed strongly and contributed very positively to the overall Group, driven by a sustained demand recovery and in line with typical seasonality. I'm happy to say that in other areas of Lamps & Systems , we saw a very attractive recovery in industrial demand, including building-related and semiconductor equipment. Other industrial and medical markets, Lamps & Systems , are still seeing a mixed demand environment. These developments resulted in a very solid adjusted operating margin for the Group, and we again delivered strong operating cash flow in the quarter. This also drove an attractive free cash flow for the quarter while the cash outflow from the delisting offer for OSRAM remains moderate.
Looking forward, we see an ongoing tightness in chip supply, as well as imbalances in the supply chain, which continue to limit the ability to fully deliver against ongoing very robust demands, particularly in the automotive market. I expect these imbalances to extend well into the latter part of the second half based on current information. Short-term revenue drivers for us continue to be automotive lighting and consumer optical sensing in areas like display management and camera enhancement. At the same time, we are moving on integrated product roadmaps that will drive our position in midterm growth markets, including UVC LED, advanced LED front-lighting systems, AR, 3D applications, and more. Let me now move to our outlook for the third quarter. We expect our overall business to show a solid development across segments in the third quarter.
This expectation is particularly driven by continuing robust automotive demand globally, despite ongoing imbalances of the tightness in the supply chain. Demand trends in the other end markets are expected to drive attractive contributions from our other business. For the third quarter, we therefore expect group revenues of $1.45 billion- $1.55 billion, slightly up sequentially at the midpoint, with an expected Adjusted EBIT margin of 8%-11%, all based on currently available information. Importantly, this revenue guidance excludes the revenue of the disposed Digital Systems North America business as the transaction closed early July. Let me add that we plan to update you on our strategy, our new aligned business portfolio, and strong technology position at the Capital Markets Day envisioned for early next year. With this, I would now like to hand over to Ingo.
Thank you, Alex, and a very good morning to you all. Before I start going through the financials, a few things up front. When we refer to adjusted financial metrics, we refer to adjustments for M&A-related transformation , share-based compensation costs, and results from sales of business units and equity investments. A reconciliation to the IFRS basis of the presentation is included in the financial information on Q2 2021 that we published today, and which is available on our investor relations website. Comparable prior year financials are not available this quarter due to the acquisition of OSRAM, with the consolidation having started from the third quarter of 2020 onwards. Let me now start with reviewing the financials by going briefly through a snapshot of our key financials for the second quarter. I'm on page 11 of the presentation.
Alex outlined earlier that with revenues of $1.49 billion and an Adjusted EBIT margin of 8.8%, we came in well above the midpoint guidance for both metrics. Adjusted gross margin was 33.2% in the quarter, also in line with expectations. Adjusted net income was at $84 million, with an adjusted basic EPS of $0.32 or CHF 0.29 . Operational cash flow continued to be strong in the quarter at $229 million. Net debt stood at $2.3 billion, reflecting, amongst others, the settlement of the delisting offer and the buyback of our outstanding convertible bonds. Overall leverage was a solid 1.7 times as of June 30th, 2021, particularly when taking the delisting effect into account. I'm now on page 12 of the presentation. Revenues for Q2 2021 came in at $1.49 billion. Sequentially, this translated into a 3% decline on a comparable basis.
This was well within our expectations as it reflects typical seasonality, particularly for the consumer as well as the automotive markets we are operating in. For the first half of 2021, ams OSRAM generated total revenues of $3.04 billion US. As Alex pointed out earlier, we are still affected by a challenging supply chain environment across the different industries and end markets we are operating in. While demand stayed strong, particularly for automotive, but also industrial and consumer applications, we still had to deal with allocations relative to our customer order backlog, given shortages in different areas of our overall industry value chain, both downstream and upstream. We expect the situation to also continue in Q3 2021. Adjusted gross margin in the second quarter came in at 33%, in line with expectations.
The sequential decrease reflected lower capacity utilization following the overall seasonal pattern of our top line and volume development. For the first six months, gross margin for the group stood at 34%, generating $1.03 billion in absolute adjusted gross profit. Adjusted EBIT for the quarter came in at 9%, reflecting a sequentially speaking lower gross margin level, as well as a quarter-on-quarter uptick in R&D expenses, whilst SG&A was lower when compared to Q1 2021, both in absolute numbers but also in percentage of revenues. EBIT, as reported, was negative at $143 million, reflecting M&A-related expenses, share-based compensation, transformation costs, as well as a one-time charge related to tangible fixed assets of $182 million pre-tax. This non-cash impairment was related to our manufacturing asset base in Asia following a review of the useful life of specific machinery and manufacturing equipment in our semiconductor consumer business.
Let me also point out that second -quarter EBIT adjustments include a charge of approximately $30 million US related to an agreement with the labor representatives in Germany regarding reductions in overhead positions. Let's have a closer look at the revenue distribution for the first half of 2021 on page 13. With respect to the segment split, 64% of group revenues were recorded in the semiconductor segments and 36% in lamps and systems. I will look at more details regarding the segments in a few minutes. The group's revenue distribution with respect to end markets has already substantially changed compared to the historic ams business. This already today reflects a very balanced and attractive end market mix, where the first half saw around 30% consumer, around 40% auto, and around 30% industrial and medical revenues.
Let me emphasize that this H1 split was driven by industrial and medical being recovering quite strongly through the first half, which moved the split towards industrial, while our consumer business remained a very healthy contributor as expected. Regionally speaking, we also see a rather well-balanced geographical distribution of our revenues. Over time, we do expect this to balance out even further, also taking into account the anticipated portfolio changes related to planned divestments in the lamps and systems portfolio. Turning to operating expenses now on slide 14, we see that our total OpEx run rate showed a stable development when averaging the last quarters. Adjusted R&D spend in the second quarter was $185 million, which translates into 12% of group revenues.
This was a tick higher on an absolute as well as relative basis due to roadmap-driven planned R&D investments in our innovation areas and lower capitalization in the quarter. Overall spending level in the quarter was well within the targeted band of between 11%-14% of revenues. Adjusted SG&A expenses for the group in the second quarter, on the other hand, were $188 million, which is a good sequential decrease, translating into SG&A at 13% of revenues. Our targeted range for SG&A spend for the integrated group is between 7%-9% over time. To complete the picture, I would also like to note that we've recorded a book gain due to the sale of a real estate site in Germany, which is reflected in our other operating income. This gain, however, was excluded from our Adjusted EBIT financial metric.
It is, on the other hand, part of the EBIT according to IFRS. Moving to slide 15 now. All our synergy realization programs are well on track after actually having gained control of OSRAM only since March. The first important milestone of the organizational integration has already been reached. One example is the successful go -live of a joint CRM platform for our semiconductor business, helping our sales and marketing organization to address our joint customer base within the entire semiconductor portfolio of ams OSRAM. Savings are on track towards the overall objective of EUR 350 million pre-tax gross. We will provide regular, more detailed updates on our synergy and savings realization progress on a half-yearly basis. The next update will therefore come with our Q3 2021 financials. At the same time, I'm very pleased to also share an important update in the context of our synergy realization with you.
We completed a further review of the expected integration expense estimates after obtaining control of OSRAM. As a result, we now expect one-time costs for the integration to be significantly lower at only around 0.9x the EUR 300 million total synergy pool over time, or approximately EUR 270 million pre-tax. This is a substantial reduction of around EUR 120 million of total integration cost compared to the original estimate of 1.3 x. For the avoidance of doubt, let me also reconfirm our target to total pre-tax synergies and savings at the level of EUR 350 million, in line with our communication earlier this year in conjunction with our Q1 2021 financials. Turning to the net result and EPS now on page 16 of the presentation. The adjusted net result for the ams OSRAM Group in the second quarter was $84 million, including a net financing result of $40 million.
The sequential decline was driven by the lower overall operating profitability. Net income, as reported, was negative at $190 million, also reflecting the one-time effects I outlined earlier. Adjusted basic earnings per share in the second quarter were $0.32 or CHF 0.29, reflecting the sequential decrease in the net result. Let's now have a look at the segment performance. Revenues on page 17. Revenues for the Semiconductor segment were $952 million, driven by strong demand in automotive and industrial, and solid demand with seasonal influences in the consumer market. Adjusted EBIT came in at a healthy 13%, reflecting a strong automotive business paired with seasonally lower consumer business. For the first six months of 2021, Semiconductor segment revenues were $1.95 billion, resulting in a very solid Adjusted EBIT margin of 15%.
In the course of the second quarter, we saw ongoing resilient demand, particularly driven by automotive, building further backlog with a meaningful portion of customer orders still in allocation. A continuation of a tight supply chain resulting in imbalances both upstream and downstream. We expect this to continue well into the second half of the year. Moving now to Lamps and Systems on page 18. Revenues for the Lamps & Systems segment were $539 million in the second quarter, driven by solid automotive demand, including traditional lines and in all market areas, as well as ongoing recovery in key industrial lighting applications. Adjusted EBIT for the quarter was positive and came in at 1%. For the first six months of 2021, the Lamps & Systems segment revenues were $1.082 billion, resulting in an Adjusted EBIT margin of close to 1%.
In the course of the second quarter, we saw the successful disposal of the DS North America business, with the transaction closed in the meantime, and the proceeds are part of our Q3 cash position. Ongoing recovery in important industrial end markets, particularly in the Asia Pacific, and an ongoing strong performance of the automotive aftermarket business. Moving now to cash flow and the debt position of the group on pages 19 and 20. The group's operating cash flow was again healthy in Q2 at $229 million, and therefore strong for the first half of 2021, contributing a total of $478 million. Capital expenditures in the second quarter were $53 million or 4% of revenues. CapEx spending for the first six months amounted to $149 million, or 5% of revenues for the group.
The overall CapEx spent in the first half was mainly driven by the pickup in demand levels, particularly for our automotive and industrial markets. For the full year 2021, we see ourselves tracking to a CapEx spending below 10% of revenues. Free cash flow in the first half of 2021 was very robust, and as a result, with $329 million for the group. Moving to page 20 now. The group's cash and cash equivalents stood at $1.6 billion at the end of Q2 2021. Next to the positive free cash flow in the quarter, we also recorded cash receipts related to the divestiture of a manufacturing site in Bulgaria and the real estate site in Germany.
Against these cash inflows, we had, of course, the settlement of the delisting offer and further open market purchases of OSRAM shares amounting to approximately $520 million in the quarter, and approximately $20 million related to the continuing buyback program of our outstanding convertibles. The settlement of the delisting offer was done via existing cash. Consequently, I can confirm that the bridge financing we had put in place earlier for purposes of acquiring OSRAM shares remains undrawn. Given the cash movements just outlined, the group's net debt went up by only $280 million compared to end of March, despite full settlement of the delisting offer within the quarter. Overall, this translated into a financial leverage for the group of approximately 1.7 x at the end of Q2. A very solid financial position as a group, after the successful completion of the delisting offer.
Going forward, we expect the financial position to be largely driven by the operational performance of the group as well as future investment needs. We also feel very comfortable with the 80% ownership position we have in OSRAM, together with full control through the domination profit and loss transfer agreement. Increasing this stake further through share purchases has no priority for us at this point in time. The development of our cash position over the next few quarters will also be augmented by additional expected disposal activity we mentioned earlier. On page 21, you find summarized for your reference, again, the outlook that Alex already outlined for the third quarter of 2021. Let me quickly repeat it. We expect group revenues in the range of $1.45 billion-$1.55 billion in the third quarter.
The Adjusted EBIT margin we expect to be between 8% and 11% of revenues for the third quarter. I would like to stress that the revenue expectation excludes the disposed revenues of the DS North America business, which you should assume to be around $40 million per quarter. I would like to thank you for your attention and 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 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press the star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Mr. Deshpande, can you please unmute your telephone?
Yeah. Hi, can you hear me?
Yes, we can.
Yes.
Yeah. Hi. I have a couple of questions. This is Sandeep Deshpande from J.P. Morgan. Regarding your guidance in the margin for the second half, would you say now that you've seen what's happened in terms of revenue loss in the second half in your consumer business, that this level of margin can be sustained for the second half, or if there could be further changes in the fourth quarter and beyond? My second question is, on this consumer business itself, have you continued to work with that customer, and do you believe that there are further future opportunities with that customer? Thanks.
Yeah. Maybe start with your first question. I think, what I can say, of course, is you've seen the guides we gave on the third quarter, and I don't want to give, let's say, also guides already for the fourth quarter, but I think it's overall fair to assume that we also expect the fourth quarter to be a good quarter for us.
Yeah. On your second question, since we can't talk about one specific customer, but what I can clearly say, that we have good interaction and good opportunities at our large customers in the consumer space. Certainly, with the expanded portfolio now, as I mentioned also last quarter, we see various opportunities, moving on, for the next years to come. Absolutely.
Right. If I just have a quick cost follow-up, Ingo. We've seen some rebalancing on the R&D and the SG&A. Has that already started in terms of synergies, or is this just some kind of movement we've seen in the SG&A and R&D in the second quarter?
I think on the R&D side, that was just some movement where we looked at some of the R&D project synergies, and yes, we see already some of the G&A benefits showing and reflected in the numbers.
Thank you.
The next question is from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Please go ahead.
Hello, everyone, thanks for taking my question. On ambient light sensing, it seems that one of your competitors is gaining a little bit of market share in the market and potentially at your largest customer. Is it possible to expect a little bit of market share pressure in ambient light sensing going forward? The second one would be on the LED market. Could you provide a little bit of comment on the strength of the LED market today, notably where supply and demand are evolving in that market specifically? More on the long-term view, what kind of growth should we expect from the LED market opportunity in the coming years? Thank you.
Yeah, this request, let me start. Market share, I think we communicated the market share loss in the consumer business. We feel confident for the future development. We don't expect major changes there. On the LED market, it's a good growing market, specifically on the automotive side. It's still a very tight situation. The whole trend goes into LED. If you look at the electrification of cars, it certainly,
A very strong motivation to go into the LED space, and our supply is fully loaded. Also, industrial LED is moving up. In the whole LED business, we see clearly the trend upwards, and we feel very confident about this. That's why it also shows that in LED, we see in the short, mid, and long term, a significant growth opportunity for us as a company. Obviously, moving into the more sophisticated LED technology like micro-LED and mini-LED is certainly an opportunity we see for the next few years to come, where we see significant growth. Obviously, going back to LED, where we have specific features like UVC or for horticulture, for specific light waves, to accelerate growth. That is certainly an area where our IP is very, very strong, and we see opportunities there where we utilize the specific feature sets we have in our LED technology.
Okay. Thank you. One follow-up, if I may, on Malaysia, because of the COVID-19 and the lockdown that has resulted from the pandemic, have you seen any impact on your manufacturing capacity or production output in Asia over the past couple of weeks?
No, we have not. We have implemented a very solid hygiene concept in our facilities in the Asia Pacific. We have also been tested by local governments on that, and we've not seen any shutdowns. We also started the vaccination of our employees at the various sites that we have. Also, to act responsibly, obviously as an employer. Hence, we are happy to see that the local management did an excellent job there, and employees are quite happy to return to our facilities to help us supply our customers, where the demand is still strong.
Thank you. That's great.
The next question is from the line of Didier Scemama from Bank of America. Please go ahead.
Thanks for taking my question, and good morning, gentlemen. First question, I just wondered if you could share your thoughts on the impact of the disposal of DS in North America, whether that's a 18% EBIT margin target. Can you share with us what sort of embedded revenue growth is assumed to get to that number on a sort of pro forma basis, since you highlight further disposals? I guess my question is, can you get there with minimal revenue growth, purely on the back of the cost synergies that you're targeting?
Let me maybe start with DS Americas. Obviously, DS Americas was still included in our Q2 financials. The transaction was closed on the July 1st. At the end of Q2, at the end of June, we held DS Americas in the balance sheet as an asset held for sale. In the meantime, it has closed, and we've already received the proceeds. It will therefore not be reflected anymore in our Q3 financials going forward, other than the cash proceeds we've received from Acuity already in the meantime.
Then, to your second question, as I presented in my speech before, we use our disposals to clean up the portfolio, which we will plan to finalize in the next year, 2022. This is the basis for the growth, and we expect double-digit growth for the next following years to come. That's the basis of the EBIT improvement, in conjunction obviously with the cost reduction, the synergies, and the portfolio management we are executing currently.
Wonderful. My follow-up, if I may. In terms of sequential growth rates, sort of organic, so ex- disposal. At which point do you think we've sort of reached a floor on revenues? Is it already behind us? Do you think that sort of next year could find a bit of a floor on revenues, and you can grow that double- digit you just highlighted from thereon?
Yeah. I think, look, what Alex said earlier, we are still in the process of making very fundamental adjustments to our portfolio in DI, so I don't think you can speak of a flow as of yet. As Alex said, and as we pointed out on one of our slides in the presentation, we expect that to sort of baseline, if you like, reset to be there in the course of 2022. Then from then onwards, you should see what maybe you would call a flow stay with us.
Yeah. Many thanks.
The next question is from the line of David O'Connor from Exane BNP Paribas. Please go ahead.
Great. Good morning, and thanks for taking my questions. One or two from my side. Maybe firstly, Ingo, just going back to the guidance. Guidingly, the second half revenue was slightly above the first half. Just to complete the picture, can you give us any additional color on that second- half Adjusted EBIT margin? Reading through the press release, it seems you're implying the second half's margin is below the first half. Maybe if you can give us even some puts and takes that we should bear in mind when modeling that. I have a follow-up.
Thanks for the question. Obviously, we've undertaken quite some measures since we communicated earlier this year about the market share loss in the consumer business, and we've taken some significant cost measures to try to mitigate some of the lower utilization in our factories in the second half. If you go back to what I said when one of your colleagues asked earlier what the margin is also in Q4, and you look at where we are margin-wise in the third quarter, I think I said that we expect also somewhat of a good quarter in Q4. That should give you some sort of an idea of what our current thinking is.
The imbalances, Alex, that you mentioned, supply imbalances impacting your ability to deliver. Can you just give us a bit more color on where exactly these supply imbalances are that you're seeing? Is it something on the wafer side, subcontractors, or equipment? When exactly would you expect these to be resolved? Thank you.
Yeah. Thanks for the question. Yeah, actually, we see this on both sides, on the back-end side, on the subcontracting side, on the front-end side, wafer supply. It's very strong for obvious reasons in the automotive industry. You have a direct impact and an indirect impact. One is which affects us directly, and then obviously, if other suppliers are affected for the same platform, then it's pushing the short supply in automotive, and for that reason, also trying to support automotive more. That means, on the other hand, that we also have a position, it's a very complex supply situation. It certainly continues for the remaining part of the year, but so far, we were able to manage this, and our customers are, according to the situation, supportive. Also, we mentioned that we're having normal order books.
Very helpful. Thank you.
The next question is from the line of Jürgen Wagner from Stifel. Please go ahead.
Yeah, good morning. Thank you for taking my question. Actually, I have two. One follow-up on the lower margin profile of that business, at least historically. 3D behind the screen in consumer applications, when do you expect the first revenues? Thank you.
Yeah, let me start with the second question. You can take the first one, 3D behind OLED, as I mentioned last quarter, we are working closely with display manufacturers together. It's very come more clearer that also these solutions are very much related to the display itself, and that means to the display manufacturer. We're doing progress, but it's still a decent way to move on that.
Yeah, maybe the portfolio question you had. As we said , the portfolio adjustments we are undertaking right now focus very much on the business that was under the Digital segment when it was with OSRAM, which was largely a traditional lighting portfolio. We already booked the first progress, as you know, with the sale of the DS Americas business, and we expect also more progress on other transactions, possibly in the next couple of months.
The portfolio eventually, which will be the sort of new baseline as of next year, will then also include still, of course, the traditional automotive business, which is a very strong business in terms of market position worldwide, which has a very high share already of aftermarket in there with a strong recurring revenue stream with very little investment needs and therefore also a fairly high margin base. Overall, this will be helpful for the margin of the overall group.
Okay. Thank you.
The next question is from the line of Robert Sanders from Deutsche Bank. Please go ahead.
Yeah. Hi. Just a couple of questions, if I may. The first one is just on automotive. If you could just comment on automotive LED pricing trends. Hella, one of your customers, has been complaining that their prices have been going up. I'm assuming that you guys are partly responsible for putting up pricing, maybe because it's tight, and whether you have any plans to add capacity. Then, just a question for Ingo on the impairment. Am I right to assume that contributes to around a 100 basis point uplift on the gross margin in Q3, given the lower depreciation charges? Is that right? Related to that, when the Conti deal gets unwound, is that already excluded from your adjusted margin, so it doesn't affect the adjusted margin, or is it already included? Thanks.
Alex, let me start with your first question. Certainly, as I mentioned before, the LED business related to automotive is very strong. In areas where there is the opportunity to adjust pricing upwards according to supply situation and complying with legal agreements we have with customers, certainly we will take the opportunity in a constructive way. We see this overall in the market that, in general, prices are going up from our suppliers as well, from us to customers, where it's possible to accomplish this.
Yeah. On the two other questions you had. In our current outlook and guidance, and also in the numbers in Q2, the Conti joint venture is, of course, included. There's no exclusion or adjustment, what have you. Obviously, we're still in the process of returning what we originally contributed to the joint venture back into the ams group now, and that is anticipated to be sort of in two to three months from now.
Once it's with us, we're already preparing for its future, and it's likely not going to remain with us. If that's clear and we're making progress, we will also announce it. For now, of course, it's still there, and we are also fully including it in the financials as well as in the guidance. On the impairment side, I don't think we would like to give now specific guidance on the impact, but I think the number you mentioned is a bit too high in my eyes. If I were you, I would work with a number that is lower than that.
Thanks a lot.
The next question is from the line of Stéphane Houri from Oddo BHF. Please go ahead.
Yes. Good morning. Thank you for taking my question. Actually, it's about the margins going forward, waiting for your thoughts with the disposal of Digital and more is coming with the restructuring that you're making, and also the first synergies, but at the same time, the impact of the market share loss. I guess my question is to understand what direction the margin will take in 2022? Can we expect more pressure on the margin because of the market share losses before it gets better? Or how do you see that? Thank you.
I think if you rightfully point out, there's still quite a number of moving parts, particularly when you think about the portfolio and the ongoing integration efforts that we have. As Alex mentioned earlier in his prepared remarks, we are sort of setting the base business, if you like, in 2022. I aspire to do that in that year for the reasons I just mentioned. Some of the changes we are conducting right now are very fundamental in various parts, and they will not be.
Of the rest of the digital division. You said that the U.S. part had an impact of about $ 40 million per quarter, if I'm correct. What will be the additional impact of the next disposal that you will do when you do it? Thank you. In terms of revenue, of course.
Yeah. Well, obviously, that very much depends on a number of factors. We have a number of, let's say, divestiture processes going on in parallel right now at different stages. It's a bit too early to indicate, for obvious reasons, also because we don't want to intervene in the process itself. Rest assured that once we have concluded, we will also indicate what the impact will be. As I said, we do expect some further progress there in the second half of the year.
Okay. Thank you very much.
Ladies and gentlemen, this concludes our question- and- answer session for this morning. We thank you very much for joining us for this conference call, and we look forward to updating you on our business development again after the third quarter. Thank you very much, and have a good day.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.