Ladies and gentlemen, welcome to the half year results 2022/2023 conference call and live webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Webcast viewers may submit their questions in writing by the relative field. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Rehfeld, CEO. Please go ahead, sir. Please hold the line. The conference will start shortly. Thank you. Please hold the line. The conference will start shortly. Thank you.
Thank you. With this, I suggest we're going to start. Good morning, ladies and gentlemen. Also from my side, thank you very much for joining here in Geneva, our half year result presentation, and for sure also on the webcast. Today we would like to introduce basically our half year results of the financial year 2022-2023. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm obviously together with Andrea Borla, our CFO, to do this first part of our capital market day. For those who are not yet familiar with LEM is providing sensors for measuring electrical parameters, current, voltage, and energy, and with those help our customers in society to transition to a sustainable future. The program for today or for this first hour here is basically our standard program. You see the agenda here.
After my opening remarks, I would like to go a bit deeper in the business performance. Andrea is then introducing the financial results, and I'm going to outline what we are expecting for the future. You would probably agree that we are currently living in rather challenging times since multiple, let's say, effects come together. We talk about the ongoing semiconductor shortage. We talk about the sanitary crisis that is still affecting the travel situation, to and from China as well also as the supply chains are affected by lockdowns. We talk about increasing inflation. We talk about the Russian-Ukraine war that affects the energy availability. We talk about the U.S.-Chinese conflict. Despite those rather challenging circumstances, we managed to do our best ever quarter with sales of more than CHF 100 million and, therefore, can report record sales for the first semester.
The main drivers for this amazing result were our automotive and our energy distribution business, and the main growth regions were Asia, mainly China there, and the Americas. The 7.8% top line growth in constant currencies almost 10%, allowed us to further improve our gross margin, resulting also in a record profitability. Our order book starts to go back to more normal levels after we saw a continuing lengthening of our order book during the last 24 months. How does the overall economic environment look? You can basically see here, based on the IMF, the manufacturing PMI, the manufacturing purchase manager index, of the most important economies plotted throughout the last 18 months until August 2022. Not surprisingly, referring to what I just said, the accumulation of challenges we see a downwards trend in almost all economies.
Meanwhile, the October PMI for the Eurozone is in the red. The U.S. is just slightly above 50. China is below. India, Australia, and Switzerland are nicely above the 50, which indicates growth, however, cannot prevent the global PMI to be negative. Let's see whether the global growth expected by the IMF forecasted for 2022 of 3.2% can really eventually be realized. We've been announcing for our full year results 2021, 2022 in May that we are going to change our organizational setup and that we will report in the future regions and businesses rather than the segment industry and automotive. This change has been implemented as of 1st of April, to remind again the background of this change was really to increase LEM's nimbleness and to speed up the organization by empowering the regions to execute faster within a given framework of our global strategy.
You've been possibly seeing that we are now reporting basically four regions, U.S. and EMEA, rest of Asia and China. Rest of Asia, mainly we talk about Korea and Japan, and five businesses: automation, automotive, renewable energy, track, and energy distribution and high precision. With that, let's move into the half year one business performance in more detail. Following the structure I've just been mentioning, again, you see here the development of the five businesses in comparison to H1 2021, 2022. 7.8% growth are mainly contributed by automotive, our strong performance in China and the U.S. Energy distribution high precision where the DC meter is allocated to has been continuing to also drive our growth. Our automation business was not significantly growing, I explain later in greater detail what the reason for that is. We also see here already the first slowdown in the markets.
The renewable business you see here looks weak, however, was strongest impacted by the semiconductor shortage. Without that, we would have probably seen here also a double-digit growth rate driven in particular by the demands from China. Our traction business has been impacted by the stop of the activities in Russia in Q1. We still have a strong business pipeline. However, we missed the turnover of Russia and that led actually the business to shrink. On this page, you basically see the distribution of the businesses relative to each other. With the organizational change, we've tried to report the business in a way that is meaningful for us and for you obviously, while keeping the size reasonably balanced to each other. You can see here that all businesses except Track have received a push in Q2 while Shanghai lockdown had an important impact on our global supply chains in Q1.
Again, also our rolling stock and trackside business reported here has been actually seeing a less negative development in Q2. Please allow me to say a couple of words for each business, starting with our biggest business, the automation business that represents 34% of our global business. You see here the turnover plotted over the last five years and our automation business, you see that here in this development, has been most severely impacted by the U.S.-Chinese tensions as well as also the Corona crisis. It recovered nicely in 2021, 2022, we also saw a slight growth in the first semester 2022, 2023. We foresee this business will be most impacted by a potential recession, the signals are obviously in the air. However, I have no doubts on the longer term potential, in particular, looking at the smaller drives.
The automotive business includes sensors for battery management, motor control, and onboard chargers and represents 25% of LEM's total turnover. It had record sales and also record sales growth in the first six months of this financial year. Here we see first signals of a deceleration in the order book. Believe, however, that the new energy vehicles, which is the highest percentage of the business you see here, is potentially less impacted by a recession. In particular in the world's largest market for new energy vehicles in China, the demand remains very strong and more and more Chinese players are also entering the European scene. You are probably also witnessing the one or the other Chinese vehicle now coming to Europe and even, coming to Of highly competitive markets like the German market. Renewable energy.
17% of our business is including solar and wind market, and not any more like in the reporting before the DC meter and also our smart grid solutions. That is not included anymore. It's really focusing now on solar and wind. You see here also a nice growth story over the last five years that we also plan to continue. A particular short cyclical business with a product life cycle of less than four years. This is highly cost competitive and has an important volume potential for the future, since we obviously all expect that the amount of energy getting produced in the future is getting more and more moved towards renewable energy generation. As I already said, this market has been most severely impacted by our supply chain shortages due to the sheer volume of parts that goes into these applications. Energy distribution and high precision.
Today, representing 14% of our global business, and this contains the former high-precision business that we reported separately till last year in industry and our smart grid solutions, UPS, uninterruptible power supplies, as well as the DC meter for fast charging stations. Whilst you see a negative trend in 2019 and 2020, 2021, similar to the overall top line development of LEM in those years. You see the impact of the restarting growth in 2021, 2022, that was mainly fueled by our DC meter business. The 20% growth between 2021, 2022 and the last basically semester indicates the hunger for DC meters for fast charging stations today in Europe and very soon also in the U.S. The readiness of charging infrastructures will be obviously a key enabler for the rollout of battery electric vehicles on a global scale.
Our smallest business, track, contains LEM solutions we offer for trains, metros, and trams for both rolling stock and trackside. It looks small with 10% of our total turnover. It's an important part of our portfolio for all those customers who see LEM as a one-stop shop for their current measurement solutions. The rather long cyclical business has been impacted by the stop of our activities in Russia, as already mentioned, and the Russian business had really in its business an important share in trackside. Our order book, however, gives us a positive outlook for the near-term future of this business, and therefore, we also remain there optimistic. Protecting this business from a regional perspective, as you can see here, you see that in Q2, all regions have been growing. The main growth drivers are clearly in Asia and there, in particular China, and the Americas.
You see that China now represents 41% of our total turnover. EMEA has been adversely affected by both the FX effect, because of the strong Swiss franc and a rather weak euro, besides obviously the stop of our Russian activities. Despite the negative H1 performance in Europe, we are optimistic in the full year performance, in particular due to the strong demand for DC meters to set up a charging infrastructure in the Eurozone. Overall, we believe LEM has a balanced exposure in the global market. Asia is the 58% leading as the traditional key market where electronics gets manufactured. This is obviously independent, where eventually this electronics ends up in the different markets. For sure, also a lot of electronics produced in Asia gets then exported to the U.S. market, and we report that under Asia.
Important to also explain what we do on the front of new products. I would like to introduce today two products from our recent portfolio extensions. On the one hand, the HMSR DA. On the other hand, the TEMA4G meter for traction business. The HMSR, a product that we've been developing ourselves in our own development organization, that is going to be used in particular in robotics applications soon for the Japanese market. I think it's one further step to develop our portfolio here for ICS. The TEMA4G box here is actually a product that is used as a train energy meter, and allow us to precisely measure the energy that is used in certain areas, certain countries in Europe.
Basically allows them to really differentiate what energy, for instance, has been used in Austria, what energy has been used in Germany, because this device is equipped with 4G and also GPS, and allows for this also communication. It fulfills the newest railway standards, and also has actually been shown in the InnoTrans in September this year in Berlin. With this, I would like to hand over to Andrea.
As the group CFO, I'm very pleased to present attractive financial results for the first half year 22/23. Let me summarize the financial highlights in three points. First of all, despite this rather slow start in Q1, due to the lockdown in Shanghai, the increasing sales have been the key driver in achieving a very high profitability for the first six months. Second, on the balance sheet, LEM continues to have a strong balance sheet, which is reflected in a healthy equity level, and this despite record high dividends payout per July 2022. The third point, third highlight, both the operating as well as the free cash flow experienced, developed very, very nicely. Let's go a bit more in detail. We start with a first element from the profit and loss statement, the gross margin.
Here you can see that the gross margin in absolute value increased by CHF 8 million, from CHF 85.6 million to CHF 93.8 million. In respect of the gross margin in percentage, you can see that we've gained 80 basis points. What are the main causes for this positive development? Both sales price increases and scale effects helped to drive the gross margin upwards. Those improvements were, however, somehow dampened by higher input costs. We expect the material cost to further rise during the coming months and in the second half year. We are forced and will be obliged to continue to pass on those cost increases to our customers. This will allow ourselves to defend the gross margin also in the future, as we have done that in the first six months.
Our two low-cost locations, one situated in China, in Beijing, and the other one in Sofia, in Bulgaria, they cover today 81% of all sensors produced by LEM. The construction of our future Malaysian site, we announced that in Penang, is progressing well, and we are expecting starting production sometimes early 2024. The percentage of our low costs location is therefore expected to further increase in the future. Another element on the P&L is the SG&As. They increased by CHF 3 million in the first six months compared to previous year. They are mainly related to increased consulting expenses, investments in information technology, be it here in Meyrin at our new head office and also other sites, and also various other recruitment activities. Overall, though, the personal costs remained basically at the same level as last year.
We are currently working on several automation and process improvements initiatives. They will allow LEM to grow the SG&As under proportionally during the coming years. The R&D expenses, as you can see from this slide, increased by CHF 1.5 million. This is again confirming LEM's willingness of not jeopardizing LEM's future growth by optimizing the short-term profits through simple R&D cuts. We focus not only on renewing our current product portfolio, but as well on developing new product families, addressing new markets and applications. During our today's Capital Markets Day, we will also provide you a glimpse into our R&D roadmap. We will present to you also our major growth pillars. We're also very pleased and happy to have a new CTO joining our organization, starting last week, November 1, with Verena Vescoli, who is also amongst us.
She has the role of the CTO and will drive all this R&D roadmap for the coming years. Going forward, R&D expenses are expected to remain in the ballpark of 8%-10% corridor. During the first six months of the year, LEM suffered mainly from the euro devaluation, which resulted in a CHF 2.5 million exchange loss. The gains we realized in the hedges compensated only marginally those losses. As LEM also has very limited third-party debts, the interest expenses remained modest for the first six months. The main element in the line financial expenses actually relate to expenses on our lease liabilities. Lease liability mainly related to our new head office here in Geneva. In respect of taxes, the first half year effective tax rate is at 17.6%, which is close to two percentage points higher than last year.
However, last year's result included a substantial tax credit in France, which this year is booked into R&D expenses. If we exclude last year's effect and we compare apple to apple, the tax rate would be at very similar between last year and this year's tax level. This actually reflects the very realistic tax rate with the current profit mix. Also important to note is that we continue to benefit from the HNTE state tax status in China, which result in our reduced tax rate in China of 15% instead of 25%. Here you find the full Profit and Loss Statement for both the half year on the rather left side of this column of this table, and the Q2 also on the right side of the table.
As you can see out of this table, you can notice that LEM accelerated during the Q2 with quarterly sales of CHF 107 million. This has been a historic record level of CHF 107 million. Again, this important sales growth, this resulted also in an important level of EBIT, which we realized CHF 26 million of earnings before interest and taxes, and the net profit of CHF 20 million. Those are really record results. This reflecting a very good momentum we experienced during the recent summer months. Moving on to the Balance Sheet. What are here the key points on the Balance Sheet per end of September 2022? The equity ratio dropped by 10% point compared to end of March 2022 from 53% to 43%, this is again the main consequence of the dividend payout in July. The second point to underline is here the net working capital.
It increased by CHF 5 million, this is very much in line with the very strong increase of our business activity in the Q2. The third key highlight of the Balance Sheet is that per end of September, we have net debts of CHF 56 million, which you can see again on this table. This consists of CHF 23 million cash on hand and close to CHF 80 million financial liabilities. We plan to reduce those net debts in the next six months, through the free cash flow we're going to generate in the coming half year. Talking about cash flow, free cash flow, here you'll find the overall Cash Flow Statement. Both the Cash Flow, as you can see, Cash Flow from Operating Activities, as well as the free cash flow, have increased substantially compared to previous year.
Having said that, when excluding last year's non-recurrent tax payment we have done last year, the cash flow remained pretty stable compared to last year. In summary, we are very pleased with this LEM first half year results, especially considering, again, the relatively slow start during the months of April and May. This strong performance is reflected in continuous sales, profitability, Balance Sheet, and cash flow improvements. You surely now wonder what the future will bring to LEM. For that, I'm very happy to hand back to Frank.
Thank you very much, Andrea. Probably I get something to drink to my side. Outlook for the financial year 2022, 2023. Referring to my introductory statements about the today's economic situation, I personally do not foresee that within this decade the situation is really getting simpler. Inflation is going to continue and going to accompany us for a foreseeable future. I do not see a near end of the Russian-Ukraine war. We probably have to expect further coronavirus waves. The U.S.-Chinese conflicts will rather further escalate and will, in particular, for the semiconductor industry, put substantial hurdles for the free flow of goods and also the know-how. LEM's trajectory is influenced by the semiconductor shortages that will also hamper our growth in 2023. LEM will not be immune to a potential recession.
Nevertheless, LEM's business is located in the sweet spot of sustainability and profits there from the mentioned mega trends here. We believe that we are both well prepared as well as potentially less affected with our business set up to also weather difficult times. We expect a sales result for the full year between CHF 390 million and CHF 400 million, and an EBIT margin above 20% if there are no significant further lockdowns happening in China. With this, I would like to thank you for your attention and I would like now to open the Q&A. To remind you that, after the Q&A, we are going to start the capital market day 11:45 latest here at the very same location.
We have for the Q&A our helpers that Andrea has been mentioning already, who can give you a microphone and please do me the favor and shortly mention your name, that we can also know where you're coming from. Thank you very much.
Hello, I'm Thomas Nelson from Denmark, Obstrum Invest. You say the growth is limited by supply of chips.
Right.
Is that to understand that the growth is not really limited by demand, but more by chip supply?
Exactly. We will talk about that in the capital market day a little bit more intensively. What we see in terms of market growth and market expectations in the future, our today situation, and that already is valid actually for the last financial year, we are limited in our growth today by the availability, in particular of semiconductors of several suppliers in this area. Exactly.
Good morning. Arben Hasanaj from Vontobel. My question will be around your order intake. We saw a decline year-over-year, the volume still remains substantial. Can you maybe explain some of the trends in the segments? You mentioned the biggest slowdown was in automation. Maybe also what you saw in October, which was, for example, looking at exports out of China was rather weak. If you could elaborate.
Right. I think here it's important to understand where we come historically in terms of order book from. We typically had a visibility of an order book that was about three months long. Now in the last 24 months, we saw a substantial increase in our order book that was connected to the shortage of components, not only obviously from our side, but also on the side of our customers. In order to basically get sufficient allocations of sub-components, we ask our customers to place longer term orders. That led obviously to a substantial increase of our order book, that was higher than our annual turnover, substantially higher than our annual turnover. Again, in comparison to what we had before, which was rather three months.
We see now that this gets corrected step by step. Obviously an important contributor to that is that there are some recessive signals in the market, mainly at the moment feelable in the automation segment, partly already feelable in the automotive segment. With respect to China, when I understand your question correctly, we do not see at the moment any obstacles or hindrance. China is working for us at the moment very well and we all keep our fingers crossed and are not getting affected by any lockdown. You've been probably seeing the severeness of these sort of activities, like Foxconn in Zhengzhou, the biggest producer of Apple phones in the world, that this obviously has been a rather severe effect. At the moment, things are moving smoothly and we can also export without any limitations from China. For sure, also satisfy the local market.
One should not underestimate what we do in China. About 60% remains in China and 40% gets exported.
Heikki, big data management. I have a follow-up question on what you just said, which is quite interesting, and particularly as many companies in the component business face an unexpected sharp de-stocking from the customer side. You said that a customer's order for longer, more, now it is being corrected. Do you see the levels of stocks, are they excessive on the customer side? Is there some further correction to come that could make the downturn a bit stronger than the underlying markets?
Now, since you have a lot of would and could in your question, I must answer yes, that could all happen. For sure, it's very difficult to give you a very precise answer. Again, looking at the cyclicity of our business, we expect probably in the automation, which again, is our biggest business, a correction. We see also some signs in automotive. On the other hand, we have other trends, like for instance, our DC meter business, which is further to going to grow, and we've just been actually also substantially investing there in further capacities.
The reason why I say that we are rather optimistic with respect to balancing out all these effects is that the mega trends, in particular, also the infrastructure for the Battery Electric Vehicles, will help us to probably see less effects in our business, in our global business, than when you are depending and spread around less segments. I think, we as a company that really focuses on measurement of electrical parameters, have a huge application portfolio, and that helps us to balance these sort of effects to a certain extent out. Okay.
Christian Hölter, [La Gefy].
Yeah.
You mentioned before, already twice, in fact, that the outlook depends on the lockdowns in China, fingers crossed. Could you nevertheless give a bit more detail on the impact, notably on the production side?
Right. Now, I think our production site is in Beijing. Every second LEM employee works in this site. For sure we have also some sites distributed over the country, but for sure the biggest number of employees is working there. In Q1, in particular in May, when we basically had this lockdown, the effect was less on our own production side, but actually on the supply industry. The supply industry, when you look a bit on the structure of the Chinese market, in particular for high precision components that we are using, is focused around the Yangtze Delta. Basically, it's Shanghai and the hinterland of Shanghai. Obviously this lockdown had the effect that suppliers were not producing anymore. People could not go to their workplaces, and that had an effect.
Obviously on the overall supply situation in China, but not only for us, but obviously for the whole world. Obviously components are not getting only delivered from there to the local market, but there's also a lot of export of, in particular, also automotive components from this region into the whole world. At the moment I've been seeing that the Chinese government tries to adjust the way they see outbreaks and the severeness and try to limit the severeness to the economy. With this, I have hopes that probably a lockdown of the order of magnitude like we've been seeing that in Shanghai is not going to come again. Again, that is hope. I'm 100% sure that the Chinese government is very much aware about the importance of obviously keeping the economy running. I'm optimistic that one tries to limit that.
Again, it remains to be seen and, therefore to really exclude that any lockdowns would today probably be a little bit too early. Yeah. Yes, please. I think first the colleague there and then Marc.
I have a microphone, so sorry Michael, I'm first.
Okay, sorry. Good. All right, good.
Good morning. Serge Rotzer from
Hello
Credit Suisse.
Hello, Serge.
Good morning, everybody. Question also on backlog and order intake. Can you give us a feeling about the size of the backlog and especially about the lead times? When you will have worked down this current backlog? Is it in the next three months or next six months? Or when is your visibility ending?
I mean, the visibility still goes basically, all of magnitude, nine months. Similar to what we already said in our last publications, we could easily do 10%, probably even 15% more in terms of turnover if you would have all the components available.
Okay. On the run rate of the order intake, I think Andrea Borla mentioned that this is now a more normalized run rate. Should we expect that you can keep this level going forward? In addition to that, how much is now destocking, postponements, cancellation to get a little bit of a better feeling when this is a normal run rate?
That's a very good question. Probably even our customers are not always 100% sure because obviously, all these levels are fluctuating. I expect in the longer term that the book-to-bill levels are going further down, even further down to what we see, again, to the level that we know from before, rather on a sort of three-month outlook. At the moment, there is still quite some, let's say, effects from the past shortages, and the long-term orders that our customers have been giving us. We will probably not keep this book-to-bill easily forever, but rather see a further sort of decrease step by step. Sorry, Serge.
It's okay. We will meet us again today, no worries. A follow-up here. Sorry, I have two follow-ups. You mentioned that you expect further increase in input prices. You flagged also price increase, but we have a certain time lag. When will you increase prices, do you feel the higher input costs directly? What does tell me about the margin for the next quarter or two?
You want? Andrea.
What we said in the first half-year will happen also for the future. Our ambition is to at least compensate raw material price increases with sales price increases. We do not have, let's say, "Hey, January 1, all customers will have X price increase." This is a very much face-to-face individual negotiation with the customers. We have price increases throughout the year. What we can really underline is our commitment to defend our overall margins and further increase through sales price increases.
Okay. Very helpful. Thank you. Then the last one, probably. 50 years of LEM. Congrats. You are now brave enough to also give us a mid-term target, probably in the later that day? Do we stick to this unofficial CHF 500 million?
Sorry. We will have, let's say, at the end of the capital markets day in the summary. We will give you some rough guidance about the rough ambitions we have on the top line and in respect of profitability as well. You see that in the late afternoon.
Okay. Will be a great day. Thank you so much.
Okay. Thank you, Serge, for asking all the questions. Arben Hasanaj from Bank Vontobel. Just two for me. A follow-up on what Serge asked regarding your guidance on the profitability. Your sales guidance suggests that the second half is expected more or less in line with the first half, but your margin guidance, I think, could be taken a bit misleading because it allows for a lot of downside on the margin. Is there a reason why you're not confident enough to increase the floor of your guidance to, let's say, above 22% or something like that? Because with that guidance, it could really drop well below 20.
No, again, it depends very much where we will end up on the total sales. We gave now a certain bracket of CHF 390 million-CHF 400 million sales. If we are rather on the down end or CHF 390 million, meaning that the second half of the year will be actually lower than the first half year, then of course the pressure on the EBIT margin will be more important. Whereas if we are, again, having a similar level of sales in the second half year as in the first half year, then again, we will probably have also a high level of EBIT margin. Again, we don't want to give now precise EBIT margins forecasts when they really depend very much on where the top line is ending.
Thank you. Another question regarding your track business. Without that effect from the cessation of business in Russia, would it still have been negative, the growth, or would it have been positive?
No, we would have seen positive growth numbers. Exactly. Yeah.
Thank you.
Cyril Engelmann, Zeit für Wert GmbH, Berlin. We've seen the sales up for the first half year, 7.8%. You mentioned price increases. How much of this increase is due to price increases?
Again, we will not give you exact numbers. You can get, let's say, the message is that a certain part of it, a couple of percentage points of that is due to price increases. Again, at the same time, you cannot say the volume impact is then only the delta. We have a constant price erosion due to mix changes as well. Of course, the volume impact, the volume increase per se is also pretty important.
Thank you.
Yeah. Marc Prosser, VVAG. You haven't talked about market share developments. Looking at the excellent result of the automotive division, is the hypothesis correct that through the convergence of soft and hardware, and that it becomes more difficult for peers, for smaller peers, to be successful and to continue to challenge you? Do you grow organically, automatically through the complexity increase? Maybe you could elaborate on the difference between the shunt technology and your transducer technology, whether you were able to further win market shares there as well, especially in Europe.
It's a very good question. I tell you what, we will have to spend quite some time on this also throughout the capital markets day, because the question that you ask is for sure probably putting a couple of different aspects. We talk on a global current sensing market. You will see me talking about that in the first section of the capital markets day, that we have is about 20% in the LEM market share and the automotive area is in the same order of magnitude. Automotive breaks down into further sub-markets because we talk about battery measurement, we talk about motor control, and we talk about onboard charging DC-DC converters. There, the, let's say, market shares are there not exactly the same. You've been mentioning with automotive, probably one of the most challenging businesses.
On the one hand, there is a lot of growth potential in this market. We expect that this market is about to double. On the other hand, we see that the pressure to reduce cost for electrical vehicles, that is the majority of the turnover that we indicate here, is huge because, obviously an internal combustion engine vehicle that has been cost reduced over 100 years now needs to compete or vice versa. The battery energy vehicle, car has to compete with this ever cost reduced combustion engine vehicle. Most BEVs are today cross-subsidized by the business from combustion engine cars. Obviously this bill of materials of the OEMs need to go down. There are only two ways to bring them down. On the one hand, it's battery cost, on the other hand, it's power electronic cost.
We will see a lot of cost down in the area of automotive. The opportunities to integrate, to come with solutions here is one of the key topics we have on our agenda because we will also see there certain, let's say, applications merging. You've talked about shunt. Those who follow LEM longer probably remember that in the past, we've been talking about market shares of 60 or around 60, 50%-60%. Now, the market has not been changing. What has been changing is the way, what we see as a total available market for LEM. Probably the big change is that the area of smaller drives that today is basically done very often with integrated current sensors. Basically semiconductors that have the full functionality of a current sensors.
These are products that can be used there and that have, at least in a lot of applications, even a better performance than shunts. Therefore we see here the opportunity that ICS can replace shunts, with this it opens us a completely new market segment that we were not able to address in the past, and therefore we were also not calling, so to say, our total available market. Another market extension happened towards the whole DC metering business. Also there, obviously LEM didn't have a product at all. This was not a market. DC meter itself was not a market. We see now accompanying the infrastructure growth, that this becomes actually a very interesting market. We had rather conservative estimations in the very beginning about how this market might develop and see now in Europe, a really steep growth.
We see coming from the Biden administration also now infrastructure investments in the U.S. where with the market leader position that we have here in Europe, and can also basically conquer and enter in the U.S. market. Hopefully that was, Marc, giving you a bit an overview, how we see this market sort of developments. Please.
Yes, I have a question. Remo Känzig at WP. You mentioned the competition between the U.S. and China on the topic of the chips. Is it affecting you or do you have reflection at LEM on this topic?
I think it's a very good question. Thank you, Remo. Now what is the situation? The Chinese-U.S. frictions are more impacting smaller technologies. Talking about smaller technologies, when you look at the semiconductor market, you basically talk about chips that are used in mobile phones that are technology-wise, let's say, 10 nanometer and smaller. The chips that we are using, and we are using chips where you talk about mixed-signal here, where basically analog and digital parts are combined. What we do mainly with our chips is to basically measure a magnetic signal based on a Hall sensor and basically then translate that into an electrical signal again. Basically, you have analog and digital parts, and this, again, doesn't make worth an investment or let's say, to go structurally into whatever 10 nanometers.
What I want to say is there's a lot of investment happening in the smaller areas, less investment happening in the bigger structures. On the other hand, a lot of, in particular, also automotive players need this sort of mixed-signal structures. The Chinese-U.S. friction is rather on smaller stuff and not so much on bigger stuff. Therefore, we are rather not affected with respect to that. Long answer, but I think it's important to see also that also the semiconductor market is not a homogeneous market, and that really these billions that today get now invested are rather going into smaller structures, and with this also not easing really the situation for us. Right? What further questions are in the room? I need to look at the watch.
Yes, because I think we have a couple of questions on the phone. Three, if I hear correctly, and then one on the whatever. I suggest that we take those four questions left, because then otherwise time is running out and we want to stick to our agenda.
The first question from the phone comes from Dominic Feldges from NZZ. Please go ahead.
Yes, good morning. Thank you for taking my question. Well, you've talked obviously a lot about China, also the impact of the lockdowns, traveling restrictions, et cetera. I'd be interested a bit in how you see the environment there, for you to evolve a bit more longer term. Will it become more difficult maybe for you to operate there in China as a result maybe also of the politics, internal politics? Also maybe these, what we hear about tensions between foreigners in China and local people, expats no longer going there. If you could a bit elaborate on that. Obviously you have a big exposure in China. Maybe then just a further question, about the Penang investment. Is this also maybe happening to reduce a bit your exposure there in China? To diversify your business more. Thank you.
Yes. China is a very important market, for LEM. You've been addressing that exactly the right way, we expect that the Chinese market is going to further grow, and the importance of the Chinese market for LEM is not going to get reduced. Let's say we bet fully on China as a market for us and as a growth potential for us. When you see today that 9 out of 10 inverter suppliers for the solar business are Chinese companies. When you see that 50% of the global market for electrical vehicles is China. I am deeply convinced that we will not have a sustainable future without China. I'm deeply convinced that to further look in China as basically an important contributor also to our business growth is the right strategy.
That there are for sure challenges at the short term, I would completely agree, I would probably also say that, also we in our democratic world have at the moment a couple of challenges that we need to solve. Now, the second part of your question was referring to Malaysia. Yes, very clear, Malaysia has the function of allowing us to further grow and to basically reorganize and optimize our footprint a little bit better. We basically have today more than 60% of our production volume coming out of China. In the future, we would like to organize our footprint in a way that we do China for China out of Beijing, and that we do the Asian export business out of the Malaysia plant. Our Malaysia plant is making good progress.
We are really seeing how that is growing and the timeline that we have in mind is that by the end of 2023, we get ready to produce and later start shipping out of Penang at beginning of 2024. Does this answer the question?
Yeah, maybe just on, I know it's a sensitive question, but obviously, I don't know when you last traveled to China. All these personal contacts, I mean, having this
interactions, direct interactions. I mean, has this become more difficult? Do you cope with that well?
Right. No, for sure, the situation with respect to the zero COVID strategy in China is also a stretch for us as an organization. That's true that I personally have not been to China in the last three years, which is for sure something I regret very much. On the other hand, you will see that later, LEM has established its foothold in China in 1989. We have there a rather strong team there is able to run the activities and run the operations there in a very safe and resilient sort of way. Still, for sure, we want, and we need to travel to China to discuss strategy, to discuss market developments, to discuss new opportunities, not only over Teams, in the future again.
We are all longing to find this opportunity again, and I'm convinced that as soon as also traveling within China gets a little bit easier, we will also eventually go. When you see, we are also still in a situation. I've been in a meeting with quite a lot of Chinese who actually have been going through this quarantine, 14 days quarantine, in this last three years, nine, 10 times. We basically just take the luxury assumption that this is unbearable. Let's be honest, obviously other people take this, and I'm convinced that we are also going to move into this direction, in the midterm, independent what sort of quarantine regulations are applying, because I think it's important to keep this personal contact. You're completely right.
Good.
Thank you.
Thank you very much. In order to keep the time schedule, the time plan, we will close here with the Q&A. Of course, you will have the opportunity, you physically, to raise questions during the breaks. Very happy to respond to those questions. Also for the people on the phone, on the webcast, of course, you're very happy to call us, to write to me, to investor relations, and I'm more than happy to answer any questions you would have. With that, we close the presentation of the half year results 2022/2023, and we directly move and hand back to Frank to start the Capital Markets Day with a strategy update.
Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect the lines. Goodbye.