Elmos continued its positive business performance from the first quarter of 2022 with a significant increase in sales and earnings in Q2. The EBIT margin rose to 23.8% compared to 15.9% in the previous year. These results are particularly strong when considering further material price increases, the aftereffects of the pandemic and continuing geopolitical unrest. Despite the current challenges, CEO Arne Schneider is optimistic about the future.
Elmos develops and produces a range of chips and sensors for automobiles. An Elmos product can be found in almost every car. What are good examples? And what products are you personally most proud of?
“Our ultrasonic chips (‘ICs’) are a good example. They process real-time data that help you park or brake in time. And our 3D gesture control applications make it possible to operate the air conditioning and the radio or navigation system by making simple hand gestures in the air. Our ambient lighting ICs help drivers feel at ease at any time of the day. I am proud of all our innovative products. Our mission is to make mobility safer, more comfortable and more energy efficient. We constantly ask ourselves: “Are we doing the right things that contribute to that mission?” The answer is: “Yes, we do”. Moreover, our products are sustainable and they last a long time.”
Everybody is talking about the global chip shortage. How does this affect your company?
“The chip shortage is a problem, but so far we have tackled it quite well. This is thanks to the commitment of our team and board, and close collaboration with our customers and suppliers. We do not get all the supplies we would want, but we get enough not to be responsible for line shutdowns of OEMs. The chip shortage will ease, it might take a while, but it will. You already see that the panic mode of our customers is behind us.”
Which geopolitical issues and economic trends affect your company? The war with Ukraine and the consequences if Germany is cut off completely from Russian gas? The relation of China with the world’s biggest chip producer Taiwan? Inflation? Recession?
“We have emergency plans in place to deal with potential problems that might arise from a serious gas shortage. We will deal with it. As for the ‘Taiwan issue’, we expect it won’t have serious consequences in terms of chip production. The big blocks in the world need each other, it is not in the interest of any party to endanger the production of things they all need. Of course, I can’t look into the future. If everything stops, everything stops. But I don’t see that happening.
As for an eventual drop in car sales due to recession, this might happen but for now the demand is still catching up after the pandemic and the average number of ICs in a car is growing each year. And the increasing share of EVs/BEVs (Electric Vehicles/Battery powered Electric Vehicles) is adding to that growth too.”
On a happier note: What are trends and opportunities that Elmos will benefit from?
“As mentioned, the number of ICs in cars, especially electric cars, is growing and will keep growing. Cars these days have ten times more software code than smart phones. They are becoming increasingly intelligent self-driving computers. And in all cars, including those with combustion engines, a lot of chips are standard. Almost nobody wants a car in which you have to manually open the window or that does not have climate control.
We are a relatively small player in the market but we have worldwide leading positions in some of our applications fields, like the ultrasonic ICs, ICs for gesture control or HVAC flaps for climate control. Elmos is very well positioned to benefit from these trends.”
One could say that innovation is your core business. Is innovation always possible? Is there no limit to what you can ‘think’ of?
“Our slogan is ‘Innovation Matters’. Elmos is continuously developing and designing new products. Innovation can sometimes be dramatic, but often it is about seemingly small steps forward. If you compare driving a Mercedes from the sixties to driving a modern-day model, you will certainly notice the vast improvements in all areas. Looking back ten years, we did not have emergency braking, something that is essential in all modern cars. We are in the business of complicated things. One does not always realise how complicated some applications are. The automatic window control for instance: it must stop closing immediately if, say a small childs’ hand, is still waving out of the window. Otherwise the hand could be seriously injured. Even such seemingly simple applications come with a technical description of 300 pages.”
Elmos has followed a fablite strategy and is now becoming fabless. If everything goes according to plan you will sell the factory in Dortmund. Do you regret the strategy or the timing? In times of shortage your own facility might be a strong asset?
“The strategy is to concentrate on our strengths. Selling the production facility fits the strategy and it will give the factory a second life with a new owner; Silex Microsystems. The technology of the plant will be obsolete for Elmos’ automotive chips in a few years, but not for Silex's micro mechanical products. If we would have delayed the sale of our factory until it was only half used, we would be too late and would have a serious fixed cost problem. Keeping the factory alive is in the interest of not only the employees but also the European chip industry. The timing is right and part of the contract is that we purchase 100% of the production capacity for a few more years, after which it will be phased out until 2027. So we will have a security of supply in the coming period, which is indeed important in the current shortage situation.
We know all CEO’s like to say it is a win-win situation if they sell a part of the company, but in this instance it is absolutely true.”
Talking about the European chip industry: traditionally Europe has a strong track record in automotive chip(production), do you think in the near future production will shift back to Europe?
“There is no black and white; we don’t think the global interlinking of the chip industry will end. Having said that, Europe is investing more in leading edge technology. But not so much in technology for automotive applications, although one begins to realise that this sector is important as well, and so this may change.”
How important is ESG for you and your stakeholders?
“We think ESG is very important and we have been actively working on it for a long time. But so far we did not do much reporting on our ESG activities. We now pay more attention to that because our investors and clients want transparency. We do agree that being transparent is generally the right thing to do, but sometimes new reporting requirements do not help the cause. They might work well for big companies with 10.000 employees, but for a company like ours with only 1000 employees it can be very time- and money consuming to comply with all these rules, creating a bureaucratic burden. However, we do have KPI’s in place and are working on targets. So we do our best to not only be good, but to show it as well.”
What do you think of Gerlin’s role as involved shareholder placing ESG quite high on its agenda?
“We like the approach of Gerlin. We also appreciate that they spend their own time and money on an ESG report. They really know a lot about our company, and they understand the sector, our markets and the relevant megatrends. They strive for deep understanding and are willing to openly discuss the answers. We have a good relationship with all our shareholders, but not all of them are as actively interested as Gerlin.”
The majority of shares are still owned by the (family) of the three founders, two of whom are on the supervisory board for quite a long time now, for example Günter Zimmer, who is 82 years old and in the supervisory board since 1999. Does this not make the supervisory board too old fashioned?
“The fact that our founders are still major shareholders means that we have a very stable shareholder base with a long and strong commitment to the company. Our supervisory board consists of six members; two members are elected employee representatives and two members, coming from Volkswagen and Bosch, joined last year to further strengthen the knowledge of innovation in the automotive industry. All together, we have very qualified supervisory board members with diverse backgrounds, international experience and deep knowledge of the company and our industry.”
What is Elmos’ ambition for the next five years?
“We have the same ambition for the next years as we did for the past years: growing profitability by fundamentally doing the right thing for all our stakeholders.”
