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Why suppliers Continental and Osram will end lighting joint venture

Continental and Osram will dissolve their lighting joint venture, 2 1/2 years after it was finalized, citing the “continuing low global level of vehicle production.”

The two suppliers created the 50-50 joint venture in 2018 to combine Continental’s expertise in software and electronics with Osram’s automotive lighting portfolio. Sales were expected to be several hundred million euros initially. 

Osram transferred its solid-state lighting module business to the venture, with Continental contributing its light control operations. About 1,500 employees were assigned to the new company, which is based in Munich. Among the technologies it hoped to commercialize was semiconductor-based lighting.

But with automotive production flat starting last year, worsened this year by the coronavirus crisis, the two companies said this month that “joint expectations of profitable growth for the joint venture can no longer be realized.” Continental said in a news release that it did not expect global production to return to 2017 levels by 2025.

Osram has since been the target of a takeover by the Austrian semiconductor and chip supplier AMS. Over the weekend, the German newspaper Welt am Sonntag reported that 1,700 jobs would be eliminated at Osram by the end of this year and an additional 1,200 next year.

There were signs last year that the joint venture was not meeting the partners’ expectations. Osram CFO Ingo Bank said in November 2019 in a conference call with analysts that the first full year of the consolidation “had an overall negative impact of approximately 32 million euros ($37.3 million) when compared to prior year.” 

In response to a question about prospects for profits in 2020, Bank said that “both parties are not happy with the financial performance of the joint venture” and that he did not “expect a material improvement in the joint venture’s financial performance for next fiscal year.”

Bank was named CFO of AMS in March.

Continental and Osram said that the venture would be dissolved by the end of this year and that employees would be repatriated to their original companies. They said they would continue to cooperate on automotive lighting, and that all existing obligations and contracts would be honored.

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