Osram-Continental

Joint venture targets smart beams for cars

FILE PHOTO: Logo of lamp manufacturer Osram is pictured in front of horticulture LED Research Light during opening of ‘World of light’ showroom in Munich
Osram is ready to trip the light fantastic. Source: Reuters

Having shed its 20th-century roots with the sale of its light-bulb business, Osram is ready to plunge full speed into the 21st century by making intelligent lighting systems for cars together with automotive supplier Continental. The two companies are poised to form a joint venture that will employ 1,500 and have initial sales of about half a billion euros.

The new venture will produce automotive lighting modules that will, for instance, shift headlight beams as needed to a deer in the distance or a curve coming up. Osram already delivers LED lights for automotive use and now will go deeper into the value-added of the product by developing the electronics together with Continental.

Osram will be transferring its automotive solid state lighting (SSL) module business to the joint venture, while Continental will contribute its light control business from the body and security division. Osram Continental, as the venture will be called, thus will combine semiconductor-based lighting modules, advanced electronics, optics and software expertise with access to sensor technology and innovative light sources.

The new link to Continental comes after longtime shareholder Siemens severed its connection to Osram, exposing it to possible takeover.

For Continental, it marks the further evolution of the tiremaker into a diversified supplier of automotive technology that has already caught the attention of investors to become one of Germany’s hot blue-chip stocks.

The linkup is of even greater strategic importance for Osram after the sale of its light-bulb unit to a Chinese consortium earlier this year jettisoned about two-fifths of its annual sales. The new company, based in Munich, will be a 50-50 joint venture consolidated by Osram, and its portion of the sales will be well into the triple-digit millions. The joint venture will operate as a standalone company.

The new link to a big firm like Continental comes after longtime majority shareholder Siemens severed its final connection to Osram by selling its remaining 17-percent stake last month for €1.2 billion ($1.4 billion), exposing the lighting company to possible takeover. The tie between the two companies went back to the early 20th century when Siemens’ light-bulb operation merged with two others to form Osram, a portmanteau for the metals osmium and wolfram (tungsten) that were used in the manufacture of incandescent bulb filaments. Since then Osram has been synonymous with light bulbs, and a bulb was part of the company logo until the unit’s sale this year.

Other Chinese companies may still be interested in the rump Osram after political pressure quashed their interest last year. Semiconductor maker San’an Optoelectronics is among the Chinese firms said to be eyeing it. The remaining divisions of the German company include Osram Opto Semiconductors, which produces LED lighting for automotive purposes among others, as well as other specialty lighting units. These are the areas Osram targeted for growth as it weaned itself away from light bulbs and Siemens.

Osram’s stock has already gained about 30 percent this year with the MDAX component trading currently at around €65. DAX stock Continental, meanwhile, is trading at about 20 times its low during the Great Recession at €221. Fiscal 2017 results released after the market’s close Monday showed sales from continuing operations up 8 percent to €4.1 billion and operating profit up €43 million to €695 million. The company said it plans to raise its dividend 10 percent to €1.10 a share.

In short, all signs are this new venture will succeed. If nothing else, this unlikely linkup between a former light-bulb maker founded in 1906 and a tiremaker tracing its roots to 1869 to make intelligent lighting for 21st-century cars  shows the resilience of German manufacturers.

Axel Höpner covers companies and markets in Munich for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: hoepner@handelsblatt.com.

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