While Samsung Electronics struck out with the Galaxy Note 7 smartphone, the company’s mergers and acquisition folks might have hit a home run with the purchase of Harman International.
The saga of the failed phone — flaming batteries, a recall, and finally shutting down production of the phone — has cost Samsung billions of dollars and potentially more than that in customer trust.
But the $8 billion deal for Harman, in the works for months, moves Samsung into a spot that could be as sweet as the Note 7 was sour.
With Harman, Samsung moves immediately into the growing market for automotive electronics, which offers the company a chance to diversify beyond mobile phones as lower-cost manufacturers move into the space.
Samsung cannot afford not to be in the automotive electronics market as the auto industry loads up vehicles with as much electronics as an old-school Radio Shack store. The market for automotive electronics could reach about $280 billion in 2024 from $150 billion in 2013, according to the Hexa Research firm. The electronics share of the price of a car is expected to rise from 35% in 2015 to 60% by 2020.
Today, cars warn drivers when they’re following too close to the car in front or wandering from their lane. Cameras and sensors help drivers parallel-park with ease. Electronics control functions throughout a vehicle from brakes to engine. Then there’s the expectation that self-driving cars, full of electronics, are the wave of the future.
Samsung rivals such as Google and Apple are working on car projects, and semiconductor makers like Intel and Qualcomm are moving into producing integrated circuits for automotive purposes.
Intel has said it will invest $250 million in automotive-related startups, and Qualcomm is paying $38 billion for NXP Semiconductors and its automotive chip business.
Samsung’s products range from memory chips (it’s the world’s biggest producer), electronics, appliances, and industrial equipment, to, most recently, pharmaceuticals with Samsung Biologics Co., a contract drug manufacturer.
Now with Harman, Samsung is extending its reach into that biggest mobile computer, the car (as well as the truck, the earthmover, and other vehicles).
Harman, known for its lines of speakers that include JBL, Harman/Kardon, Revel, AKG, and Infinity, gets two-thirds of its revenue from the automotive industry. Its automotive products include embedded infotainment, telematics, connected safety, and security. More than 30 million vehicles are equipped with its connected car and audio systems.
Besides technology, the deal brings Samsung ready-made, long-term relationships with automakers. Harman’s three biggest customers are Fiat Chrysler, BMW, and Volkswagen. Together, they account for 40% of Harman’s revenue. Other automotive customers are Ford, Geely, General Motors, Hyundai, Harley-Davidson, Toyota, and Ssangyong.
Before the Harman deal, Samsung had identified the automotive market as a place it wanted to be. Its current automotive products are semiconductors and displays.
The addition of Harman’s portfolio gets Samsung into automotive higher on the supply chain. Instead of supplying the chips that go into components, it will now supply the components that go into vehicles. That’s a higher value proposition for Samsung.
Just more than half of Samsung’s revenue comes from mobile phones and associated technologies. The company’s overall market share of the international smartphone market has dropped from 27% in 2013 to 21% in 2015.
About 45% of Harman’s revenue comes from its Connected Car segment, and about 31% is from LifeStyle Audio, which includes car sound systems. Total revenue was $6.9 billion in 2016 (ended June), a 12% increase from 2015. And there’s more on the way. The company reported that it had a nonguaranteed backlog of $24.1 billion in business for its Connected Car and Lifestyle Audio segments.
Harman has developed an auto computing platform it calls the Life-Enhancing Intelligent Vehicle Solution (LIVS). It gathers discreet or separate connectivity and operational functions into one platform that comprises an end-to-end system for intelligent and adaptable operations in the car. Harman’s systems enable tracking of vehicles, remote software updates, and connection to the cloud. Harman added a layer of security to its systems with its acquisition of Symphony Teleca in 2015.
The company also is developing technologies for internet-of-things applications that could fit with Samsung’s products.
Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.
Photo courtesy of Samsung.