Samsung To Buy Harman For $8B

Tier 1 acquisition boosts automotive portfolio.

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To fulfill a strategic priority in automotive and connected technologies for Samsung Electronics, the Korean chipmaking giant announced today it is acquiring leading Tier 1 automotive supplier Harman International Industries for $112.00 per share in cash, or total equity value of approximately $8.0 billion. 

Samsung estimates the addressable market for automotive is expected to grow to more than $100 billion by 2025.

A statement from Samsung noted that Harman is the market leader in connected car solutions, with more than 30 million vehicles currently equipped with its connected car and audio systems, including embedded infotainment, telematics, connected safety and security. Approximately 65% of HARMAN’s $7.0 billion of reported sales during the 12 months ended September 30, 2016 are automotive-related, and its order backlog for this market at June 30, 2016 was approximately $24 billion.
 
Oh-Hyun Kwon, Vice Chairman and Chief Executive Officer of Samsung Electronics said in the statement, “Harman perfectly complements Samsung in terms of technologies, products and solutions, and joining forces is a natural extension of the automotive strategy we have been pursuing for some time.”

Further, Young Sohn, President and Chief Strategy Officer of Samsung Electronics added, “The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices over the past decade. We see substantial long-term growth opportunities in the auto technology market as demand for Samsung’s specialized electronic components and solutions continues to grow. Working together, we are confident that Harman can become a new kind of Tier 1 provider to the OEMs by delivering end-to-end solutions across the connected ecosystem.”

According to Richard Windsor, analyst at Edison Investment Research, “Samsung’s acquisition of Harman is about increasing its penetration of the automobile rather than offering a sneaky challenge to the car industry. Harman is a well-known Tier 1 automotive components supplier with 65% of its $7bn in revenues coming from the automotive industry. Its particular area of strength is in audio, electronics and infotainment systems which are already present in 30m vehicles worldwide.”

He said the deal will benefit Samsung in two ways. First, verticalization. Samsung will have more internal demand for its components as well as a large, new in-house customer for its foundry, Samsung LSI. There will also be an opportunity for improved integration between hardware and software which should improve the performance of Harman’s products. Second, customer access. Harman has strong relationships with almost every car maker which will give Samsung an avenue through which to sell its other products such as semiconductors and displays to the automotive industry. “We do not think for one minute that acquisition is about Samsung building its own car or about Samsung extending its own digital ecosystem into the car.”

And while Windsor does not see this deal as threatening for the automotive industry, it is a threat for suppliers of Harman who now may lose out to the in-house supplier and to Harman’s competitors who may have a tougher time going forward.

“Apple’s realignment of its automotive experiment is a strong indication of how it is not a good idea for a tech company to start making cars and we do not think that Samsung ever had any intention of following Apple down this road. Most importantly, Samsung does not represent the same threat to automotive brands that Apple and Google do, as it long ago gave up trying to compete in the ecosystem. This means that Samsung will not be intending to ensure that its services (perhaps with the exception of Viv and its brand are front and centre in automotive infotainment units and it will not be extracting any data. Consequently, Samsung simply aims to extend its strategy of selling electronics at huge scale and thereby earning a much better return than its competitors. This deal positions it well to meaningfully increase its penetration in the automobile as it becomes increasingly driven by electronics and increasingly autonomous. Samsung has realised that software and services is difficult and with every move that Samsung makes we see it increasingly leaving this piece to others such as Google. Hence, the automakers can rest more easily when it comes to Samsung and continue to put their attention on ensuring that Apple and Google do not steal the relationship they are trying to build with the end customer,” he added.

The deal is expected to close in Q3 2017.