Known for decades as a supplier of premium audio and infotainment systems under such brand names as JBL and Harman Kardon, Harman International has now entered an important new business phase. The recent acquisition of two software companies will facilitate Harman’s ability to offer cloud-connected, mobility and analytics services and will further strengthen its position to get future OEM infotainment design wins, which are increasingly dependent on software capabilities.
Much has been written about the acquisition of Symphony Teleca and Red Bend Software, including the nearly $1 billion price tag. We think the purchase price was quite reasonable considering how Harman stands to benefit in the long term.
A Tier 1 supplier to auto companies for decades, Harman has been dependent on hardware production revenue and its direct business with automakers for nearly 70 percent of its overall net sales in 2014. Infotainment system sales, which make up the bulk of this business, rose over 20 percent year-over-year. In order to protect this business against lower-priced contract manufacturers, Harman acquired software expertise that places the company in a better position to retain the business.
“Software solutions and services will be key to Harman’s continued success,” said Dinesh C. Paliwal, Harman chairman, president and CEO. “[These acquisitions mark] a huge transformation for Harman and further advancement towards delivering consumers a seamless, connected car and connected lifestyle experience.”
Future awarded business is expressed by the company as a “backlog,” and Harman stands to receive $16.2 billion in business based on their 2014 report to shareholders. That business is far too valuable to risk on capabilities gaps, which Harman is clearly bridging here.
What capabilities are Harman buying? Symphony Teleca is the big $780 million purchase, greatly expanding Harman’s software competency in automotive and mobile verticals. Software-defined services, particularly around predictive analytics, cloud enablement and turnkey mobile development, will now be part of the solutions packages Harman will be delivering alongside of their hardware. As a core contributor to the Android Auto platform, Symphony Teleca is also bringing its experience as the largest worldwide Android ecosystem scaling partner within multiple industries. We will soon see how the proposed Android M embedded platform could be part of this proposition.
The Red Bend acquisition provides the platform for over-the-air (OTA) updates of software, firmware, middleware, apps and other services. Known for being a market leader in the OTA updating of nearly 2 billion Android devices worldwide, Red Bend has been the go-to company for OTA updating of firmware and software for many Tier 1 companies. The competitive advantages of gaining such OTA muscle are quite clear and, combined with the synergies of Symphony Teleca and the Aha Cloud platform, enables Harman to deliver a next-generation of connected services, analytics and scalable performance improvements that will surely disrupt those Tier 1 companies currently in competition with Harman.
And oh, the disruption we will see. As Harman builds up its strengths in infotainment systems, Bosch, Continental, Visteon, Delphi and others will be obligated to bolster their competitiveness and add software expertise in a similar manner. The coming year should see additional acquisitions of software companies and/or rapid internal build-ups of resources within Tier 1 infotainment suppliers as value-added connected services and analytics becomes less of a luxury and more of a minimum requirement toward winning the business of automakers.
Source: Harman Buys Car-Software Companies for $950 Million – The Wall Street Journal