Samsung has strategically placed themselves at the vanguard of the auto industry with the purchase of Harman. The US audio company is the main supplier of infotainment technology to a slew of major car producers. Currently they supply automotive electronics to GM Motors & Tesla. Unfortunately, these deep industry ties came at a hefty price. The Korean giant is paying $8 billion dollars in this risky acquisition, making it the biggest purchase in the company’s history.
There are many opinions on why Samsung chose to make this bold move. Many predict that the tech giant is diversifying its portfolio to ease the blow of the Note 7 disaster. Others claim that this is due to their lust for expansion. Even though this price tag may be shocking, the automotive industry is experiencing an electronics bonanza. In this article we will explore the many reasons why Samsung made this move.
Why Samsung Wants In On the Auto Industry
“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,” said Samsung CEO Oh-Hyun Kwon in a press release. “[This acquisition] immediately establishes a strong foundation for Samsung to grow our automotive platform.”
Once again it appears that Samsung is placing itself at the right place at the right time. The automobile industry is awash in new technology, & smartphone companies want in. While the future is still hazy on self driving cars, the auto market is desperate for new electronics. Onboard electronics are set to become 30% of modern vehicle’s cost. This will cause the market to swell up to $100 billion by 2025. Since this is such a lucrative market, smartphone companies are getting in on the action. Apple has already scaled back their attempts on self driving cars, instead opting to focus on developing new auto equipment. Samsung has taken things a step further by purchasing a dominate audio producer.
Buying Harman did more than just get Samsung in the market, it puts them at the forefront of the industry. On top of creating premium audio equipment, Harman also supplies components & software to a slew of auto manufacturers. This accounts for 65% of the firm’s $7 billion in revenue, so it’s no laughing matter. Navigation systems, telematics, driver assistance technology & infotainment are what drive this company.
On top of acquiring the best tech in the industry, Samsung also made some serious business connections. Harman is a Tier 1 supplier in the automotive component business. They do massive contracts with General Motors & Tesla. Currently they have an order backlog of $24 billion from various automotive partners. This puts Samsung in the prime position to supply displays, memory & microprocessors. They also get access to Harman’s team of 8,000 software engineers. So they will get a boost of engineering capabilities on top of complete services for the auto market.
The rational behind this move is simple, the market for automotive electronics is thriving. There’s no need to wait until self driving cars are invented, the time for new auto electronics is now. Focusing on hardware is less risky, & it will also payout quicker. In the short term this was a solid bet by Samsung.