Samsung Electronics Vice Chairman Lee Jae-yong surprised the market by acquiring Harman International Industries for $8 billion in cash Monday, pushing forward the tech giant’s ambitions in the connected car business.
The deal, which came less than a month after his boardroom debut, appears to be carried out under Lee’s vision of turning Samsung’s focus from the declining smartphone business to high-value added future businesses such as auto components and biopharmaceuticals.
The acquisition of the US firm, a No.1 player in the infotainment and telematics market, is expected to help Samsung make up for lost time as the firm is a latecomer to the automotive market.
Citing Samsung’s technological advancements in chips, display and telecommunications, market analysts said the possibility is high for the South Korean company to take a lead in the connected car business.
“The acquisition should allow Samsung Electronics Co. to diversify into and gain a solid presence in the connected car solutions industry, which has good growth prospects,” said Joe Morrison, a Moody’s vice president and senior credit officer, in a report. Moody’s also said that Samsung’s acquisition of Harman will have no effect on its “A1” rating, adding that its acquisition cost was relatively small compared to the tech giant’s liquidity holdings of $71 billion at the end of the third quarter.
Harman, the world’s leading car audio systems-maker, currently holds a 24 percent of share in the premium in-vehicle entertainment sector under brand names such as JBL, AKG and Bang & Oulfsen.
It is also the second-largest player in telematics — a segment that operates car navigation services and onboard entertainment systems — with a 10 percent share.
The announcement came nearly a year after the launch of an automotive team directly under Samsung Electronics Vice Chairman Kwon Oh-hyun.
For Samsung, acquiring an automotive company has been cited as a necessity, as it has had no presence in the industry since its complete withdrawal from the car industry in 2000.
Lee’s father, Samsung Group Chairman Lee Kun-hee spearheaded the company’s automobile unit, but sold it to Renault 16 years ago. The company had said it would never re-enter the automobile market following that. But as part of its future growth strategy, the South Korean conglomerate revived its ambition in autos, particularly the rapidly growing in-vehicle components market. Its market size is expected to grow from $54.2 billion last year to $186.4 billion by 2025.
“Samsung’s ultimate goal in the automotive business is to become a smart car total solution provider,” said Kim Dong-won, an analyst at Hyundai Investment and Securities in a report.
“By incorporating Harman’s onboard entertainment, Internet of Things technology as well as the company’s global networks (of clients) with Samsung’s technology on chips and display for in-vehicle use, (Samsung) could secure a competitive edge in competing with Bosch and Continental.”
Rival companies on its home turf, for their part, appear to be discouraged by Samsung’s surprise deal.
LG Electronics has been pushing to expand its presence in the automotive market in recent years, while Hyundai Motor is striving to keep its dominance as the nation’s largest carmaker.
No immediate impact is expected, a Hyundai Motor official said.
But the rivals’ concerns loom large over the possibility of Samsung selling Harman’s in-vehicle audio systems with their own components as a package, taking advantage of premium client networks secured by the US company such as BMW and Mercedes Benz.