Samsung has long been trying to find a silver bullet to penetrate the automotive market. In the meantime it has been taking a more competence-driven approach.
- With over 30 percent market share in the memory business across memory chip, DRAM and NAND flash, Samsung is taking this business into the automotive space. In late 2015, Samsung announced a partnership with Audi to supply it with its latest memory products including 20-nanometer LPDDR4 DRAM and 10-nanometer class eMMC 5.1 to Audi’s future IVI systems, central dashboard and ADAS applications. This was the first big foray of Samsung as an automotive electronics component supplier.
- Earlier this summer, Samsung announced an automotive aftermarket connected device play in partnership with AT&T. Dubbed “Samsung Connect Auto”, this device plugs into the OBDII port available on cars manufactured after 1996 and provides features such as a Wi-Fi hotspot that allows over 10 customer devices to be connected and also provide diagnostics alerts, maintenance reminders and geo-fenced alerts. Samsung is not alone in this game in the US and has competition from startups like Zubie, Mojio, Automatic and other wireless carriers Verizon and T-Mobile who have launched their own aftermarket plug and play devices as well. This has been viewed as an extension of the Samsung IOT universe and more a strategy to achieve volumes.
What Does Harman Add to the Equation?
Harman offers premium branded audio systems and solutions to vehicle manufacturers. The company operates under four business divisions: its connected car unit caters to the navigation and infotainment requirements of OEMs, lifestyle audio provides branded premium audio options for automakers to consumers, professional solutions and the newly formed cross-industry connected services unit. The most recently released financial results from Harman for the first quarter of 2017 puts the combined share of connected car and lifestyle audio at 76.9 percent of the overall sales, both combined that accounts for a lion share of the auto OEM business. In terms of clients and working relationships every vehicle manufacturer ranging from Ford, GM, and Fiat – Chrysler to Subaru, Toyota, Lexus to Mercedes-Benz, Audi, and BMW have a long history with Harman. The solutions that Harman delivers to key auto clients include:
- Premium branded audio solutions that include an array of brands ranging from Bowers & Wilkins, Harman/Kardon, JBL, Infinity, Lexicon, Mark Levinson; Revel to the most recently acquired Bang & Olufsen’s automotive audio division. In addition to delivering the audio experience, Harman also specializes in a wide array of advanced software solutions that add to the overall premium audio experience like Halosonic advanced noise reduction. Harman works with almost every OEM on the market for their premium audio solutions and covers about 35 percent of the global market.
- Scalable infotainment systems that include embedded connected navigation starting with high-end to currently focusing on mid and low tier solutions as well. Harman was the industry first supplier to work on a modular infotainment system dubbed MIB that is currently in generation 2 delivered to Audi models worldwide. Harman is continuing to innovate on this space using key areas like learning navigation systems, 3D and augmented reality overlay, third party apps, multimodal HMI interface and cloud-based connected services through its newly formed connected services business unit.
- Harman is also increasing its focus on the telematics business focusing on connected TCU’s and adding the V2X focus on this. Daimler is one of the biggest clients Harman has in this space.
- Through the acquisition of Towersec and Red Bend and using internal capabilities, Harman is one of the frontrunning tier 1 suppliers to have a very detailed cybersecurity framework to support automotive OEMs. Dubbed the 5+1 security framework, this piece allows Harman to support from an end to end cyber security implementation perspective and also add the over the air updates component to it.
- Focused on automotive and other markets, the recently set up connected services business unit that resulted from acquisitions brings several capabilities ranging from cloud, analytics, mobility, OTA, IOT to design and embedded providing services ranging from supporting companies in its digital transformation efforts to managed IT services and predictive analytics offerings. This is a whole new software play from Harman trying to create an IOT focused entity to generate additional revenues and not just focus on the hardware side of the business.
- Harman is also focusing on increasing its presence in the Advanced driver assistance systems (ADAS) space after its acquisition of a small Israeli firm called iOnRoad developing surround view applications, showcasing industry first pupil-based driver monitoring systems and increasing its efforts on the heads-up display space.
Clearly, the advantage for Samsung is to get access to a supplier that is rooted in business with vehicle manufacturers and is focusing on expanding its reach with them on some of the key areas such as connected car, ADAS, Cybersecurity and OTA, all of which are necessary toolkits for a massive number of OEMs.
The Road Ahead – Samsung Will Benefit From This New Growth Driver
Samsung was clearly in need of a new growth driver given the setbacks it has faced in the smartphone business recently and the shrinking margins in this space. Compared to competitors in the technology domain like Google, Apple and even LG, the company has been late to set up a clear strategy for the automotive market. As an example, LG has transcended beyond just batteries to being a key supplier for the upcoming Chevrolet Bolt that includes subsidiaries like LG Chem, LG Innotek, LG Display and LG Electronics. The acquisition of Harman and thus its official foray into the automotive business plays well for several reasons:
- Samsung will gain access to a largely high margin automotive business through Harman that has predominantly been focusing on the high end of the audio and infotainment segments. And since the infotainment and connected navigation business are projected to grow at a higher rate than the overall industry, this will provide ample room for growth.
- Recent acquisitions made by Samsung across the artificial intelligence, cloud services, connected home and most recently Harman gives a complete IOT framework that will be crucial from a connected industries perspective. This, in addition with Samsung’s recent announcement that it’s setting up a team internally to focus on processor chips for autonomous cars (rumored to be a task force from the LSI division that makes non-memory chips powering camera image sensors), creates an overall powerhouse that can take a larger electronics role in autonomous vehicles for vehicle manufacturers. With many car companies hesitant in working with Google due to various reasons, and Apple choosing to focus its efforts more in-house currently, Samsung could quietly creep up to becoming a key supplier here.
- Samsung’s take over could also mean that Harman has a chance to grow its footprint into the ever increasing ADAS and automated driving angle. While Samsung currently focuses more on memory chips and Harman is giving initial shape to its ADAS applications roadmap, timing could be right to accelerate the development of robust features and also be the underlying component suppliers for the same.
- Samsung is getting ready to bet big on Tizen as an OS for its lower-end handsets lessening its dependency on Android. With Samsung Connect Auto the aftermarket solution, the company is already delivering a Tizen OS based product to the auto market. With the acquisition of Harman, Samsung will find another key market for Tizen adoption and thereby also increase chances of developers getting interested in the platform because of increased volumes. Samsung, in an effort to boost developer participation, launched a $9 million program with $10,000 incentive per app for developers to develop apps on Tizen. The success of this could prompt a slow shift away from Android even if it won’t happen in the short to medium term atleast on the higher end of its smartphone and other markets.
- Samsung acquired a 2 percent stake in BYD, money that BYD is pumping into battery production and R&D on electric vehicles. Samsung has already invested about $350 million in a battery plant near Budapest with a capacity of supplying cells for about 50,000 cars a year. Given these two moves to take a bigger stake in the battery side of the EV business that has been a challenge for mass adoption and cost, Samsung is also betting big on the EV side of the automotive evolution. With Harman’s acquisition, the company has created a presence in literally every growing segment of the automotive market.
This article was written with contribution from Praveen Chandrasekar, Head of the Connected Car program at Frost & Sullivan.
Sarwant Singh , CONTRIBUTOR