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Samsung Makes Its Biggest Deal Ever: Buys Harman Audio In $8 Billion All-Cash Deal To Speed Ahead In Smart Car Technologies

By Patrick Frye
Published on: 10:53 PST, Nov 14, 2016

Samsung has bought connected car solutions company Harman for $8 billion. It is the South Korean company’s biggest ever overseas acquisition.

South Korean white goods manufacturer Samsung Electronics, has agreed to buy designer of high-end audio, and maker of smart car solutions company Harman International Industries, in an all-cash deal valued at $8 billion. While it appears Samsung intends to spread its wings even further and diversify, it is apparent the company wants to have a presence in multiple new and emerging markets, especially after the recall debacle involving millions of potentially dangerous smartphones and washing machines.

Buying Harman allows Samsung an easy entry into the automotive industry, which has always been infamous for being very difficult to break into, reported Reuters. While many tech companies have been designing their own iterations of smart and autonomous vehicles, barring Tesla motors, almost none of them have been able to offer a vehicle that directly competes with mainstream automotive companies.

Interestingly, Samsung has very little experience in the automotive sector. Moreover, acquisition of Harman marks a strategic shift for the company that has predominantly stayed focused on smartphones, electronics, computers and household appliances. Samsung has traditionally stayed away from big acquisitions. Industry experts observing the changing dynamics of Samsung, feel the company’s dynamic vice chairman, Jay Y. Lee, is the reason behind such bold moves involving high stakes.

Samsung had to bear a staggering loss due to the withdrawal and recall of its latest flagship device, reported The Telegraph. Samsung’s Galaxy Note 7 was hailed as a game-changer and trendsetter in the smartphone industry. However, multiple reports of the device catching fire and exploding forced the company to completely halt its production and issue a worldwide recall. While industry experts estimate Samsung may have lost about $18 billion, the company suffered damage to its reputation. Even while dealing with the smartphone debacle, Samsung was hit with another setback. A few of the washing machines made by Samsung reportedly exploded, forcing the company to recall 2.8 million units in the United States.

Samsung purchasing the Stamford, Connecticut-based maker of connected car and audio systems is undoubtedly an attempt by the company to hunt for new growth areas that are quite promising. While the company may be new to the field, it is certainly a veteran when it comes to inter-device communication and entertainment sectors.

Vehicles today sport a large number of electronics and increasingly complex software. Additionally, cars are being taught to communicate not just with smartphones and other devices present in the vehicle, but also with other cars in the vicinity, and the traffic grid as well. Needless to say, the greater use of electronic components is offering technology companies like Samsung new business opportunities.

The South Korean company makes a variety of processing chips, intelligent displays, versatile televisions, and smartphones. Assimilating its existent and under-development technologies within tomorrow’s smart cars won’t be a major challenge for Samsung.

Interestingly, Samsung intends to fulfill a major void in Harman’s products. While the company made its name by making audio products ranging from speakers to guitar pedals, Harman currently offers products meant to deliver infotainment, telematics, and connected safety and security services in cars. Its products are deployed in vehicles made by some of the top car manufacturers including BMW, Toyota Motor Corp, and Volkswagen. However, the company lacks multi-function displays and intelligent cockpit electronics, and this is where Samsung can cement the company’s lead.

Surprisingly, despite acquiring Harman, Samsung won’t make cars, confirmed Young Sohn, President and Chief Strategy Officer of Samsung Electronics,

“We have been studying the automotive market for some time. We conclude that organic growth will not get us where we want to go fast enough. Samsung will not get into the business of manufacturing cars.”

With the acquisition of Harman, Samsung will now compete against big players like Bosch and Continental. However, Harman has a confirmed order backlog of $24 billion, which is more than three times its annual sale of close to $7 billion. Hence the company makes seems a smart and reliable investment.

Samsung had formed an automotive electronics business team last year that was tasked with finding investment opportunities. Based on the team’s suggestion, Samsung invested $450 million in Chinese automaker and rechargeable batteries firm BYD Co Ltd. in 2015. It is reportedly in talks with Fiat Chrysler Automobiles as well. It is apparent Samsung wants to have a strong presence in the emerging smart car and connected vehicles segment.

[Featured Image by Jung Yeon-je/Getty Images]

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