Acquisition of Harman International Industries by Samsung Electronics
Acquisition of Harman International Industries by Samsung Electronics

Acquisition of Harman International Industries by Samsung Electronics 2

Analysis of the External-Contest Situation

Investments in new mobility start-ups have increased significantly. Since 2010, investors have poured $220 billion into more than 1,100 companies across ten technology clusters. (Figure 2.1) Investors invested the first $100 billion of these funds by mid-2016 and the rest thereafter. One measure of how dramatically investments have grown involves a comparison of the periods 2010– 13 and 2014–18, when average investments across all technologies jumped sevenfold (Figure 2.2). The analysis reveals that more than half of the investment volume comes from large investments with transaction values greater than $1 billion these are industry-shaping moves and include the mergers and acquisitions (M&A) of established companies.

Acquisition of Harman International Industries by Samsung
Figure 2.1 : Acquisition of Harman International Industries by Samsung Electronics_Cluster of Invements

Another clear trend is the tech-company challenge to incumbent automotive players on mobility; these nonautomotive players, together with venture capitalists and private-equity firms, are responsible for over 90 percent of the investments in the mobility space. For instance, the latest transactions involving Cruise, the autonomous-driving unit of General Motors, reveal a post-money valuation; (a company’s value after it adds capital contributions and outside financing to its balance sheet) of $14.6 billion. That alone is responsible for roughly a third of GM’s overall valuation on the public market.

 What is more, Cruise and Honda are collaborating on a purpose-built autonomous vehicle. Honda will devote $2 billion to the effort over 12 years and make an additional $750 million equity investment in Cruise. In May 2018, SoftBank Vision Fund made a $2.25 billion investment in Cruise; split into $900 million at closing and $1.35 billion when GM is ready to deploy its autonomous cars for commercial use. Furthermore, SoftBank invested an additional $0.94 billion in Nuro [16]. In this report, Samsung acquired Harman for $8 billion.

 At the same time, not only due to external environmental changes; Samsung from within the company was looking for its next-generation growth engine. By acquiring Harman, Samsung would be able to gain solid ground in the automotive component business since Harman was already a prominent Tier 1 supplier; had deep-rooted relationships with a wide range of customers that included established names such as General Motors; as well as high-growth companies such as Tesla.

 Samsung Electronics is best known as Apple’s rival and a global leader in smartphones, high-tech electronics manufacturing, and digital media [10]. For the past several years, Samsung has been a passive player in the M&A market. However, at the beginning of 2016, it began exploring different industries; looking for opportunities of innovation, merging, and acquiring startups, especially those in the automotive field. It has focused on developing and securing automotive industry-related technologies such as autonomous driving, ADAS(Advanced Driver Assistance Systems), and ECU (Electric Control Unit) software [11]. In particular, Samsung aimed to step into the connected car market in both hardware and software; while Apple with CarPlay and Android Auto were only focusing on software. Harman, along with Samsung’s knowledge base in IT technology; was expected to complement and aid Samsung to further make its mark in the automobile industry.

 Apple electric car(iCar) project Titan is an electric car project undergoing research and development by Apple. Apple has yet to openly discuss any of its self-driving research, but around 5,000 employees were reported to be working on the project as of 2018. In May 2018, Apple reportedly partnered with Volkswagen to produce an autonomous employee shuttle van based on the T6 Transporter commercial vehicle platform. August 2018, the BBC reported that Apple had 66 road- registered driverless cars, with 111 drivers registered to operate those cars. In December 2020, Reuters reported that Apple was planning on a possible launch date of 2024. Apple was shopping around for LIDAR navigation sensor suppliers for its project [13-14].

 Waymo LLC is an American autonomous driving technology development company. It is a subsidiary of Alphabet Inc, the parent company of Google. Waymo operates a commercial self-driving taxi service in the greater Phoenix, Arizona. In October 2020, the company expanded the service to the public, and it is the only self-driving commercial service that operates without safety backup drivers in the vehicle. In 2017, Waymo unveiled new sensors and chips that are less expensive to manufacture, cameras that improve visibility, and wipers to clear the lidar system. Waymo manufactures a suite of self-driving hardware developed in-house.

These sensors and hardware-enhanced vision system reduce Waymo’s dependence on suppliers. The in-house production system allows Waymo to integrate its technology to the hardware efficiently. At the beginning of the self-driving car program, the company spent $75,000 for each lidar system from Velodyne. In 2017, the cost decreased approximately 90 percent, with Waymo designing its own version of lidar. The company has raised $3 billion in two outside funding rounds. Waymo has partnerships with multiple vehicle manufacturers to integrate Waymo’s technology; including with Daimler AG, Nissan- Renault, Stellantis, Jaguar Land Rover, and Volvo.

 Tesla, Inc. is an American electric vehicle company based Texas, United States. They design and manufactures electric cars, battery energy storage. Tesla is one of the world’s most valuable companies and remains the most valuable automaker in the world with a market cap of nearly $1 trillion. Tesla’s founding in 2003, electric vehicles were very expensive. In 2006, Elon Musk stated that Tesla’s strategy was to first produce high-price, low volume vehicles, such as sports cars; for which customers are less sensitive to price. This would allow them to progressively bring down the cost of batteries, which in turn would allow them to offer cheaper and higher volume cars. Tesla’s first vehicle, the Roadster, was low-volume (less than 2,500 were produced) and priced at over $100,000.

The next models, the Model S and Model X, are more affordable but still luxury vehicles. The most recent models, the Model 3 and the Model Y, are priced still lower, and aimed at a higher volume market, selling over 100,000 vehicles each quarter. Tesla continuously updates the hardware of its cars rather than waiting for a new model year, as opposed to nearly every other car manufacturer. The company aims to educate customers through its showrooms situated in malls and other high-traffic areas; and sells its vehicles online rather than through a conventional dealer network. The company is the first automaker in the United States to sell cars directly to consumers.

automative profits
figure 2.6 : Acquisition of Harman International Industries by Samsung Electronics2_tunavatansever.com_automative profits

As the figure 2.6 shows, margins are growing in the automotive industry. On the other hand, the needs and objectives of regulators, nine European countries have discussed restricting internal combustion engines by 2030. Regulations tend to be more electric and autonomous cars. Also, customers’ wants and tendency is more on value around cars. So, the acquisition of Harman by Samsung seems to be very logical and promises profit.

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