Why Samsung is Paying $8 Billion for Harman Auto Electronics

If approved by regulators, the $8 billion acquisition of Harman International will give Samsung control over a large and diversified auto electronics company.

Samsung’s desire to acquire Harman is focused in part on the ability to play a prominent role in connected car technology. Samsung noted that Harman is the market leader in connected cars and its products currently run on more than 30 million vehicles, including infotainment systems, telematics and car-safety technologies. By acquiring Harman, Samsung stands to become the biggest force in the hotly contested connected car market.

In addition to connected cars, Samsung would have an opportunity to work with automakers and integrate its processors into their vehicles, creating a significant new revenue stream to that important operation. Samsung envisions a future in which car makers turn to Harman for their connected car technologies and bundle Samsung chips in their vehicles to get the best experience. If that happens, look for Samsung’s processor business to grow significantly.

Nearly everyone agrees that the success and broad adoption of autonomous vehicles will depend on 5G technology. In a statement on Nov. 14, Samsung, which is investing in 5G, said it believes the Harman integration will help it get its 5G receivers into cars. Again, Samsung believes that automakers buying Harman technology will want an end-to-end experience that includes 5G networking. And Samsung has the ability to deliver it with Harman.

Over the last couple of years, hackers have shown a growing interest in hacking cars. And as more vehicles become connected, security will become even more important. That’s likely why Samsung mentioned security in its Harman acquisition news Nov. 14. The company apparently believes it can use its mobile security technology, led by its Knox platform, to secure vehicles. Harman’s relationship with carmakers could help it achieve that.

Samsung believes Harman technology could find its way into internet of things devices. Samsung didn’t elaborate on the markets where the two companies might find synergies, but since connected cars are part of the IoT, look for the Harman acquisition to accelerate Samsung’s IoT initiatives.

Samsung’s Harman acquisition also could be an attempt by the company to make an enterprise move. Samsung said it will use Harman technology to expand a business-to-business platform that can deliver “integrated, large-scale audio and video professional solutions.” Samsung and Harman hope to target stadiums, concert facilities and performance centers as part of that effort.

Harman has some of the world’s most important audio brands, including Harman Kardon, Mark Levinson, Bang & Olufsen and others. Look for the company’s significant audio experience to play a role in Samsung’s many mobile products, including smartphones and wearables.

Samsung already competes in the virtual reality market, but believes the Harman acquisition could improve its standing. More specifically, Samsung said it can use Harman’s audio prowess to improve immersion in virtual-reality games. Right now, few virtual-reality headsets come with outstanding sound. Samsung is hoping to change that with Harman’s help.

Looking ahead, Samsung said Harman could help the company do all kinds of new, as-yet-announced things. Samsung noted that Harman has 8,000 software designers and engineers that can develop new technologies across the cloud and enterprise. They can also build “end-to-end services for the automotive market,” Samsung said. The acquisition, in other words, is as much about acquiring Harman’s talent as getting its products.

According to Samsung, it won’t integrate Harman into its business and eliminate its brand name from cars or devices. Instead, Harman will live on as a separate company. While there are many good reasons for doing so, one likely reason is the current damaged state of the Samsung brand in the global market. Samsung has had to deal with a lot of negative news related to fires and explosions in its Note 7 smartphone. Trying to replace the Harman brand on auto electronics products wouldn’t be a good idea, according to some analysts. Sticking with Harman’s branding would help Samsung gain a foothold in the connected auto market without worrying about negative customer reaction to a brand that is struggling right now.