After burning its finger over smartphone and washing machine explosions, Samsung Electronics (KRX:005930) of South Korea has now decided to focus on smart cars. On Monday, the company disclosed they are buying Harman International Industries for $8 billion. It will be an all-cash transaction.
Harman is an American firm based out of Connecticut. The business makes security and safety systems and infotainment for cars. With this acquisition, the Korean electronics maker will now have a significant market presence in the fast growing area of connected technologies, especially automotive electronics, which is now a strategic priority for the business, after their recent debacles with the Galaxy Note 7 and washing machines.
Analysts have predicted that the automotive electronics market is going to grow fast in the coming years. It could be valued at $100 billion by 2025. So the Harman acquisition seems like the right move for Samsung at this time.
Samsung had to kill the Galaxy Note 7 phone after reports of the device exploding kept pouring in. Earlier, airline authorities around the world had banned the smartphone on flights. To make matters worse, authorities in the US asked Samsung to recall 2.8 million washing machines as well, as they too were exploding.
These two incidents had dealt a severe blow to Samsung’s reputation and profits.
The Samsung-Harman $8 Billion Deal
According to the deal, the Korean giant will pay $112 in cash for every Herman (NYSE:HAR) share, which is 28 percent more than its Friday closing price. However, the deal is going to be closed only by the middle of next year. Dinesh Paliwal will still get to run the business. The present management team of Harman will stay.
Connected Car Solutions the Future
Harman International is a market leader in connected car solutions. Their audio systems play in more than 30 million automobiles. In fact, 65 percent of their sales come from this segment. The business also has an order backlog of $24 billion as of June 2016.
“We see substantial long-term growth opportunities in the auto technology market. Working together, we are confident that Harman can become a new Tier 1 provider to the OEMs by delivering end-to-end solutions across the connected ecosystem”, said Young Sohn, Samsung’s (KRX:005930) President and Chief Strategy Officer.
Many technology giants, such as Apple, Google, Qualcomm, and others are getting into the automobile industry, researching their electric vehicles and smart cars.