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Reuters  Sep 1  Comment 
Audio specialist Harman International wants to nearly treble annual sales by 2025 by partnering with tech groups such as Amazon , Google and Microsoft , as well as its new owner, Samsung , its chief executive said on Friday.
TechCrunch  Aug 31  Comment 
 Berlin’s big IFA trade show doesn’t officially open until tomorrow, but the announcements have already started pouring out of the show that’s come to be known as the “CES of Europe.” The event’s late-August/early-September timing has...
Mondo Visione  Aug 30  Comment 
The Agency is organising a workshop in Ljubljana on 11 September on the main body of the Harmonized Allocation Rules (HAR) for long-term electricity transmission rights submitted by all TSOs in accordance with the EU Regulation establishing a...
The Hindu Business Line  Jul 18  Comment 
German aid agency GIZ, Citrix, Ericsson, Harman and IKP Knowledge Park are collaborators
Motley Fool  Jul 6  Comment 
The South Korean conglomerate should probably stick to hardware.
Motley Fool  Jun 27  Comment 
The market sank, but these stocks gained ground. Find out why.
Automotive World  Jun 21  Comment 
NXP Semiconductors N.V. (NASDAQ:NXPI), the No.1 global leader in car infotainment semiconductors and automotive semiconductors* and HARMAN International, a wholly owned subsidiary of Samsung Electronics Co., Ltd. focused on connected...




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Harman International Industries (HAR) sells audio products such as speakers and amplifiers and car systems that provide GPS and traffic information. The company makes most of its revenue from major auto manufacturers. In 2007, audio and informational devices used in cars accounted for 70% of its net sales, [1] and the company's three largest clients (car makers all), accounted for 43% of net sales.[2]

The company has benefited from growing demand for increasingly sophisticated information and entertainment devices (WiFi, Televisions, MP3 players, and GPS) in cars. This market is still largely in its infancy with penetration rates of less than 20% in Europe and less than 10% in the United States. However, the company's high exposure to auto manufacturers makes it subject to the cyclicality of the auto industry. The company is also faces pricing pressure from portable navigation devices. Portable navigational device prices have declined over the last several years, providing a cheap alternative to in-car navigational systems. As the cost of key components, such as semiconductor chips and LCD displays, drop, Text-to-voice, Bluetooth and other features which were once considered premium in nature are becoming standard. This has led to greater price competition. Adding to this pressure, Garmin (GRMN), the dominant GPS manufacturer in the U.S., entered the European market in the last few years.

Business Financials

Their business is composed of three segments: Automotive, Consumer, and Professional. The Automotive segment is their largest source of sales and focuses on audio, entertainment, and navigational systems used in cars. The Consumer and Professional segments create audio systems and accessories designed for use in the home, studio, or on the go.

In 2007, Harman's Automotive segment generated 70% of total revenue, while its Consumer and Professional segments generated 14% and 16%, respectively.[3] A large portion of Harman's infotainment contracts are with high-end car makers, such as BMW, Porsche, and Audi.

Harman has grown revenue from $2.23 billion to $3.55 billion from 2002-2007. Revenue grew by 9.3% in 2007.

Margins have declined as Harman shifts towards lower-priced infotainment systems.[4] Gross profit margins increased for the Professional segment and declined for both the Automotive and Consumer segments.[5]

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Harman 2007 10K[6]
Harman 2007 10K
Harman 2007 10K[7]
Harman 2007 10K
Harman 2007 10K[8]
Harman 2007 10K
Harman 2007 10K[9]

Key Trends, Risks, and Forces

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Buckingham Research Group[10]

Concentration of Sales with Daimler, BMW , and Audi

Due to Harman's heavy concentration in the automotive segment, Harman is dependent on the success of automobile makers - specifically Daimler, BMW, and Audi, which make up 43% of total sales.[11] Automotive slowdowns, such as the 12% decline in auto sales in March 2008, dampens demand for Harman's automotive products.[12] In addition, geographically, 63% of total sales are from Europe, compared to only 21% from the U.S.

Growing Demand for Infotainment Systems

Penetration rates of navigation and entertainment systems in the U.S. and Europe remain relatively low at 7% and 15%, respectively.[13] As cars become more sophisticated, the demand for these products will grow each year. As a producer of car systems equipped with voice-activation, hard-drives, GPS navigation, wireless internet access, DVD players, high-quality audio, and traffic information, Harman's growth will be largely dependent on the growing demand for high-tech car products.

Margin Pressures from Portable GPS Systems

Increased competition in the high-end audio market and in portable navigation devices has contributed to the 1% decline in gross margins in 2007. In particular, portable navigational device prices have declined, providing a cheap alternative to in-car navigational systems. This price decline will likely continue as components such as semiconductor chips and lcd displays drop in price. In addition, companies compete more on price since key features (text-to-voice, bluetooth) will become standard in an increasingly commoditized industry. In Harman's case, it also faces increased competition from Garmin (GRMN) the dominant GPS manufacturer in the U.S. The American company has only entered the European market in the last few years, but represents a competitive threat given its size and breadth of products.

Harman's navigational devices are sold as part of a package with luxury-vehicle OEMs. While the following companies sell personal navigation devices, these products compete indirectly with Harman's automotive navigation devices. In addition, Harman began selling personal navigation devices in 2007 through its automotive division. The competitors include:

  • Garmin - The dominant leader in GPS devices, with an estimated 56% market share in consumer GPS devices and 58% share of corporate GPS devices.[14]
  • TomTom
  • Magellan - Second in market share with 12%.
  • Pioneer
  • Trimble
  • Lowrance
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Survey by ChangeWave Research in which businesses and consumers were asked which manufacturer developed their latest GPS device.[15]


Meanwhile, Garmin also faces additional pressures from competing cell phones that also provide portal GPS systems. These phones contain the advantage of providing many features in one device, including an MP3 player, calendar, and email access. As the market becomes saturated and more phones with GPS systems are introduced, many analysts have predicted the demise of the stand-alone GPS device. [16] Current examples of cell phones with GPS systems include several Blackberry models as well as the upcoming rumored iPhone in the summer of 2008.

References

  1. HAR 2007 10K, Results of Operations, pg. 38
  2. HAR 2007 10K, Customers/Industry Concentration, pg. 20
  3. HAR 2007 10K, Results of Operations, Net Sales, pg. 38
  4. Another Bite at the Apple; Reinstating Coverage with Outperform Rating, Credit Suisse
  5. HAR 2007 10K, Results of Operations, Gross Profit, pg. 40
  6. HAR 2007 10K, Item 6, pg. 33
  7. HAR 2007 10K, Results of Operations, Net Sales, pg. 38
  8. HAR 2007 10K, Results of Operations, Gross Profit, pg. 40
  9. HAR 2007 10K, Business Segment Data, pg. 80
  10. Harman International Industries Inc High-Tech Auto Supplier with Meaningful Top Line Growth, Buckingham Research Group, pg. 8
  11. Harman International Industries Inc High-Tech Auto Supplier with Meaningful Top Line Growth, Buckingham Research Group, pg. 14
  12. autonews.com Auto Sales Plummeted by 12% - Paragraph 1
  13. Harman International Industries Inc High-Tech Auto Supplier with Meaningful Top Line Growth, Buckingham Research Group, pg. 8-9
  14. ChangeWave Research, "GPS Manufacturer Garmin Surges in Latest ChangeWave Survey," 3/11/08
  15. ChangeWave Research, "GPS Manufacturer Garmin Surges in Latest ChangeWave Survey," 3/11/08
  16. "GPS market at turning point with sliding prices, demand off", www.google.com, retrieved May 17, 2008.
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