“THE car is the ultimate mobile device,” said Jeff Williams, an executive at Apple, last year. It was taken as another sign that the maker of iGadgets would be deepening its interest in the automotive sector (among other projects, it is developing an in-house smart car that is codenamed Project Titan). Now Samsung Electronics, its big rival in the smartphone world, is following. On November 14th the South Korean company said it would pay $8bn for Harman, a firm based in Stamford, Connecticut, that makes internet-connected audio, information and security systems for cars. The deal is Samsung’s largest ever, and the first big transaction for its vice-chairman and heir apparent, Lee Jae-yong, grandson of the firm’s founder.
Though it is best known for its sound systems, Harman is one of the world’s largest supplier of smart parts for “connected cars” that help owners to drive by linking to the internet and to chip-enabled devices. It made $7bn in revenue in the year to September, two-thirds or so of it from the car sector, and has over three times that in new orders. Its products are the first step towards autonomous vehicles. Over 30m cars use Harman’s audio and other kit, in offerings from real-time traffic reports to augmented-reality alerts on braking distances. By 2022 revenue from this “connectivity” will rise to $155bn from $45bn now, according to Strategy&, a consultancy.
The deal thus gives Samsung a firm foothold in the futuristic end of the automotive market. It had already edged into the sector with investments in Vinli and nuTonomy, two startups that make software for connected cars. Last year it set up a team to work on special parts for autonomous ones. Samsung SDI, a battery-making affiliate, already supplies lithium-ion batteries that power electric cars.
Harman’s software skills and relationships with 30-odd global car brands opens doors for Samsung, says Kim Kyoung-you of the Korea Institute for Industrial Economics and Trade. It will be hoping to build a combined offering, of hardware parts and software know-how, that it will be able sell directly to automakers.
But it joins some technology rivals that are already moving fast in an area where Samsung’s record is minimal. In the late 1990s Samsung Motors, a foray into carmaking, went bust (Renault of France bought it). Google has been testing self-driving cars since 2009. As well as Project Titan, Apple has CarPlay, a connected-car app that it started selling in 2013. Xiaomi, a Chinese smartphone maker that is a direct rival of Samsung, filed nine patents on internet-connected cars last year.
For a firm that has resisted big acquisitions, the scale of the deal with Harman suggests Samsung is counting on it for its next growth spurt. The company’s smartphone division, the crown jewel of its empire, is suffering: last month it killed a new line of Galaxy Note phones after dozens exploded due to faulty batteries, incurring billions of dollars in losses. Under Mr Lee’s leadership, Samsung has been using part of its cash pile (around $70bn) to do overseas deals (though none as big as this one).
Whether his tenure at the firm is seen as a success will largely depend on the outcome of this week’s deal. The car business may prove difficult to navigate once more. It is unclear which route to wholly connected vehicles the industry will take. Car firms may develop the technology alone (Ford, for example, has made purchases that suggest it is going down this road), in partnership with tech titans such as Google, or, as Samsung and Harman hope, they may buy it off-the-shelf. Mastery of one sort of mobile technology does not ensure success in others.