On Monday, South Korean smartphone maker Samsung announced its entrance into a new field; the automotive industry. Samsung is all set to purchase Harman International Industries, Inc. in an all cash $8 billion deal. Samsung is paying quite a premium here and has no track record in the auto industry, but is the risk worth the reward?
Samsung Set To Acquire Car-Parts Supplier Harman International For $8 Billion
With slumping smartphone sales and a reputation bruised and battered by the Galaxy S7 fiasco, Samsung is desperately looking to bounce back. Except, this rebound is a new look for Samsung. The company is paying $8 billion for auto-parts supplier Harman International Industries, Inc. and buying its way into the automotive industry with all cash – at a 25 percent premium. Why does Samsung want into the auto industry so badly? And does this move make sense?
Samsung’s $8 billion purchase of American company Harman is the largest ever by a South Korean company. This shows two things. Samsung is very serious about establishing itself in the auto industry and also marks a strategic shift for Samsung, who has always avoided big acquisitions in the past. The move shows the company is changing and looking for new areas of growth as smartphone sales slow following the colossal failure of the Galaxy Note 7, which was recalled and then stopped altogether costing Samsung billions in revenue.
Samsung sees a strong chance for success within the auto industry. The ever expanding use of electronics and software in vehicles, paired with the connectedness of cars to smartphones and other devices offers tech companies new business opportunities. And while those opportunities are plentiful, Samsung will stay with outfitting cars and not manufacturing them.
Which is exactly why they targeted Harman. The auto-parts supplier’s products are used in more than 30 million vehicles around the world, listing companies such as BMW, Toyota, and Volkswagen as customers. Harman’s weaknesses, however, are Samsung’s strengths. According to analyst reports, Harman lacked a meaningful presence in displays and cockpit electronics, which Samsung has as a premium maker of TVs, displays, microchips, and smartphones.
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Samsung paid such a premium because the company wants in. And while growth in new markets is appealing, look for Samsung to start slowly changing the ways cars interact with drivers. Google, Tesla, and Apple are all looking to reshape the auto industry and how cars respond to drivers. Samsung, already a competitor of Google and Apple, may have just bought a big advantage.
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Shares of Harman International Industries, Inc. (HAR) have already spiked on the news. Expect that trend to continue as Harman goes full speed ahead.
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