Harman announced a return to profitability for its fiscal second quarter in an earnings call earlier this week. In that call, the company detailed its marketing plan which could be taken as a blueprint for the entire industry – particularly the company’s inroads into larger volume mid-segment vehicle categories.
Harman is pursuing emerging market opportunities in China, Brazil and India with local development and manufacturing presence – including a $1B revenue target for China by 2015. The emerging market initiative is reflected also in a targeted shift of engineering/R&D balance from 99% high capital and cost (HCC) markets to 60% HCC, and manufacturing/assembly from 81% HCC to 50% HCC by 2012.
The company expects to maintain its luxury segment leadership while leveraging its previously announced “scalable system” strategy, which has already contributed to a Toyota European design win for MY2011. The scalable system is part of an initiative targeting what Harman sees as a $5B high-growth, mid-segment market opportunity reflecting the company’s desire to capture a broader portfolio of business.
In that regard, Harman wants to pioneer energy-saving GreenEdge technologies for hybrid and electric cars in partnership with Intel and Texas Instruments developing solutions to reduce power consumption by 75% including high efficiency speakers, one of the few objectives the company has yet to realize in the marketplace. Similarly, the company is working with Lotus Engineering on Active Noise Management solutions for hybrid, electric and conventional vehicles to address impending legislation regarding pedestrian safety. Noise management will also apply to in-cabin noise cancellation and reduced weight and CO2 emissions. And Harman is also targeting advanced driver assist systems, an entirely new segment for the company.
In its earnings call the company mentioned winning $2B of additional business, expanding its contract portfolio to $10B, a figure the company claims is the largest in the industry. Included in its current and recently executed order book are:
-> Infinity branded audio systems for next-generation Chrysler SRT series high-performance vehicles;
-> Launch of Mark Levinson premium surround sound for MY10 Lexus GX 460;
-> Launch of JBL premium sound for MY11 Toyota Sienna in U.S.;
-> Launch of Harman Kardon Logic 7 HD system with Range Rover for MY10 mid-model year introduction;
-> Launch of Ferrari 458 Italia equipped with Harman audio and infotainment;
-> Exclusive Haman Kardon sound lounges at BMW brand centers in Munich and Berlin;
-> Press launch of Harman/Lotus Engineering HALOsonic sound synthesis technologies;
-> Selected by BMW for next gen, high-end “Professional infotainment system for all new platforms including BMW, Mini and Rolls Royce;
-> Selected by Daimler for next gen Comand infotainment system for new Mercedes S-Class and C-Class models;
-> Selected by Toyota to provide Harman next gen scalable infotainment for vehicles sold in Europe beginning MY11;
-> Selected by Toyota to provide premium JBL branded audio for 4Runner and Land Cruiser in the U.S., Europe and Middle East and the MY11 Siena in U.S.
All of this contributes to what Harman estimates as 45% global branded automotive audio market share, with Bose at a distant 25%. Harman’s branded audio solutions are used in more than 200 car platforms from 12 OEMs shipping more than 2M audio systems annually. Sources indicate that this 500,000 units/quarter pace is actually approaching 1M units/quarter – a pace that will no doubt be stimulated by the recent Toyota wins and future higher volume segment wins.
The pace of launches has eased somewhat for Harman, which may help explain the return to profitability as profits cusually come later in the program cycle. The company hit a peak of six program launches in FY08, followed by five in FY09. The programs for those years included Mercedes, PSA, Porsche, Audi, BMW, SSangYong, Chrysler and Hyundai. Going forward, Harman says it will have four launches in FY10 (including Audi, Mercedes and BMW (2)), three in FY11 (Toyota, Mercedes and Chrysler) and one in FY12 (BMW), before ramping up again in FY13 with four: Harley-Davidson, Mercedes and BMW (2).
The company further notes the evolution of its infotainment architecture:
1997: SH1/16MB – Tuner/CD/Navi – Turn-by-Turn
2002: SH3/32MB – MMI2000 – VxWorks – Tuner/CD/DVD – Phone/SDS – MOST25 – 2D/2.5D Map
2008: SH4/512MB/1024 – MoCCA Framework – QNX CAR Platform – Tuner/CD/DVD – Phone/SDS – MOST50 – 3D Map – Internet Connectivity
2012: Intel Atomm/1GB – MoCCA & DSI 2.0 – QNX CAR – Tuner/CD/DVD/Blu-Ray – Phone/SMS/Email – MOST150 – NDS Navi – Enhanced 3D Map – Internet.
Worth noting in the architectural evolution is the growing role of both QNX (CAR Platform) and Intel (Atomm) as well as the onset of Internet connectivity - pioneered by BMW - Blu-Ray, MOST and enhanced navigation features, many of which will revolve around 3D and augmented reality implementations.
Overall, Harman appears to have emerged victorious from its cost cutting regimen with fewer European facilities but with a profitable organization in place pursuing business building initiatives throughout Europe, Asia and the U.S. The most significant business transformation of all, though, will be the Toyota wins. Not even Toyota's recent marketing stumbles can tarnish this achievement and how its will transform Harman's operations and growth profile.