Harman's rebound comes at just the right time for Samsung

Six years ago, Samsung Electronics purchased Harman for $8 billion. Performance since then has been mixed.

Harman and Samsung Electronics' Ready Care driver monitoring system displayed at the CES 2023 held in Las Vegas from Jan. 5 to 8 [SAMSUNG ELECTRONICS]

Harman has gone from a drag on earnings for Samsung Electronics to a rock solid contributor to the bottom line of the world's largest chip and smartphone maker, which has been struggling recently with poor performances in its main businesses.

The audio and automotive component subsidiary will report 200 billion won ($161 million) in operating profit in the fourth quarter, according to analyst estimates. If that figure is achieved, it would be the best quarter for the company since it was acquired by Samsung Electronics in 2016.

The analysts forecast 3.2 billion in sales in the fourth quarter.

Annual operating profit would be 700 billion won, and sales 12.5 trillion won, if the forecasts are correct.

Six years ago, Samsung Electronics purchased Harman for $8 billion.

Performance since then has been mixed. Operating profit was 680 billion won in 2016, 57.4 billion won in 2017, 161.7 billion won in 2018 and 322.3 billion won in 2019.

Operating profit fell to 55.5 billion won in 2020 during the pandemic. Harman focused on streamlining its business since then, merging or closing some 100 subsidiaries, and in 2021, its operating profit rebounded and reached 600 billion won. Sales came in at 10.04 trillion won.

The strong performance was propelled by the rising demand for auto parts and improved profitability in the high-end audio business.

As of the third quarter last year, Harman had a 25 percent share in the global infotainment system market, making it the market leader. Future electric vehicle components, such as digital cockpit systems, may drive growth in the future, analysts said.

During CES 2023 in Las Vegas, Harman introduced “Ready Care,” a driver monitoring system for a driving assistant powered by machine learning and sensor technology. It monitors a driver’s condition, such as whether the driver is drowsy or unfocused, and provides adequate assistance.

Samsung Electronics is currently focusing on integrating its automotive technologies, such as system-on-chips for cars and edge computing. The company is also considering incorporating Harman’s hardware devices — which include audio devices from Harman’s Bang & Olufsen and JBL, as well as other smart gadgets — with its automotive technologies.

“Harman’s strong performance is certainly a relief for Samsung Electronics, which saw a worsening performance in its main businesses, such as chips and home appliances,” said Lee Seung-woo, head of the Eugene Investment & Securities research center.

“From a critical perspective, it still falls behind the market’s expectation as the ‘big picture’ that people were looking forward to when Samsung Electronics acquired Harman seven years ago has not been realized yet.”

Samsung Chairman Lee Kun-hee, who passed away in 2020, had been into audio technologies since his college years in Japan, according to Lee Hyeon-jun, an audio expert and CEO of Hiedaudio, an audio business consulting company.

Lee Kun-hee, former Samsung chairman, in his office in Hannam-dong, central Seoul, in the 1990s. Speakers from Bowers & Wilkins and McIntosh are shown in the background. [JOONGANG PHOTO]

Lee Hyeon-jun explained in a column posted on JoongAng Sunday that Samsung's late chairman introduced Sonorama, the company's first audio brand, in the late 1970s. That was followed by Kreutzer in the 80s and Renaissance in the 90s.

Lee Kun-hee took the helm in 1987 following the death of his father, and acquired Japan’s Luxman Corp., an audio device manufacturer, in 1994. Samsung Electronics also rolled out Emperor, a high-end speaker brand, in 1995 in collaboration with Hales and Mark Levinson, widening its product line.

With the global financial crisis hitting Korea in 1997, Samsung Electronics had to sell off Luxman and close down its automotive and audio businesses, which had been stacking up losses.

BY LEE DONG-HYUN, SHIN HA-NEE [shin.hanee@joongang.co.kr]