Harman International Adds U.S. Manufacturing for ‘Infotainment’
Fresh from design wins with Chrysler and Harley- Davidson, Harman International will open a new factory in Washington, Mo., by year-end to make components for the company’s mobile “infotainment” systems, officials told analysts in an earnings conference call.
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The 90,000-sq.-ft. plant, to employ 200 within 3 years, will make systems for a range of Chrysler vehicles, part of a $550 million design win, revenue from which is expected to start with the arrival of the 2007 model year. New systems for 3 Harley-Davidson touring motorcycles are expected to ship with 2006 models this fall.
Harman had about $65 million in construction costs in its 4th fiscal quarter ended June 30, largely for the Washington, Mo. factory. Harman is seeking a 10-year tax abatement for a planned 24,000 sq. ft. addition to a Martinsville, Ind., plant that would add 97 jobs, most in making infotainment systems, officials said. At the Martinsville plant, Harman is spending $2.45 million on real estate improvements and $2.9 million on equipment for a new line that uses technology developed at the company’s Brigend, Wales, facility.
The Martinsville factory has 523 employees, and Harman pays about $50,854 annually in property taxes, according to local newspapers. Despite the costs of enlarging that plant and landing new design contracts, Harman said, the firm’s capital spending will stay at about 5% of net sales. It spent about $172 million on capital projects in the fiscal year ended June 30, company officials said.
The factory expansion comes as Harman continues to grow its automotive OEM business, which accounts for about 70% of revenue and is a key to a company’s forecast of 16% annual earnings growth the next several years. Earnings likely will spike in fiscal 2008, with the arrival of about $1 billion in revenue from design contracts with Chrysler ($400-$450 million) and Audi ($350 million), the latter for its A6 and other vehicles. The Chrysler contract -- which includes both full infotainment systems -- will produce revenue of about $1,200 to $2,000 per vehicle, plus rear seat entertainment systems that yield $350 to $550.
The Harley contract is forecast to yield $30-$50 million annually in incremental revenue, with each motorcycle carrying about $1,000 in Harman infotainment “content”, Exec. Chmn. Sidney Harman said. In the 2006 model year, Harman also is supplying the infotainment systems for the new Mercedes-Benz “S” class, an agreement forecasted to yield about $100 million in incremental revenue, Harman said. Harman has 100% of the design awards needed to meet revenue forecasts in fiscal 2006 and 2007 and 85% of that required for fiscal 2008, Harman said. Orders for fiscal 2009 and beyond are “building,” Harman said.
Harman said 4th-quarter net income jumped to $70.2 million from $52.9 million a year earlier, as revenue rose to $808 million from $732 million. Gross margins slipped to 34.9% from 35.4% a year earlier. Harman incurred $14.3 million in stock option expenses for the quarter. It also spent some $96 million in the 4th quarter buying back 1.1 million shares, officials said. It spent $139 million buying software developer QNX. Harman automotive business logged $571.3 million in revenue the 4th quarter, the company said.
Harman’s consumer business, expected to release its first media servers this fall, generated $105.2 million in revenue the 4th quarter with a 6% operating profit, Harman said. The consumer division is expected to post a 1-to-2% gain in profit annually the next several years, Harman said. The consumer group’s specialty division remains a “drag” on operating profit, but is “well on its way to resolving the issues,” Harman said. The company’s professional division posted 4th-quarter revenue of $131.6 million.