Harman Shares Climb 3.6% on Strong Gains From Automotive Design Wins

The company’s lifestyle audio segment revenue -- comprising consumer and car audio -- surged 19 percent year on year to $568 million on higher sales in consumer and car audio, said Paliwal. Connected car sales reached $797 million, up 6 percent vs. the year-ago quarter on higher take rates and stronger production, he said, while connected services sales increased 4 percent to $167 million. Professional solutions revenue declined 4 percent from $240 million a year ago, the company reported.

In Q1, Harman secured new and follow-on connected car contracts from Audi, Geely, Maruti Suzuki, Mercedes-Benz, Porsche and heavy truck manufacturer Man, and it launched embedded infotainment systems during the quarter in vehicles from Audi, Land Rover, Porsche, Skoda and Toyota, it said. The company began providing embedded infotainment systems to the commercial truck market in vehicles from Volkswagen Group and Scania during the quarter and announced a partnership with AT&T for telematics.

Harman expanded its business with Ford via a cross-model deal to supply B&O Play-branded car audio systems, with Lincoln for Revel systems, Maserati for Bowers & Wilkins products and Toyota for JBL systems, it said. It launched car audio systems in the Alfa Romeo (Harman Kardon), Lexus ES (Mark Levinson) and the Toyota Camry and C-HR (JBL) and Halosonic and advanced transducer audio in Mercedes vehicles, it said.

The connected services unit secured engineering contracts from Honeywell, Intel, LeEco, Microsoft and Under Armour and over-the-air update contracts from Altair, Daimler and LG, it said.

Citing Harman’s growth in China, Paliwal said annual revenue has grown to $800 million from under $50 million in 2009. Its Q1 China revenue rose more than 40 percent over the year-ago quarter giving the company more than $4 billion in its automotive backlog, he said. China is “an important long-term growth market." The Harman brand is “iconic” in automotive in China and is boosting the company’s profile in consumer and professional segments, Paliwal said.

In Q&A, the CEO attributed connected car market share gains to three areas: “broad integration capabilities” in its compute platform, which operates with multiple electronic control units (ECUs) supplied by various tier one suppliers; its gateway-based telematics technology and its efforts in cybersecurity, advanced driver assistance systems (ADAS) and over-the-air update capability. Harman integrates with other ADAS companies, including Mobileye, and also develops its own object-detection, vision algorithms and camera 360-degree view technology, Paliwal said.

In car audio, Paliwal noted Harman’s role in next-generation shared-economy vehicles where riders are sitting with “three other passengers you don’t know.” Harman's patented sound technology lets passengers have their own individual sound zones via road, engine and ambient noise cancellation technology.

An analyst noted Chrysler is now offering its Harman-based UConnect system with optional embedded navigation and asked Paliwal if consumer preference for navigation via smartphone will negatively affect business in the future. Harman is offering OEMs choices: to use “any” navigation option -- 3D high-definition maps or a simple 2D Google Maps version -- but a system still requires a tuner, hands-free telephony and interfaces with other ECUs in the car, said Paliwal. “That still has to be done even for display audio.”

Paliwal said nearly half of the embedded low-end audio business has traditionally been only AM/FM, with the top half split equally between fully embedded navigation-based infotainment systems and infotainment systems minus navigation, which Harman calls display audio. He said Harman’s system for Ford integrates display audio, a large screen and, eventually, the ability to have onboard navigation or a “bring-your-own” solution.

The low end is migrating quickly into the top segments and Paliwal believes in the next few years, consumers will shift to fully embedded systems. “If cars are going to be autonomous or semi-autonomous, you can’t run them from a handheld device,” he said, referring to a “post-device era.” Harman’s compute platform would be part of the vehicle’s embedded system with cloud applications, he said. “We’re happy to be playing on both sides." Close to a third of cars sold have display units, said Paliwal, citing a trend toward large screens, especially in Asian markets.

In its struggling professional solutions unit, Harman has been implementing strategic initiatives over the past couple of months including consolidating its European operation in Hungary and conducting additional “footprint actions” in the U.S., said Paliwal.

On the professional segment's product side, Harman is developing solutions for vertical markets, including a partnership with IBM’s Watson cognitive computing group to integrate artificial intelligence and smart connectivity in IoT-enabled audio, video and lighting products, said Paliwal. A pilot program at Thomas Jefferson University Hospital in Philadelphia allows patients to use voice commands to change room temperature, turn out lights or ask about test results, Paliwal said. Additional potential applications for Harman and IBM Watson extend to hotels, conference rooms, education, enterprise and entertainment markets, he said.

The professional solutions division got new entertainment and enterprise contracts. The company said those came from eBay, Dubai Parks and Resorts, London Business School and for the upcoming U.S. presidential inauguration, and installations during the quarter were made in the John F. Kennedy Center for the Performing Arts in Washington, the Phoenix Sky Harbor Airport and the U.S. Space and Naval Systems Command in San Diego.