Monday morning we woke up to some major news in the AV industry. Samsung had purchased Harman. When I say we, I mean us AV PEOPLE. To the rest of the world, Samsung (a South Korean chaebol) purchased a “U.S. automotive technology manufacturer,” as reported by the Wall Street Journal. Many of us in the AV world began scratching our heads. What does this mean for the major brands under the Harman umbrella? These are BIG brands in our AV world, including JBL, Crown, Martin and AMX.
To begin to put things into perspective, one first needs to truly understand Samsung. In South Korea a chaebol is equal to what we in the United States call a conglomerate. That is, they have many far fetching companies inside of the larger one. Additionally, the company is typically led by a family member who has a hand in all the decisions that the company makes. After spending some time in South Korea, I began to understand how Samsung is much more than a technology company. Samsung has major divisions in building construction and boat construction (second largest commercial boat builder in the world). Everywhere you go in Korea, buildings have the Samsung name, as that is the company that built them. Additionally, Samsung gets into finance with insurance companies and even has a public relations company under its banner.
With over $300 Billion in revenue in recent years, one can not over estimate the size of this company. In fact, its revenue represents about 17 percent of the entire South Korean GDP.
All of that is a prelude to my belief of what is going on with Samsung, and what the outcome of this merger will be. If you have not listened to it yet, listen to Gary’s Rants and Raves from Monday, 11/14 with Gary, Mark Coxon, Vin Bruno and Sara Abrons. Each participant had very thoughtful responses about the future. However, for me, it was Vin Bruno who hit the nail on the head several times during the conversation. He did this each time he mentioned STRATEGY. Strategy is the money maker in every successful company. So, what is Samsung’s strategy? Financial publications, such as the Wall Street Journal have defined this pretty well. Samsung wants in on the smart car and the connected home. They believe this is the future of their technology division. What they bought from Harman was NOT brands. In fact, about 6 billion of Harman are name brands that the consumer would never recognize. Some of it is not even branded. Rather, Samsung bought intellectual property. If you want to understand what they bought, read articles that discuss what Harman has done over the past few years. In one Wall Street Journal article Harman is described as making a transformation from a “troubled hardware maker to promising software company.” Let that sink in. The company we know as Harman, is not a hardware company. It is a software company.
So, what will they do with the Pro AV companies under the Harman umbrella? Strategically, AMX is probably the most useful to them. Certainly control is part, and will continue to be part of, the home and auto market. There is a good deal of intellectual property in AMX that they will want to mine. Unfortunately, I believe that means they will end the AMX name and use the IP elsewhere. AMX plays in a market that is simply too small to be considered part of Samsung’s strategy. From a ProAV perspective, I think the audio companies such as JBL and Crown have a better shot of being spun off. These companies don’t have the type of IP that Samsung needs or wants and therefore will be a good opportunity for them to get some cash back. Of course, the question then becomes, who buys them and what is their strategy. For sure, this merger will keep us talking for a long time to come.