Samsung's latest billion-dollar deal books a seat on technology's next big thing—smarter cars. It looks like a ride worth taking.
The Korean technology giant said Monday it will buy U.S. auto-parts supplier Harman International for $ 8 billion in an all-cash deal. The transaction, the largest in Samsung's history, comes as the smartphone market is maturing. It is a bet that automobiles, which have looked roughly similar for decades, will be the next place to fit in more chips and screens. Around 65% of Harman's revenue came from supplying chips, audio systems or other parts to vehicles, in the fiscal year ended September.
Samsung isn't the only one making the bet. The biggest semiconductor merger ever came last month as Qualcomm, which supplies chips to Samsung's smartphones, agreed to buy NXP Semiconductors for $ 39 billion. NXP's automotive-chip business could help Qualcomm buffer the pain of its stalling mobile-chip business. NXP itself merged with rival Freescale just last year to become the biggest auto-semiconductor maker. Japan's Renesas, the former market leader unseated by NXP, agreed to buy Intersil for $ 3.2 billion in September in an attempt to fight back.
While fully self-driving cars could still be years away due to legal or even moral ramifications, there is plenty of room to make human-driven cars smarter. Touch-screen panels are commonplace in high-end cars but haven't been more widely adopted. Features such as pedestrian detection and traffic prediction can help drivers even if they still have to put their hands on the wheel.
Samsung vice chairman and heir apparent Lee Jae-yong, who took over the helm of the company after his father was incapacitated by a heart attack two years ago, is clearly eager to put the company's cash to good use. The company has done some smaller deals in the past few months including buying a cloud services company, a mobile-payment firm and an artificial intelligence startup founded by the creators of Siri.
The deal values Harman at 15.8 times next year's adjusted earnings, according to S&P Global Market Intelligence. That is higher than 10 times for Delphi Automotive and 14.8 times for Panasonic, which supplies batteries to Tesla. Since it is an all-cash deal, it will be immediately accretive to Samsung and the firm can well afford it with its $ 64 billion of net cash. Given the frenzy in this space, the question is whether Samsung's price will be enough.
If it can close the deal, Harman offers Samsung a good lift on the automotive tech highway.
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