Samsung's Subsidiary Harman Falls Short of Expectations
With major companies announcing their finalized Q3 results this week, mixed results are expected from Samsung Electronics and LG Electronics in the automotive electronics business.
LG Electronics’ Vehicle Component Solutions (VS) Division is expected to post a profit for two consecutive quarters after coming out of a long dark deficit tunnel, while Samsung Electronics’ automotive electronics subsidiary Harman is not expected to improve significantly from the previous year’s level.
According to Strategy Analytics, a market research firm, the size of the global automotive electronics market is expected to exceed US$400 billion in 2024 and US$700 billion by 2028.
LG Electronics has invested more than 4.5 trillion won in this field since 2015. But the results had been not satisfactory until recently. But things began to change from the second quarter of this year, when the company managed to turn a profit for the first time in 26 quarters since 2015. Its surplus is expected to continue into the third quarter. According to LG Electronics’ provisional third quarter results, the VS Division's operating profit is estimated to reach 39-60 billion won.
The division’s surplus is more meaningful as it came amid a decline in earnings of other divisions, including the Home Entertainment Division (HE) in charge of the TV business. Industry insiders predict that the VS Division’s performance will cross 10 percent of LG Electronics’ total sales for the first time this year. Its annual operating profit is projected to top 200 billion won.
The division's order balance is expected to reach 65 trillion won by the end of the year.
Samsung Electronics is also engaged in the automotive electronics business through Harman, which was acquired in 2017 for US$8 billion (9.4 trillion won). Harman’s operating profit in the first half of this year stood at 205.3 billion won. Its third quarter earnings are also expected to remain nearly the same as the previous year. If this trend continues, Harman’s earnings in 2022 are expected to be similar to or less than last year’s annual operating profit of 599.1 billion won. The decline in Harman’s profitability is attributed to a sharp increase in production cost due to the Russia-Ukraine war and logistics difficulties.
Harman is failing to create synergies with Samsung Electronics, experts say. Even though it succeeded in achieving an operating profit of 599.1 billion won in 2021, the highest since Samsung's acquisition, it has never surpassed its 2016 operating profit of 680 billion won.
Recently, Samsung Group established a team related to the automotive electronics business through Samsung Global Research, a think tank, and is recruiting research personnel for the team. The plan is to seek synergies among related affiliates, including Harman, Samsung Electro-Mechanics and Samsung SDI.