Unsure Movements
Samsung and LG are showing mixed results in the automotive electronics domain that both companies have chosen as their new growth drivers. Samsung has spent an astronomical amount of money, close to 10 trillion won, to take over Harman, but has not been able to generate much synergy with the company. LG, on the other hand, has laid a strong foundation by completing the triad of powertrains, infotainment systems, and lighting devices.
According to sources in the investment banking industry on June 18, the gap is attributed to the decline between Samsung and LG in the global automotive electronics market. Samsung acquired Harman in 2017 and seemed to get ahead of LG, but LG’s recent achievements in the automotive electronics sector have made a change in their competition in the automotive electronics business.
This is reflected in the performances of LG Electronics and Harman, which are at the center of both Samsung and LG’s automotive electronics business. In fact, LG’s Vehicle Solution Division in charge of the automotive electronics business has become a new pillar of the company after turning a profit for the first time in seven years in the second quarter of 2022. The division posted an operating profit of 50 billion won (US$39 million) in the second quarter of 2022, followed by 96.1 billion won (US$75 million) in the third quarter and 30.2 billion won (US$23.6 million) in the fourth quarter. It stayed profitable by improving the cost structures of all of its business areas including infotainment systems, electric vehicle powertrains, and automotive lighting systems.
In the first quarter of this year, the VS Division racked up an operating profit of 54 billion won (US$42 million) and sales of 2.3865 trillion won (US$1.8624 billion). Both were the highest in the history of the business division. The VS Division’s order backlog, which is a good indicator of future performance, grew explosively from 60 trillion won (US$47 billion) at the end of 2021 to 80 trillion won (US$62 billion) at the end of 2022.
While Harman showed an upward trend via a rebound in the first quarter of the year, it still has some anxiety factors. The power of its flagship digital cockpit business is on the wane day by day, and Harman’s improvement in its business performance was made mainly thanks to organizational streamlining rather than the generation of direct synergies with Samsung.
In fact, Harman’s operating profit in the first quarter of 2023 stood at 130 billion won (US$102 million), up 30 percent from 100 billion won (US$78 million) a year ago. Its sales came in at 3.17 trillion won (US$2.48 billion), up 18.7 percent from 2.67 trillion won (US$2.08 billion) in the same period of 2022. On the other hand, Harman’s share of the global digital cockpit market fell from 30 percent in the first quarter of 2020 to 25 percent in the same period of 2021, 24.7 percent in the same period of 2022, and 23.1 percent in the same period of 2023.
Market observers attribute a recent difference between Samsung and LG in the automotive electronics domain to where there are synergies between the two companies and other affiliates of Samsung and LG. In fact, LG has infrastructure to source key components such as EV powertrain batteries and lighting devices within the group. In the case of LG Electronics, its VS division provides infotainment systems and LG Magna Powertrain, a joint venture with global auto parts company Magna, builds electric vehicle powertrains. ZKW, which LG acquired in 2018, can supply lighting modules for vehicles including headlights.
Batteries and related components, the core parts of EVs, are also sourced from LG Energy Solution and LG Innotek. LG Innotek produces high-value-added electronic products such as 5G communication modules and battery management system (BMS) for vehicles. LG Display is also working to expand its automotive products based on organic light-emitting diode (OLED) panel technology.
Samsung, on the other hand, has not made proper investments in the automotive electronics domain since its acquisition of Harman in 2017. Harman itself has been trying to sharpen its competitiveness by acquiring Apostera, an augmented reality (AR) HUD software company. But analysts say it did not generate much synergy with its parent company Samsung. However, some experts say that Samsung has recently focused on targeting processors for Harman’s digital cockpits by making the most of its semiconductor competitiveness. This means that digital cockpit-specific processors will not only increase Samsung Electronics’ electronics business capabilities but also give strong momentum to Samsung Electronics’ collaboration with Harman. Besides, Samsung Electronics will supply the Exynos V920, a system semiconductor required to power car infotainment systems for Hyundai cars, beginning in 2025.