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Harman Sharpens Car OEM Focus

Harman International intends to boost consumer electronics sales during the next five fiscal years, but CE will account for a shrinking portion of overall sales as the company sharpens its focus on the automotive OEM market, executives said during an annual shareholder meeting.

Harman’s OEM business, which includes a small share of speaker sales to PC makers, is “more profitable” and “uses less cash” than Harman’s consumer and pro audio businesses, said CEO Bernard Girod. “We shrank the consumer business 30 percent in the last five years” as the group focused on improving margins, he noted.

In fiscal year 2002, ending next June 30, Harman projects worldwide sales of $1.9 billion, with 20 percent of revenue in consumer, 55 percent in OEM, and 25% in pro. In fiscal 2006, Harman plans for consumer’s share to drop to 15 percent while OEM’s share rises to 65 percent.

Based on the supplied numbers, CE sales will nonetheless grow from a projected $380 million in fiscal 2002 to $450 million in fiscal 2006.

One factor contributing to consumer growth could be Harman’s planned U.S. entry into the aftermarket telematics market. Its Online Pro single-DIN CD-receiver, already available from the Harman/Becker automotive division for the European aftermarket, can be connected to a black box incorporating GPS and GSM-wireless transceiver.

The system uses text-to-speech conversion to read e-mail and SMS messages sent over a GSM wireless network, reads the text of web sites marked up specifically for wireless phones, verbally gives driving directions based on CD-ROM maps, and delivers hands-free phone calling. It lacks big-screen map display but plays MP3 CDs and MP3 files stored on MMC media.

The company hasn’t announced which brand will appear on the domestic version, said consumer group president Gina Harman. It will be available in the first quarter, by which time it will be modified for the U.S. to offer 850MHz/1.9GHz GSM service and wireless GPRS packet-data connections, said Joachim Wietzke, Harman/Becker executive VP.

Harman’s future OEM growth will be fueled in part by the launch of a 20Mbps OEM fiber-optic car-network that has already been adopted by BMW, Mercedes Benz, Audi, and Porsche. The system’s single fiber-optic cable is able to simultaneously carry audio and video content and control signals for various car systems, including car security, adjustable suspension system, and power seats.

The system, named MOST (Media Oriented Systems Transport), already appears in 2002 7 series BMWs worldwide. The system, which will be upgraded to 200Mbps in the next generation, is under consideration as one of the candidates for adoption by the Society of Automotive Engineers for its high-speed IDB-M plug-and-play databus standard, which would succeed the current 250kbps IDB-C plug-and-play standard. Harman also plans to migrate the technology to the home market.

Despite the economy, company chairman Sidney Harman said, “the consumer business is doing pretty well.” He also described the consumer business a “foundation for the development of our OEM [business],” referring to the use of Harman’s consumer brands on co-branded automaker sound systems.

Girod called Harman’s U.S. consumer business “profitable” and said international consumer operations broke even in October.

In other financial remarks, Girod said:

  • Sales hit $1.72 billion in fiscal 2001, will grow modestly to $1.8 billion in the current fiscal year, will jump about 19 percent to $2.15 billion in 2003, and grow 15 percent annually through 2006.
  • Operating profit was $108 million in 2001 before restructuring charges, is projected to hit $125 million in 2002, and will hit $175 million in 2003.

In outlining the launch of the car-network system, Harman/Becker Europe president Erich Geiger said BMW will expand the use of the technology to the 5 series in 2003 and in the 3 and 2 series in 2004 in worldwide markets. The system will appear in model year 2003 on the Audi A8, available in March in Europe and in the summer in the United States.

In another announcement, Gina Harman confirmed JBL’s exit from the minisystem market, which it entered in late 2000 as part of a product-development alliance with LG Electronics.

Harman Dollar-Sales Mix