Harman International Industries Inc. (HAR - Analyst Report) has agreed to acquire Bangalore (India)-based company Interchain Solution, which offers products and technology solutions for automotive infotainment and telematics. The terms of the deal were not disclosed.
Harman will not only be able to expand its footprint in India following the takeover of Interchain Solution, but will also acquire a host of cost-effective hardware platforms that help in fleet tracking, connectivity and telematics applications, as well as Android-based "infotainment" solutions for automotive original equipment manufacturers (OEMs).
Harman would also acquire a client base that includes TeleAtlas, ALJACS Toyota, MapmyIndia along with several Indian government departments.
The acquisition would primarily boost Harman’s Infotainment division, which generates approximately 55% of its net revenues. Buoyed by robust demand from China and India, the Infotainment division recorded 15% year-over-year revenue growth in the last concluded quarter.
Harman also has $500 million worth of new orders from China and India, for which it is setting up setting up manufacturing units. Moreover, the company is expanding into other BRIC countries, which are showing potential in the luxury automotive segment.
According to IDC, strong global demand for automobiles and rise in semi/electronics content in autos, such as in-vehicle information/entertainment (hence "infotainment"), automobile body electronics, and driver safety systems, would raise the Automotive segment’s semiconductor revenue by 9.7% year over year in 2012.
Given the increasing adoption rates in emerging BRIC countries, Harman expects to outperform the overall automotive sector going forward. Order rates from these regions are already on the rise, and are expected to help Harman achieve an estimated revenue of $1.5 billion in the next three years.
Moreover, Harman boasts a solid product pipeline that is supported by more than 4000 patents, and the company intends to roll out new Infotainment products in order to drive sales.
However, Harman continues to face tough competition from Panasonic Corp. and Sony Corp. (SNE - Snapshot Report), which may hurt its profitability going forward.
We maintain our Neutral recommendation on a long-term basis (6-12 months). Currently, Harman has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).