Consolidation Coming to Infotainment Industry
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Vol. 20, No. 5◆◆ www.hansenreport.com June 2007 IBM Targets Consolidation Coming to Warranty Cost Infotainment Industry Reduction Companies with Strong Brands Will navigation system, which usually requires Have an Edge a large, non-volatile memory, color display and a capable 32-bit microcontroller. But Warranty claims will cost the global The absorption of Clarion, Xanavi and the price of navigation is fast declining in automotive industry a staggering amount HCX Corporation into Hitachi, com- the face of competition from makers of of money: $30 billion in 2007—about 1% pleted in January 2007, is an example of portable devices, which sell for one-third to 3% of a carmaker’s revenues. The per- the sort of consolidation that is in store the price of embedded navigation. PNDs centage can vary depending on who’s for makers of audio and navigation equip- are taking a large bite out of the infotain- making the vehicle and how complex it is. ment for carmakers. There are far too ment market. Market estimates from According to Warranty Week newsletter many competitors for a market that may Telematics Research Group, Tele Atlas (www.warrantyweek.com), GM alone be slowing as the penetration of electron- and Canalys give PNDs an 85% share of spent $4,463 million on warranty claims ics into vehicles levels to around 15% to navigation unit sales in Europe and North in 2006, or 2.6% of automotive revenue; 30% of the vehicle’s total cost. The per- America in 2008. Ford spent $4,106 million in 2006, 2.9% centage varies depending on the type of Founder and executive chairman of its automotive revenue. vehicle, but most are produced with 20% Sidney Harman has been off-loading his Warranty claims tend to be higher for to 25% of their cost from electronics. Harman stock at least since the spring of American and European carmakers than On April 26, 2007, Harman Interna- 2002, when he still held about 8% of the they are for Japanese carmakers. And, says tional announced it had entered into an company. Before the April LBO, Dr. IBM, warranty claims tend to be higher agreement to be acquired by Kohlberg Harman owned about 5% of the company. for vehicles with high electronics and Kravis Roberts & Co. (KKR), GS Capital After the buyout, his holdings will be software content, which means that war- Partners (GSCP) and others in a deal that about half that amount. ranty claims will continue to trend up- put Harman into the hands of private eq- Turn to Infotainment, page 2 ward as electronics and software content uity. Under the terms of the agreement, trend upward. which valued the company at about Infotainment Suppliers But because electronics and software $8 billion, Harman shareholders will be are two subjects that IBM knows a great entitled to receive $120 for each share of The convergence of the navigation industry deal about, the company is confident it Harman common stock they own. Prior to with the mobile audio industry has led to a can help carmakers get a grip on warranty the deal, the stock had been trading at hypercompetitive market with more sup- expenses. IBM believes carmakers can re- around $100 a share, down considerably pliers than the industry needs. Here, listed duce warranty expenses by 20% to 30% from its all-time high of $130 per share in alphabetically, are only the major players: just with solutions aimed at the dealer/ the fall of 2004. Aisin Seiki service network. The first solution ad- The stock price was soaring in 2004 Alpine dresses the speed with which major qual- after Harman locked up some significant Bose ity problems are first noticed, and the infotainment (audio integrated with navi- Delphi second aims at improvements in the way gation) business with Mercedes, BMW Denso service problems are diagnosed and fixed and Audi. Since then, Harman booked Fujitsu Ten by the dealer. additional infotainment deals with PSA Harman International and Chrysler. But the market began to Hitachi (Xanavi, Clarion) Quality Insight and Early Warning question Harman’s ability to move much Kenwood “We propose to analyze warranty beyond Europe, beyond its German roots. Magneti Marelli claims data, field reports, call center infor- In 1995 Harman acquired German head- Mitsubishi Electric mation and chat rooms to find the real unit maker Becker, the technically savvy Panasonic technical root causes of quality problems,” organization responsible for much of the Pioneer said Erich Nickel, director of global auto- company’s success in infotainment. Siemens VDO motive market sales and services solutions The biggest part of the cost of Sony Visteon Turn to IBM, page 8 infotainment systems comes from the Infotainment... Continued from page 1 Together with KKR and GSCP, two of motive Branding Study, Bose is ranked J.D. Power and Associates’ the world’s leading private equity inves- number one, while Harman brands, 2006 Automotive Audio Brand Scores tors, Harman International says it will Harman/Kardon, Infinity, JBL and Mark continue to execute its strategic plan, Levinson are ranked number 8, 10, 11 and Bose 665 which over the years has relied heavily on 13, respectively. Sony 636 acquisitions. Harman acquired at least 17 In that survey, Sony is ranked number Pioneer 571 companies, including Infinity, Temic two, both in the United States and Eu- Panasonic 558 Speech Engine and operating system de- rope, just behind Bose. Even more impres- Kenwood 543 veloper QNX, since 1981. More acquisi- sive, because it wasn’t limited to only the Blaupunkt 539 tions are likely. automotive audio product category, Sony Alpine 534 topped the list in the annual Harris Poll of Harman/Kardon 529 Yet Another Infotainment Player best brands for the seventh consecutive JVC 526 Despite the already overcrowded mar- year. In that survey of U.S. adults, respon- Study Average 523 ket, Bose Corporation seems intent on dents were asked which three, of all the Infinity 520 moving beyond its audio roots in speakers brands they knew, they considered to be JBL 518 and amplifiers into infotainment. In the best. Denon 509 March 2007, at the Geneva Auto Show, “Sony is a very strong, well recognized Mark Levinson 505 Bose debuted its new Bose Media System brand,” noted Jim Buczkowski, Ford’s top Technics 505 on the Ferrari 612 Scaglietti. The system electrical engineer. “We decided, given Aiwa 499 combines a 5.1 channel surround sound the success we’ve had with Sony in Eu- Clarion 497 audio system with FM/AM radio, color rope, that we wanted to extend our part- Delphi 493 display, multi-format disc player, XM sat- nership with Sony to North America.” Source: J.D. Power and Associates’ 2006 Global Automotive ellite radio, navigation system with hard “In Europe the take-rate on Sony- Component Branding Study drive and connectivity to Bluetooth, iPod branded audio has been 30% to 40%, non-navigation systems, the head unit is and USB 2.0 portable devices. Typical of which is higher than the typical 15% to supplied by Delphi, Visteon or Sanyo. Bose, the system features a simple-to-use 20%,” said Don Courvisier, vice president The Ford Sync portable connectivity HMI. This device has two knobs, each and general manager of personal mobile platform is a peripheral that is connected with intuitive outer and inner controls. products for Sony. Customers pay an extra to the audio system. Microsoft is respon- Reach for the far knob and its proximity few hundred dollars for the Sony-branded sible for Sync’s software and produced the sensor automatically changes the interface audio package. reference design. The hardware will be displaying only information that’s relevant Ford distributes its infotainment busi- supplied by Continental. ◆ to that control. ness among multiple suppliers. When Ford offers a Sony-branded audio system op- Sony Selected as Audio Supplier to Ford tion, Sony is responsible for only the au- One of the things that Harman and dio processing portion, which includes the © 2007 Paul Hansen Associates, 150 Bose have in common is strong brands, amplifier, the DSP and speakers. When it Pinehurst Rd., Portsmouth, NH 03801, which is part of the reason why these comes to navigation, Pioneer is the non- USA. Telephone: 603-431-5859. Fax: 603- companies have been successful. In J.D. branded equipment supplier. Pioneer’s sys- 431-5791. Email: [email protected]. Power and Associates’ 2006 Global Auto- tem includes the radio head unit. In All rights reserved. Materials may not be reproduced in any form without written per- Bose Media System Head Unit mission. The Hansen Report on Automotive Electronics is published 10 times a year, monthly; July/August and December/Janu- ary are combined issues. The annual print The new Bose system subscription rate is $747 (North America), features: $787 (elsewhere). Back issues are available ◆ 5.1 channel surround sound for $50 each. Index and multi-user electronic ◆ FM/AM subscription information is available at ◆ XM Satellite Radio www.hansenreport.com. Paul Hansen Asso- ◆ Multi-format disc player ciates is a strategy and market research ◆ 200 hours hard drive firm consulting to the electronics industry. capacity ◆ Navigation Publisher/Editor Paul Hansen ◆ Bluetooth Managing Editor/ Brianne Wolfe Circulation Manager ISSN 1040-1105 Page 2, June 2007 The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com FY 2007 Roundup: Alpine, Denso, Hitachi, Omron Fiscal year 2007 ended March 31, 2007. Denso’s largest business segment, ac- ($9.9 million), the third consecutive year counting for 31.5% of sales in FY 2007, of operating losses for AEC Alpine Electronics was Thermal Systems. Information and FY 2008 Forecast: ¥100 billion ($821.2 FY 2007 Net Sales: ¥265.1 billion Safety Systems, which includes body elec- million) in sales, with domestic sales ($2.18 billion) tronics, navigation-related products, falling 2.2% and overseas sales gaining Change from FY 2006: up 4.4% driver assistance products such as radar 10.8%.