Android Before Ios in The

Vol. 27, No. 1 u hansenreport.com u February 2014

Microsoft Windows Android before iOS in the Car As technology giants Google and Apple baked” and Apple’s approach to the indus- Not Part of Sync 3 focus on extending their reach into the car, try as arrogant. In contrast Google is said Google has made far more progress than its to be more accommodating, indicating it is rival. Both companies have efforts under- willing to adapt Android to make it more Ford Goes with Panasonic and QNX way to make devices based on their respec- useful to carmakers. The software devel- Sync 3, Ford’s third-generation Sync tive operating systems more compatible oped by the OAA is expected to debut in a infotainment system, will be based on with vehicle head units. Google has gone a production vehicle as early as the end of QNX from Blackberry, not Windows Em- step further by showing a willingness to 2014. Nobody is saying if and when iOS in bedded Automotive from Microsoft as adapt its Android operating system to run the Car will find production. with Sync 1 and Sync 2. According to Ford, the vehicle’s head unit, potentially replac- the QNX operating system makes more ing QNX, Linux or Windows. Open Automotive Alliance efficient use of memory and computing At the January 2014 Consumer Elec- Drivers would love to be able to safely power. When an infotainment design goes tronics Show, Google, along with Audi, and easily use smartphones in their cars, to production, carmakers like to have no GM, Honda, Hyundai and Nvidia, and carmakers are keen to offer cars that more than 60% utilization of microproces- announced the founding of the Open let them do that. Eighty percent of smart- sor power and memory. But with Sync 2, Automotive Alliance (OAA) aimed at mak- phones now run some version of Android, hardware utilization was north of 80%, ing Android devices compatible with head so carmakers are open to working with leaving little room for product extensions. units. Apple introduced iOS in the Car at Google to integrate an Android platform QNX is seen by Ford as a versatile, efficient its Worldwide Developers Conference in in their infotainment systems. About a year and extensible platform backed by an orga- June 2013, and announced that Honda, ago Google suggested that rather than cus- nization where there is dedicated support. Mercedes, Nissan, Chevrolet, Kia, Hyun- tomizing Android for each OEM, an alli- Ford and Microsoft broke a lot of new dai, Volvo, Jaguar and other OEMs would ance of carmakers working together could ground with their first Sync platform, be integrating some of its features. share the development work and the result- which in 2007 pioneered device connectivi- While Apple’s and Google’s objectives ing specification and software code. Thus ty and the speech user interface. Ford are similar, the impression each company is the Open Automotive Alliance was born, broke more ground in 2010 with its Sync 2 making on the auto electronics community modeled after Google’s successful Open (MyFord Touch and MyLincoln Touch) is very different. People who have seen iOS Handset Alliance that developed open development by bringing system integra- in the Car describe the software as “half- standards for mobile devices. tion in house. But Sync 2 has been much Initially the OAA will create extensions criticized for being glitch prone and diffi- to the Android platform so Android cult to operate, so Ford’s decision to bring Why Make Android the Head Unit mobile devices can run car-specific apps. in a tier-one supplier, Panasonic, seems Operating System? The car apps will be modified and simpli- warranted. Harman was also in the run- Carmakers want to offer connected vehicles fied to avoid driver distraction. The com- ning for Sync 3. with a broad choice of apps that are safe munity of Android app developers is huge, Ford is not at all done with Microsoft, and easy to use. If the apps are run on the and carmakers would love to get them but wants to work with the company differ- head unit, carmakers will be in control. Car- innovating on their behalf. As part of this ently going forward. Ford has been trying makers have less control over apps run on initial step, the alliance will develop a soft- for many months to find a company to take mobile devices. ware client for the head unit so apps run- over maintenance of the Sync 2 software. ning on mobile devices can make use of u That work is still being done by Microsoft, Android is the world’s most popular mobile the vehicle’s display and be controlled but Ford would rather have Microsoft’s platform. from the vehicle’s touchscreen and knobs. u It’s a platform that is well known to thou- help with innovation and the support of The OAA’s next task will be to extend sands of experienced developers. Microsoft’s rich portfolio of technology, for the Android platform so it can run on the u By accessing a large community of devel- example its cloud expertise. head unit, along with the existing operat- opers who can write applications for their Microsoft’s engagement with the auto vehicles, carmakers hope to spur innovation ing system if that suits the OEM. That will industry has been uneven over the years. that brings customers to them. be Audi’s approach, according to Mathias Given the recent organizational changes, u Popular apps based on Android could Halliger, chief architect for infotainment both at the top and in the auto group, a more easily be adapted for automotive use. systems at Audi, a key member of the re-evaluation of its automotive commit- Turn to Android, page 3 ment is likely underway. u The Hansen Report on Automotive Electronics, www.hansenreport.com Page 1, February 2014 Roundup 2013: Autoliv, Bosch, Delphi, Lear

Autoliv Among Bosch’s new product launches Lear Corp. 2013 Sales: $8,803 million in 2013 is smartphone integration software 2013 Sales: $16,234 million Change from 2012: up 6.5% called mySPIN. Developed by Bosch Soft- Change from 2012: up 11.4% 2013 Operating Margin: 8.6%, nearly the Tec, mySPIN creates and links an automo- 2013 Operating Margin: 5.2%, unchanged same as 2012 tive version of the smartphone apps to the from the prior year Outlook for 2014: Autoliv expects organic vehicle display where they can be used by Outlook for 2014: Lear expects sales in the sales growth of approximately 5% and a the driver. range of $16.9 billion to $17.4 billion with modest increase in operating margin. Since 2011, Bosch has been very public- operating margins up modestly to approxi- Sixty-five percent of sales were airbag ly promoting its strategy to become a key mately 5.4%. Lear’s forecast is based on products; seatbelts accounted for 32%. player in the emerging Internet of Things North American light vehicle production Growth was especially strong in sales of connected devices and services market. A reaching 16.8 million units in 2014. active seat belts and knee airbags. Active new Bosch company, Bosch Connected Lear’s Seating segment generates nearly safety, especially radar-based products, was Devices and Solutions GmbH, was created three-fourths of Lear’s revenue. As the sec- the fastest-growing product line but ac- in December 2013, with headquarters in ond largest independent seating supplier counted for just 4% of total sales in 2013. Reutlingen, Germany, and offices in India globally, Lear’s only major competitor is The company expects to grow active safety and China. Bosch will initially target smart Johnson Controls. sales by 20% per year over the next two homes and naturally, appliances, and Sales in the Electrical segment grew by years to reach $500 million in 2015. hopes to later expand into connected vehi- 19% in 2014, reaching $4.2 billion or 26% While sales were well balanced region- cles, transportation, industrial and the en- of total sales. Lear manufactures electrical ally, Asia, primarily China, became Auto- ergy and building technology sectors. distribution systems and components for liv’s largest sales region for the first time, conventional, hybrid and electric vehicles. accounting for 34% of total sales. Sales in Delphi Automotive Lear attributes the strong growth to new China increased by 25% year over year and 2013 Sales: $16,463 million business and higher unit production on accounted for 16% of Autoliv’s total sales Change from 2012: up 6.1% some key platforms. The new business in 2013. According to Autoliv, the average 2013 Adjusted Operating Margin: 10.2% comes from roughly ten geographically di- safety content per vehicle in China was ap- Outlook for 2014: Delphi expects revenue versified customers and covers some twenty proaching $220 in 2013, compared with growth in the range of 6%, to at least programs including wiring terminals and the global average of $300 per vehicle. $17,200 million assuming global vehicle connectors, junction boxes and electronic In the coming year Autoliv plans to in- production increases by approximately 3%. modules. Lear’s two largest customers, GM vest in expanding production in growth Operating margin is forecast in the range and Ford, each accounted for 22% of markets like China and in becoming more of 11.3% to 11.6%. Lear’s sales in 2013. u vertically integrated. Segment Results Bosch Automotive Technology E/E Architecture Preliminary figures—final results will be released 2013 Net Sales: $7,972 million, up 17% © 2014 Paul Hansen Associates, 150 at the end of April. Because of accounting Adjusted EBITDA Margin: 15.5% Pinehurst Road, Portsmouth, NH 03801 changes, 2013 figures are only partially compa- USA. Telephone: 603-431-5859; Fax: 603- rable to 2012. Results from 50-50 joint ventures Powertrain Systems 431-5791; Email: [email protected]. are no longer included. 2013 Net Sales: $4,424 million, down 5% All rights reserved. 2013 Sales: €30.7 billion Adjusted EBITDA Margin: 15.2% Materials may not be reproduced in any Change from 2012: up 7% form without written permission. 2013 EBIT Margin: Approximately 8%, Electronics and Safety The Hansen Report on Automotive compared with a 4.5% EBIT margin in 2013 Net Sales: $2,830 million, up 4% Electronics is published at www.hansenre- 2012 Adjusted EBITDA Margin: 14.0% port.com ten times a year, monthly. Automotive Technology outperformed July/August and December/January are Bosch’s three other reporting sectors—it Thermal Systems combined issues. Back issues are available was the only sector where sales increased. 2013 Net Sales: $1,468 million, down 5% for $50 each. Single and multi-user electron- Automotive accounted for 66% of total Adjusted EBITDA Margin: 5.4% ic subscription information and a searchable sales. The company cited significant growth index are available at hansenreport.com. Paul Hansen Associates is a strategy in both gasoline and diesel direct injection According to Delphi, its 2013 growth and market research firm consulting to the and in the Car Multimedia division’s dis- was fueled by increased sales in North electronics industry. plays and infotainment systems. Bosch sees America and especially in Asia, offset by a Publisher/Editor Paul Hansen penetration of gasoline direct injection sys- 6% decline in Europe. Managing Editor Brianne Wolfe tems reaching 18% of global passenger ve- Director of Marketing Michelle Long hicle production by 2015. ISSN 1046-1105

Page 2, February 2014 The Hansen Report on Automotive Electronics, www.hansenreport.com Android… Continued from page 1 OAA. “We are not looking for a new oper- Other infotainment systems running show the driver whatever apps are running ating system. We have one. We are looking Android are in the queue, for example on the iPhone, but initially Apple is going for a platform that provides some inte- Fujitsu Ten has been working on an info- to focus on just a few things, like its map, grated APIs (application programming tainment system based on Android for the phone and media interfaces. People who interfaces) for our head units,” he said. 2016 Honda Civic. have seen demonstrations of iOS in the But while Audi may not be ready to In 2009 Continental was developing Car tell us that every frame of graphics sent change its head unit’s operating system, AutoLinQ, an Android-based, next-genera- to the head unit display is compressed other carmakers will be replacing their tion infotainment and connectivity solu- before it is sent and then decoded. The QNX or Windows operating system with tion, which proved to be ahead of its time. result is 3D maps look like 2D maps with Android, said Danny Shapiro, Nvidia The development was shelved in part long latencies. director of automotive marketing. “We because of the difficulties in fitting “It is a very Apple-centric user inter- actually have Android in the car programs Android to automotive requirements, and face,” said Mr. O’Shea. “You can imagine in development, right now, running on our for lack of customer interest. “But now the situation where the OEM has put a lot Tegra processor. One of the OAA’s objec- things have changed,” said Lars Schul- of work into creating a very nice look and tives will be coming up with a better experi- theiss, in charge of strategy for Continen- feel, specific to them, and then you go into ence with Android running natively on the tal’s Infotainment business unit. “Seeing the iOS in the Car mode and find yourself car’s head unit.” the pressures coming from the market, car in Apple land.” According to Mr. Halliger, “There were manufacturers want to offer more automo- Audi’s Mr. Halliger has been talking to some early attempts by infotainment sup- tive apps and make their infotainment sys- Apple about how to improve the user expe- pliers to base head units on the Android tems more flexible over time. But the rience. “There are a couple of things to spec that was created by the Open Handset situation with Android hasn’t changed. solve. If progress is made of course we will Alliance. But simply squeezing and chang- Developers will still have to make signifi- put iOS in our cars. It is up to Apple. ing the mobile standard was not an idea cant modifications to make it useable for Google is the opposite. Google is very flexi- supported by Google. The OAA is com- the car.” Continental says it now has tech- ble, very open.” pletely different. Now Google is listening nology that can accommodate the Android We have tried to get Apple to make an to the automotive industry and is willing to operating system while fulfilling the interview partner available to The Hansen adapt the Android platform in a way we requirements carmakers place on such sys- Report to explain its intentions for iOS in can use it in our automotive systems.” tems. the Car and tell us when the software will So that it can work productively, the The application manager for Nissan's be ready for prime time, but Apple isn’t alliance initially will be kept small, limited new Infiniti InTouch system, available on talking. Roger Lanctot, Strategy Analytics’ to the founding members. New members the new Q50, is based on the Android quick-witted industry watcher, was not will be brought in once the development SDK. It supports Android apps that will afraid to speculate on why Apple isn’t talk- has stabilized, possibly within the year. Any eventually be available in 100 countries. ing: “When you don’t know what you are code will first be available to members only. Application management, downloadable doing, maybe it’s best to keep your mouth Once it is released it will be made available native applications, SDK and support are shut.” on a Google website. being supplied by Connexis. The apps run natively on the vehicle's head unit indepen- Google’s Motivation Beyond the OAA dently from the driver's brought-in device. By extending their reach into cars, Separately from the OAA, Harman An InTouch app available now at Google Apple, and especially Google, stand to International has been working very closely Play allows drivers to use tailored versions profit greatly. Google’s core business is with Google on behalf of a large carmaker of Facebook, Google Search and Pandora advertising. In 2013 Google’s advertising whose next-generation infotainment system with the in-vehicle touchscreen and steer- revenues rose to more than $50 billion, will be based on the Android operating ing wheel switches. with $7.5 billion of it coming from adver- system. “We will be one of the first users of tising on mobile devices. Were Android to that technology in a shipping product,” iOS in the Car gain a significant foothold in cars, with said Sachin Lawande, Harman Infotain- “The name, ‘iOS in the Car’ is very mis- more eyes and ears on Google products, ment Division president. “We’ve all been leading,” said Michael O’Shea, president of that number would rise significantly. beating the drum about the connected car. Abalta Technologies. “It is not running the Audio advertisements could be sent to Android takes that one step forward, head unit. Basically they are implementing drivers who agree to receive push notices because now you have a platform on which an AirPlay-like solution. Everything is run- based on their location. Passengers could to run the apps the connected car will ning on the phone; it is just a screen pro- receive audio/visual ads. With Android bring.” Once the alliance opens its mem- jecting onto the head unit.” onboard, drivers would be more likely to bership to tier-one suppliers, Harman plans That view is seconded by others who employ Google Maps and navigation to to join. have seen iOS in the Car demonstrated. find points of interest, yet another source We are told that Apple wants to be able to Continued on page 8

The Hansen Report on Automotive Electronics, www.hansenreport.com Page 3, February 2014 The Company Profile SiriusXM Radio

Thumbnail Sketch SiriusXM Revenue and Free Cash Flow by Year EBITDA by Year Headquarters: New York, NY; telephone: 2009 to 2013 CAGR: 49.6% 2008 to 2013 CAGR: 17.3% 212-584-5100; www.siriusxm.com 2010 to 2013 CAGR: 10.5% Approaching 1,100 2013 Revenue: $3,799 million in $ millions 2013 Operating Margin: 27.5% of reve- 927 nue in $ millions 709 Interest Expense: 5.4% of revenue Working Capital: ($1,319.9 million)* 416 Long-Term Debt: $3,093.8 million* Stockholders’ Equity: $2.7 billion* 185 210 Market Capitalization: $21.6 billion, as 1,664 2,473 2,817 3,015 3,402 3,799 4,000+ of February 4, 2014 2009 2010 2011 2012 2013 2014* Employees: 2,195* 2008 2009 2010 2011 2012 2013 2014* Revenue per Employee: $1.7 million *Guidance Subscribers: 25.6 million as of Decem- ber 31, 2013, an increase of 6.9% from Adjusted EBITDA Margin SiriusXM Revenue by Source the prior year 2008 (5.6%) 2012 27.0% Churn Rate: In 2013, just 1.8% of self- 2009 18.3% 2013 30.7% Total 2013 Revenue: $3,799.1 million pay subscribers gave up their subscrip- 2010 22.2% 2014* 34.5% Equipment, 2.1% tions each month, down slightly from 2011 24.2% *Guidance Other, 9.1% 1.9% in 2012. Advertising, Principal Products: Exclusive talk, live 2.4% news, major sports events, and commer- ers received 4.6 shares of Sirius stock for cial-free, curated music channels each XM share they owned. Trading of XM Ownership: Liberty Media Corporation stock was stopped on July 28, 2008. Shares Subscribers, owned 52% of the outstanding shares of of the combined company, now renamed 86.5% common stock as of January 2014. Sirius XM Holdings Inc., are traded on the *As of December 31, 2013 NASDAQ under the symbol SIRI. Both SDARS licenses are now held by the new conditions.” According to another S&P Background entity. report, the company faces “longer-term In 1997, the United States FCC (Fed- While the new company was able to vulnerability to competition from alterna- eral Communications Commission) auc- reduce operating expenses and refinance tive media.” tioned two SDARS (satellite digital audio some of its substantial debt, the timing of radio service) licenses to broadcast in a 25 the deal coincided with the start of the Satellite Radio MHz band of the S-band it allocated for Great Recession and global decline in auto- SiriusXM’s primary source of revenue is commercial satellite radio. One license was motive sales. In February 2009 SiriusXM subscription fees for its radio broadcasts. purchased by American Mobile Radio received a $530 million loan from Liberty The company operates a fleet of ten orbit- Corp., which became XM Satellite Radio. Media Corporation in exchange for 40% ing satellites, five in the Sirius fleet, four The other license was secured by Satellite equity in the satellite broadcaster. Liberty from the XM fleet and one in-orbit spare. CD Radio Inc., which became Sirius Satel- Media continued to buy up shares of the Despite the merger of the two companies, lite Radio. XM launched its first satellite in company and took control in early 2013. SiriusXM must continue to operate both 2001; Sirius launched its first satellite in Today Liberty Media holds approximately systems for the foreseeable future. To shut 2000. 52% of shares. In January 2014 Liberty down either one would obsolete millions of After years of high operating costs accu- Media offered to take over 100% of radios already in the field. XM radios are mulated losses by both companies, Sirius SiriusXM and make it a wholly owned not able to receive and decode signals com- and XM merged, despite the FCC’s initial subsidiary. ing from the Sirius satellites and vice versa. prohibition against one licensee gaining Standard & Poor’s gives SiriusXM a The company supplements its satellite sig- control of the other. (It took the FCC more long-term debt rating of BB. Two rungs up nal coverage with approximately 700 terres- than a year and a half of consideration to from speculative grade, BB indicates that trial repeaters. In addition, SiriusXM offers allow the merger to proceed.) Sirius bought the company is “less vulnerable in the near Internet streaming radio for a monthly fee. XM in a $3.5 billion deal that received final term but faces major ongoing uncertainties Today, about 24% of the cars on the FCC approval in July 2008. XM sharehold- to adverse business, financial and economic road in the U.S. have satellite radios. In the

Page 4, February 2014 The Hansen Report on Automotive Electronics, www.hansenreport.com SiriusXM Radio

Stockholders’ Equity by Year End U.S. Auto Sales and SiriusXM Penetration by Year While many of the people willing to 2008 to 2013 CAGR: 105.0% spend $147 per year, plus or minus, to lis- Auto sales in millions ten to audio entertainment have already $ millions SiriusXM penetration rate 16.2 15.6 been found, the number of paying subscrib- 4500 4,039.6 14.5 4000 ers continues to rise, despite intense com- 13.2 12.7 3500 11.6 petition. New car sales have been robust, 3000 10.4 and the satellite radio option is being 2500 2,745.7 2000 offered in more models, including high 1500 704.1 volume, lower priced cars. 1000 “Ever since we launched, we’ve always 95.5 207.6 500 75.9 had a lot of competition,” said Stephen 0 33% 46% 56% 63% 67% 67% 69% 1 2 3 4 5 6 Cook, executive vice president of sales and 2008 2009 2010 2011 2012 2013 automotive. “AM/FM is free. You’ve got Note: During the first nine months of 2013, the company 2007 2008 2009 2010 2011 2012 2013 iPods, CDs and now Internet radio. We are spent $1,602,360 to repurchase its own common stock, accustomed to competing very effectively which explains the decline in stockholders’ equity com- Note: In 2013, 44% of lessees and buyers of new pared with the prior period. against all the competition. The reason our vehicles equipped with SiriusXM radios converted to paying subscribers following trial subscriptions. business continues to stay strong is we are SiriusXM Subscriber* Totals easy to use—you can hop from expertly curated commercial-free music channels, Average Monthly Revenue* 2009 to 2013 CAGR: 8.0% over to live sports events or comedy, live per Subscriber by Year news broadcasts by all the major news chan- nels, talk and entertainment channels or 2010 $11.73 the most comprehensive Latin program- 2011 $11.58 ming in radio. No Internet service offers 2012 $12.00 in millions the same breadth of content. Our other big 2013 $12.27 pull is we offer credible hosts that present 18.8 20.2 21.9 23.9 25.6 26.9 *Subscriber and advertising revenue the music, live concerts and other exclusive features that you can’t get anywhere else. 2009 2010 2011 2012 2013 2014 promotion period. The company expects to Internet radio tends to be more like a juke- (Est.) offer a total of more than 15 million trial box.” *Totals do not include subscribers to connected vehicle subscriptions, in both new and used vehi- Some examples of the exclusive audio services or subscribers to satellite radio provided by cles, in 2014. The 2013 average monthly entertainment SiriusXM offers include E SiriusXM Canada, an affiliate in which SiriusXM holds 38% equity. churn—self-paying subscribers who gave up Street Radio, a 24/7 curated Bruce Spring- their subscriptions—was 1.8%. steen channel, the popular Howard Stern next five years the company expects satellite SiriusXM makes royalty payments to show and the Grateful Dead channel, a radio installations will increase from 60 music copyright holders and performers. channel co-produced with the band. Patrick million vehicles today to 110 million in Performance royalty payments as a percent- Reilly, senior vice president of communica- 2019. Monthly subscriptions to SiriusXM age of gross revenue are increasing by a half tions for SiriusXM, said: “We offer more start at $9.99 per month for more than 80 a percentage point per year: from 9% in than 70 music channels, all of which are channels of mostly music. Subscribers who 2013 to 11% by 2017. It is not at all cer- commercial free. Many of the music stream- receive more than 140 channels of music tain where it will go from there. Pandora ing providers have business models based and talk radio pay $14.99 per month. In pays royalties equivalent to roughly 70% of on advertising, not unlike FM radio. The 2013 SiriusXM received average monthly its revenue for licenses from songwriters biggest complaint from people listening to revenue per subscriber of $12.27. That fig- and performers, according to industry esti- music on the radio in their cars is that ure is calculated by dividing monthly sub- mates. there are too many commercials. Our sub- scriber revenue plus advertising revenue by SiriusXM’s market is maturing, which scribers never have to face that.” the average number of subscribers. means revenue growth will slow in the long Still, SiriusXM’s competition for both SiriusXM has agreements with every term. The growth in the number of paying listeners and advertising will get more major carmaker through which it subsidizes subscribers has slowed from 8.3% per year intense. The percentage of smartphone radio installations and offers new car buy- in the period 2009 to 2012, down to 5.9% owners who have listened to an online ers free trial subscriptions. Last year 44% of per year from 2012 to 2014, according to radio stream from a cell phone connected owners and lessees of new vehicles who the company’s forecast. The number of sub- to a car stereo is growing dramatically, from received free trial subscriptions converted scriptions that were deactivated increased to self-paying subscribers after the initial 11% in 2013. Continued on following page The Hansen Report on Automotive Electronics, www.hansenreport.com Page 5, February 2014 SiriusXM Radio

6% in 2010 to 21% in 2013, according to in the pipeline. On November 4, 2013, Sir- 2013 research from Arbitron and Edison AM/FM radio has far more frequent us- iusXM finalized its purchase of the con- Research. ers than other in-car audio options. nected vehicle services unit of Agero for Alternatives to SiriusXM will become Percent using almost all or most of the $530 million in a cash transaction. Operat- easier to access in the future as the penetra- time in the car: ing almost entirely in North America, the tion of infotainment systems grows. Info- AM/FM Radio 58% telematics services provider’s main custom- tainment systems are still in their infancy, CD Player 15% ers are Acura, BMW, Honda, Hyundai, says Arbitron and Edison Research: Just iPod/MP3 Player 11% Infiniti, Lexus, Nissan, Rolls Royce and 6% of respondents have driven or ridden Satellite Radio 10% Toyota. Agero also provided services on in a car with in-dash information and Online Radio 4% behalf of BMW and Mercedes. entertainment systems, not surprising con- HD Radio 1% In mid-January 2014, just a couple of sidering the average age of light vehicles on Base: People who have driven or ridden in months following the ownership change, a car in the last month who are at least 18 U.S. roads today is 11.4 years, according to SiriusXM had integrated all of the roughly years old. R.L. Polk. 500 former Agero employees, half of whom SiriusXM has been acquiring an increas- work at the call center. Also on board are ing number of subscribers through the sale The percentage of cell phone owners 130 engineers, plus the account and busi- or lease of previously owned vehicles with who have listened to online radio ness management teams. The unit is based factory-installed satellite radios. Used cars streamed from a cell phone connected in Irving, Texas. made up about one million of the compa- to a car stereo is quickly growing. The unit’s connected services include ny’s gross subscriber additions in 2012, and 2010 6% safety, security, convenience, remote diag- that number grew to 1.5 million in 2013. 2011 11% nostics, routing and destination assistance, The company has agreements with many 2012 17% maintenance and data services delivered carmakers to market subscriptions to pur- 2013 21% over two-way cellular networks. SiriusXM chasers of certified pre-owned vehicles. In management targeted telematics for invest- 2013, 34% of used car buyers with trial Data: 2013 Arbitron Inc. and Edison ment in the firm belief that eventually all subscriptions converted to paying custom- Research vehicles will come with embedded ers. The company expects that eventually modems, primarily because they provide more new subscribers will come from the OEMs a secure connection to the outside used car business than from new cars. buffering and the capability to receive addi- world that they can control. SiriusXM CEO, James Meyer, sees no tional stations, SiriusXM has been able to The company expects Connected Vehi- reason why 15% or more of the vehicles on reduce the cost of the modules. The mod- cle Services will produce nearly $100 mil- the road shouldn’t have his company’s pre- ule cost shows up significantly in the com- lion in revenue in 2014. While the mium radio service. According to R.L. Polk pany’s subscriber acquisition cost (SAC), SiriusXM Connected Vehicle Services busi- there are 247 million vehicles on the road which have declined from $70 per sub- ness will have its own P&L, it will not be in the U.S. today. With 25.6 million sub- scriber four years ago to below $50 now. run as a stand-alone business. It reports to scribers, SiriusXM penetration today stands The SAC also includes commissions paid Enrique Rodriguez, executive vice president at 10.4%. to carmakers as incentives to purchase, of operations, responsible for all SiriusXM install and activate satellite radios in their products. “We see this as a natural exten- Satellite Receiver Modules new vehicles. The chips come from sion of our core business,” he said. “It will SiriusXM designs the modules that STMicroelectronics and others. be run as an integrated part of the com- receive and decode the satellite radio sig- nals. Head unit manufacturers such as Connected Vehicle Services via Agero Distinctions Claimed by SiriusXM Harman and Clarion incorporate those Acquisition u The world’s largest radio broadcaster modules into the audio systems they supply “We are huge believers in the connected measured by revenue to OEMs. By subsidizing the cost of the car,” said Mr. Meyer in a recent teleconfer- u World’s number-one provider of in-vehi- satellite radio, SiriusXM encourages car- ence with securities analysts. “One of the cle subscription services makers to install them in new vehicles. The greatest things about our business relation- u The telematics service provider serving modules are comprised of a semiconductor ships is the OEMs share their product the most carmakers chip set and software. In 2013, 10.7 mil- plans with us out many years. We know u Satellite radios are installed in approxi- lion satellite receiver modules were were north is. North is a fully connected mately 60 million vehicles, or 24% of installed in new light vehicles produced for vehicle.” the U.S. vehicle fleet. sale in the U.S. According to company statements, Siri- u The world’s only telematics service pro- Despite improving the module over the usXM provides connected vehicle services vider to offer both cellular and satellite years with more memory for longer signal to eight OEM brands, with several others connectivity

Page 6, February 2014 The Hansen Report on Automotive Electronics, www.hansenreport.com SiriusXM Radio

SiriusXM position. Well established in both the back-end technology is complementary Connected Services Customers audio entertainment and data services (traf- to the technology and the network that fic flow information, weather and gas SiriusXM has developed,” said Mr. Rodri- Acura prices) businesses, it is the only telematics guez. BMW service provider with a significant infotain- u Cellular Plus Satellite Connectivity Honda ment business. SiriusXM’s satellite connection only Hyundai “The Agero connected vehicle business goes in one direction, downward to the Infiniti has done a great job with the user experi- vehicle; cellular networks are two-way, both Lexus ence on the safety and security side,” said to and from the vehicle. As it integrates its Nissan Mr. Rodriguez. “SiriusXM does a fantastic satellite services with telematics services, Rolls Royce job of that with entertainment. Our num- SiriusXM can make use of data exported ber-one objective now is to deeply integrate from the vehicle via the cellular connec- pany with little focus on its stand-alone those two user experiences.” tion. P&L. Our focus will be on expanding the Along with satellite radio broadcast ser- A number of telematics services would range of services that we bring to OEMs vice, the company also offers SiriusXM benefit from the availability of two inde- and consumers in the automotive space.” Internet Radio, where a listener can person- pendent wireless links to the vehicle. For SiriusXM serves the telematics market in alize a channel or get on-demand content. example, remote door unlocking: “If a vehi- the U.S. and Canada. All carmakers operat- “We see an opportunity to dramatically cle happened to be out of the range of cel- ing in the region are existing or potential enhance the listening experience in the lular coverage, we could hit the car with a customers with the exception of General vehicle by combining the satellite content signal from the satellite,” said Mr. Cook. Motors, which operates OnStar as a wholly with the 4G LTE delivered content, which SiriusXM’s satellite network could also owned subsidiary. is more personalized,” said Mr. Cook. be used to update vehicle software. “In u Competitors serving the merchant tele- Automotive Relationships most cases updates would be provided matics market include Verizon, which SiriusXM already has strong relation- nationally, wherever the vehicle models acquired Hughes Telematics in 2012, and ships with every automotive OEM serving happen to be located,” said Mr. Rodriguez. provides connected services to Mercedes North America, as well as relationships “That would be a great use of the satellite and Volkswagen of America, and Sprint, with the tier-one suppliers who integrate network’s ability to broadcast.” u which will soon provide telematics services SiriusXM satellite radio modules into head Consolidated Billing to Chrysler customers. units. These relationships will be helpful as Consumers who subscribe to both it further develops its telematics business. SiriusXM’s telematics and audio entertain- u Nissan Engineering ment businesses will benefit from having In a separate deal concluded in Septem- The merger brings together the Sirius- just one company to contact and one bill to ber 2012, well before its agreement to pur- XM broadcast audio entertainment tech- pay. Furthermore, customers who subscribe chase the connected services unit of Agero, nology with telematics technology. “Agero to one or the other service will be more SiriusXM announced an agreement to pro- has invested heavily in the back-end tech- receptive to promotions coming from a u vide telematics services to Nissan vehicles nology needed to process all the transac- company they already do business with. in North America. AT&T will provide the tions going to and from the vehicle. That cellular connectivity. Agero had been providing telematics services to Infiniti, the luxury division of Three-Year SIRI Share Price History Nissan. Now, following the acquisition, Nissan, Infiniti and SiriusXM are working Source: BigCharts USD on ways to consolidate Nissan’s and Infini- 4.00 ti’s telematics services. 3.50 Connected Vehicle Services—Synergies with Satellite Radio 3.00 u Infotainment and Telematics Are Merging 2.50 In the future the embedded modem will link not only to traditional safety and secu- 2.00 rity services, but to infotainment services as 1.50 well. That convergence of telematics and 2/2011 2/2012 2/2013 2/2014 infotainment puts SiriusXM in a unique

The Hansen Report on Automotive Electronics, www.hansenreport.com Page 7, February 2014 Android… Continued from page 3 of advertising revenue. Many other mobile Google. There is already precedence for into a space and totally disrupting it for its Google products could be accessed while that kind of relationship. For example, Sir- own benefit,” warned Mr. Lawande. driving, such as news, location-based offers, ius XM Radio makes significant payments “Once you give Google access to the car, calendar, Gmail and search, with much of to carmakers to install and activate satellite they are masters of monetizing this and the it monetized. radios, and AT&T will pay a $20 subsidy carmakers could be left out,” warned Mr. Google’s online advertising revenues to OnStar for every new customer who O’Shea. would be further enhanced by tracking signs up for the service. “The OEM engineers I talk to have a where drivers go and what both drivers and fear that they could be taken hostage. passengers do online from their vehicles. Auto Industry Wary Google and Apple will not ask permission The more Google knows about consumers, Nevertheless, the auto industry is wary to change something, they will just do it,” the more likely it will be able to target about where its relationships with Google warned Bosch SoftTec’s Kay Herget, head them with online advertising once they and Apple might lead, as it should be. of marketing and product management. leave their vehicles. Vehicle data that tracks There is the matter of privacy. Laws are Despite all the concern, carmakers how people drive would help auto insurers vague about who owns the data that a vehi- should have the upper hand. Because they find their best prospects. Google could cle could send to the cloud. And there is control the cockpit and they control the monetize that. plenty of concern about whether partner- interfaces between any infotainment appli- All of this should motivate carmakers to ing with Google or Apple would be equita- cation and the vehicle networks, the OEMs try to make revenue-sharing deals with ble. “Google has a long history of coming will continue to call the shots. u Remote Software Updates Are Here Red Bend Software Sees Auto Industry software. That adds a feature to let drivers According to Red Bend, the European Adoption Soon adjust the suspension’s ride height mode, and American carmakers are all heading in It is a widely held view in our industry and provide for real-time traffic informa- this direction. “They see benefits from a that in ten years or so, most cars will be tion, among other improvements. customer satisfaction perspective and from capable of receiving software updates while Firmware over-the-air (FOTA) updates a warranty cost management perspective,” they sit in the driveway. Infotainment sys- have become routine for mobile handset Mr. Kinder noted. “Some carmakers are tems will be the first to be remotely updat- manufacturers to keep their devices fresh telling us they want to have the whole vehi- ed, and some years later cars will be capable with the latest fixes, enhancements and cle remotely updateable by 2020, every line of receiving updates to their vehicle control features. “Handset makers started re-pro- of code.” systems, even those that are critical to gramming phones at the point of manufac- Thus far, all the car deals won by Red safety. ture,” said Richard Kinder, vice president Bend involve the infotainment/telematics For Tesla, the future is here. Tesla is of technology and new business at the mo- domain—the head unit, rear-seat entertain- already doing what carmakers in the U.S., bile software management firm Red Bend ment, peripherals and eCall. Red Bend also Germany, Japan and elsewhere are still Software. “That slowly moved to the dealer expects to be involved with navigation map planning. Tesla has already updated con- or service point. Then once they were com- updates. But while it is possible to update trol systems on production vehicles in the fortable with that, it moved to full over-the- applications separately from the rest of the field. In August 2013 Tesla remotely in- air updates. I see carmakers embracing a infotainment system, “We think it’s really stalled a “creep option” on its Model S elec- similar step-wise approach.” Since 2003, important to be able to update the whole tric vehicles, which lets drivers decide technology from Red Bend Software has head unit software holistically, because whether or not the car can begin to slowly been used to update more than 1.75 billion there often aren’t clear boundaries between move forward when the brake is released, mobile devices, including those from the the kernel, the middleware and the applica- which is similar to the way conventional world’s top smartphone maker, Samsung. tions,” advised Mr. Kinder. Vehicles with vehicles equipped with automatic transmis- Cars are next. Well aware that carmak- that capability will be on the road begin- sions work. ers would eventually want to be able to up- ning in 2015. Tesla implemented another over the air date firmware over the air, Red Bend began Commercial vehicle OEMs have been software update in November, this one to investigating the automotive market in more aggressive than carmakers when it give the Model S more ground clearance at 2007, which proved too early. It looked comes to updating vehicle control ECUs, highway speeds to “reduce the chances of again in 2010, and found automotive those outside the infotainment domain, underbody impact damage.” In December, OEMs more receptive. “We won our first according to Mr. Kinder, “Because every Tesla made another over-the-air update to automotive production deal in 2010 with a minute a commercial vehicle is out of oper- regulate the charging voltage to fix an issue U.S. [passenger vehicle] OEM. That hit the ation costs the operator money.” Produc- that led to overheating in the charging sys- road in 2011 and 2012. We have other tion starts for systems that can update tem. In the next several weeks another up- projects coming to market in 2015 and ECUs are expected in 2017. Red Bend’s date will deliver Version 6.0 of the Tesla 2016,” said Mr. Kinder. Fuse product is designed for ECU updates. u

Page 8, February 2014 The Hansen Report on Automotive Electronics, www.hansenreport.com