Harman Upgrades Forecast On Big Revenue Growth, Better Economic Outlook

Harman raised its revenue forecast for fiscal 2014 to $5.1 billion from $4.7 billion on stronger demand in all three segments, the company said Thursday. All three segments -- Infotainment, Lifestyle and Professional -- had double-digit growth for fiscal Q2 ended Dec. 31, said CEO Dinesh Paliwal. Net sales for the quarter grew to $1.3 billion, from $1.1 billion in the year-ago quarter. Net income for the quarter was $72 million, vs. $47 million in fiscal Q2 2013.

Paliwal attributed the results to an “improved” economic climate, particularly in the automotive segment, which came in “beyond expectations” with $1.1 billion in new automotive awards. Demand for the connected car, he said, is becoming more mainstream, a trend he expects to continue through fiscal 2014.

Harman made a “significant breakthrough” in the Japan market, winning new business with Suzuki and Yamaha, making Harman the first non-Asian supplier to deliver an infotainment solution specifically designed for the Japanese market, Paliwal said. “Japan is a silver lining for us,” he said, saying the company had thought it was “totally shut out” of that market but is now seeing “a lot of interest from other OEMs because Harman is the only company that can bridge gap between Silicon Valley and the car companies and bringing whatever Google and Apple have to offer.” Harman will continue trying to grow its business in Japan, he said.

Higher margins in the automotive business came largely from Harman’s scalable platform launched last year, which is based on the Android for Automotive operating system. “We're getting rid of lousy, low-margin business,” Paliwal said. The company is focusing on custom business, which provides “high single-digit margins” and scalable solutions, which deliver double-digit margins, he said. In the quarter, Harman secured several awards for its HTML 5-based scalable solution. The proprietary scalable solution gives Harman performance in a smaller configuration and addresses concerns over driver safety, cyber security and rapid application development that can “only be provided through in-car embedded solutions,” Paliwal said. The solution paves the way for an app-based ecosystem in in-car embedded infotainment and provides a foundation for the future of autonomous driving, Paliwal said.

Harman also won awards with scalable car audio solutions from companies including Hyundai and Geely during Q2. The scaled-down configuration provides Harman audio to smaller cars affordably, opening a broader market segment, he said.

Harman’s Lifestyle group is hoping to benefit from the “explosion” in streaming, which Paliwal said is delivering “a lot of garbage music” to listeners. Harman’s recently introduced Signal Doctor technology that leverages the company’s expertise in music recording, signal processing and psychoacoustics to “restore the full sound that is forfeited in the compression process,” Paliwal said. It will launch “fairly soon” in home, multimedia and automotive products, he said. Harman also expects to license Signal Doctor to third parties, he said.

The stronger than anticipated euro contributed to Harman results in Q2, contributing about $100 million to Q2 performance, said Chief Financial Officer Herbert Parker. Harman shares soared 17 percent Thursday to close at $102.34.