What has been your best midsize segment conquest?
That would be FCA (Fiat Chrysler Automobiles). The next one is GM. And at Subaru we replaced a Japanese competitor.
How fast is the infotainment sector growing now?
Traditionally it has been 2 percent to 3 percent every year. But three things are happening: 1) car production is going up, which helps us grow, 2) we see more adoption of our technology in the cars and 3) we have gained market share. We think we are at the point where this linear growth of 4 to 5 percent is going to become non-linear. All the analyst groups, IHS, etc., are saying in three to five years onboard penetration of infotainment will be 60 to 65 percent globally.
What is the current percentage of penetration for the technology?
About 25 to 27 percent. So it will more than double in five years. Europe is running at around 25 to 30 percent. Japan is the highest at about 65 percent. China is single digits. The U.S. is about the same as Europe. China is a huge opportunity for us. Our revenue is about $4.5 billion. We have a $25 billion order book. And that is based on current adoption rates of 25 to 27 percent, so as this curve starts getting non-linear we think Harman can double this business in the next five to seven years.
You produce the hardware. What opportunities are there for you on the software side?
First of all, 70 percent of our added value comes from our software engineering. We are in the hardware business to enable our software solutions. That’s how I describe it. We are heavily invested in software.
Where have you invested in software?
Last year we acquired a California software applications and engineering cloud company for $1 billion called Symphony Teleca along with 9,000 software architects and engineers. Subsequently we acquired Red Bend Software, a world leader in over-the-air (OTA) updates. It updates cars from Daimler and Tesla and others. Earlier this year we acquired a company in Israel called TowerSec, a leader for automotive cyber security. We also have launched a new [infotainment] architecture called LIVS. It’s based on Google/Microsoft/Linux open-source yet it’s also proprietary. It means we can build very complex architectures for high-end cars but also have simpler version of the same technology for entry cars.
Do you have a plan for the data produced?
We don’t want to get into a debate about who owns the data. We want to be the data manager.
What can you do with the data?
We can get the data through our own infotainment systems, through our telematics, then we can look at driver behavior, we can do proactive diagnostics on the car ahead of planned service intervals. We can carve out a stream of data for insurance companies.
What is that worth to you?
That's an interesting question. We want to have a subscription-based service, for example if you’re providing data back to the dealership. Same for the Red Bend over-the-air software updates. That's a subscription service and we get paid on how much the customer uses or on an annual basis.
What will that eventually be worth in terms of revenue? Perhaps 10 to 20 percent?
We have not given this number to anybody because this is evolving. Sometimes it would be embedded. Let’s say if we have a $2 billion contract with BMW, maybe it's part of that package. Or maybe it's carved out so we sell it as valued-added software services.
Who are your rivals?
We have four to five Japanese companies. We have Bosch and Continental from Europe and Delphi in the U.S. We dominate premium. In mid-segment we are growing fastest and where the growth is.