Harman on Dirac Research, audio market drivers and good margin options - Q&A Part 2
In our second interview with Harman, Matthew Beecham asked EVP and President Lifestyle Audio Division Michael Mauser about forces driving the audio market and innovations it is introducing to sustain growth.
Following Harman's FY2016 Q1 earnings announcement last month, we learned that your Connected Car net sales grew by 19 percent, Lifestyle Audio net sales, covering the car audio sector by increased 21 percent, both adjusted for currency. Income rose 24 percent for the first quarter to US$158m. What is driving these strong financials?
In the Lifestyle Audio section that I am responsible for, our portfolio of audio brands and a very full pipeline of innovations ensures that we can offer all of our customers something really exciting. That translates to audio systems that sound great and generate real end customer appeal in the dealership.
At our disposal, we have the most comprehensive and diverse range of premium brands and technologies that are a perfect for fit for each OEM customer.
Let me explain this a little further.
At the  IAA for example, we debuted the exquisite diamond dome tweeters in our Bowers & Wilkins system in the new BMW 7 Series. Elsewhere and for the first time, Harman Kardon systems, are now featured in Alfa Romeo's Giulia and Maserati's Ghibli and Quattroporte models. The new smart fortwo convertible has a punchy JBL system. We also launched a clever 3D sound system, thanks to our recent acquisition of the automotive division of Bang & Olufsen, in the new Audi A4. Demonstrating the established and trusted relationship Harman enjoys with Lexus, we exhibited the latest RX equipped with a luxury Mark Levinson audio system that also has Harman's Clari-Fi music restoration technology. Very individual solutions for different car makers and their customers.
On top of that, Harman has just announced a partnership with Dirac Research. This continues our obsession to offer best-in-class audio solutions.
Who is Dirac Research?
Dirac Research specialises in high-performance digital sound optimisation. Harman will also become a worldwide distributor of Dirac's sound technologies to automotive sound system suppliers and car manufacturers.
Is Dirac Research already found in cars?
Yes it is and this announcement builds on Harman's existing relationship with Dirac that provides the Bowers & Wilkins premium in-car surround system for the Volvo XC90. It features advanced sound optimisation technology called Dirac Unison. Now Harman will be able to implement this and Dirac's other advanced digital audio technologies to our other customers, fulfilling our objective to enhance any customer's listening experience.
But do customers really care about audio quality, especially in a car where there is so much more background noise?
Our research has identified that the car is one of the few places that we still actually listen to music. For me, on my drive to work, it is a chance to listen to what I want and that is 'an experience.' We at Harman want to make that as special as possible, enhancing and complementing the whole driving experience. The car makers no longer add a sound system as an afterthought to the finished vehicle interior; our engineers work with the stylists and engineers to package speakers in the optimum place from the concept phase of a new car. We have become an integral part of the packaging to get the best sound. That has taken a mindset change at the car makers but we are there. With some of our customers we have even convinced them to adjust body-in-white to get a better sound. That's really showing the depth of the relationship and is something we are proud of.
I do believe that some of today's cars offer one of the best listening experiences; yes, there are challenges with the space and materials but we know where the occupants are sat and very powerful software such as Active Noise Cancellation or QuantumLogic sound processing can make the car a truly special listening venue. That same research I just mentioned also highlighted that 70 percent of 18-24 year olds prefer listening to music in the car over anywhere else so it appears the next generation of cars will want good audio too.
Are the OEMs prepared to pay for this?
Harman's advantage is we can draw on a huge range of technologies from our Lifestyle Audio and Professional Solutions divisions to provide a solution that fits with our customer and their car line. These range in cost so we can find solutions for each client. You have to remember that options such as a sound system are a good margin option that consumers want to have on their car.
So what is next?
CES in Las Vegas is where you can expect to see our next innovations so keep an eye out in January. We have some really exciting innovations in audio at all levels, so appealing to all of our customers.