Harman International Industries Inc., one of the world’s biggest makers of in-car media systems, has agreed to buy two software companies for $950 million in cash and stock that will facilitate over-the-air computer updates in vehicles.
The Stamford, Conn.-based Harman will buy Mountain View’s Symphony Teleca, which provides integration services, for $780 million and Israel’s Red Bend Software, which specializes in software for connected devices, for $170 million.
Harman is known better for its audio systems Harman-Kardon and JBL, but after the purchase 75% of its products will be software systems.
Harman shares were off less than 1% in morning trading.
The purchase could be a key breakthrough in the automotive industry as companies seek to update outdated media systems, as well as faulty software controlling the engine, transmission and braking systems in vehicles through home-Wi-Fi transmitters. Tesla Motors Inc. already offers this ability in its Model S vehicles, and Ford Motor Co. has promised it in its forthcoming vehicles that have the Sync 3 system.
The Symphony Teleca systems also could be used to create a smartphone based system to update lower-cost vehicles—ones that don’t come with a built-in Wi-Fi transmitter.
“We all have one common problem,” said Harman Chief Executive Dinesh C. Paliwal. “Car makers say, ‘you guys give us tremendous onboard systems … but they all need firmware updates, software updates, application updates. Only smart devices have started to do it. Nobody has been able to do it in cars.”
Harman’s purchase is illustrative of a major shift in the auto industry’s supply base. Traditional parts suppliers are rushing to purchase companies or develop expertise in telecommunications, sensing and computing technology, where they can demand high margins for their products. Meanwhile, the big suppliers are looking to off-load commodity-driven, capital-intensive parts businesses. Big names like Johnson Controls Inc. and Visteon Corp. have been spinning off or selling divisions.
Of the $780 million for Teleca, $382 million will be paid in cash. For Red Bend, $71 million will be in cash and the rest in stock.
Symphony Teleca creates software services for mobile, while Red Bend manufactures software-management technology for connected devices and over-the-air software.
Mr. Paliwal said the acquisition will diversify Harman’s business, adding significant service business that will increase the company’s overall profit margins. In addition, the company will add software engineering talent, some of which will be repurposed to help write code for its automotive systems where there are dramatic shortages of talent.
Symphony Teleca has 8,000 employees, the bulk of which are software engineers, adding a massive resource to the company in an area of dire demand. Hundreds of open positions are unfilled in the U.S. and German for programmers for the company, Mr. Paliwal said.