Harman Cuts Last Direct Ties to Personal Navigator Business

About 200 employees at offices in Hamburg and Villingen, Germany, that were responsible for the automotive PND category will be affected by the move, Harman CEO Dinesh Paliwal said. The Villingen facility will close and some employees will be moved to other Harman locations, a Harman spokesman said. Harman will keep control of PND-related IP, but “we look forward to Neusoft’s contribution to our navigation business,” the spokesman said.

Harman sold its remaining PND inventory to Germany’s Falk Navigation, which licensed the Harman Beck brand for products, the spokesman said. Under terms of the agreement, Falk will sell the inventory during the next six months, Harman said in an SEC filing. Harman will get 50 percent of the profits on PND sales for five years. It also will receive royalties based on the sales through the expiration of the pact, which can be extended for up to 20 years, Harman said. The agreement will result in a $100 million decline in Harman’s annual net sales that will be offset by revenue from other businesses including automotive electronics, company officials said.

Harman struggled with PNDs, dropping handheld models in the U.S. in 2008 after margins shrank and prices plunged 60 percent (CED Aug 18/08 p3). It kept PNDs that focused on the premium in-dash sector via its Harman Becker brand in Europe. Harman recorded a $4.8 million restructuring charge in the six months ended Dec. 31, including $4.1 million for employee severance. It also has recorded $3.2 million in accelerated depreciation and inventory provisions, the company said.

Harman swung to a $19.7 million fiscal Q2 profit from a $319.3 million loss a year earlier and net sales jumped to $937.4 million from $755.8 million, the company said. Harman turned a profit despite recording a $13 million loss on the sale of its 50 percent of South Korea-based Harman Navis navigation joint venture to partner Navis, the company said. Navis will buy Harman’s interest for $20 million over a 26-month period, Harman said. Navis paid $10 million in fiscal Q2, it said. Harman agreed to pay a $29 million guaranteed royalty to Navis over a three-year period, the company said.

Harman also recorded $9.3 million in goodwill impairment charges in fiscal Q2 related to its acquisitions of QNX Software ($5.1 million) and Innovative Systems ($4.2 million). The charges were offset by a sharp rise in revenue, including a jump in automative infotainment system-related sales to $668 million from $517.1 million a year ago as Harman benefitted from increased business with BMW. Sales to BMW accounted for 18 percent of Q2 revenue, up from 13 percent a year ago, while those from Audi/Volkswagen declined to 13 percent from 15 percent. The automotive business posted a $29.5 million operating profit against a $320.1 million a year earlier related to restructuring. Harman closed its Martinsville, Ind., automotive electronics plant and sold it last fall to a real estate developer, a spokesman said. Consumer revenue rose to $127.2 million from $115.9 million as the division swung to a $5.6 million operating profit from $25.3 million loss a year earlier. Consumer gross profit margin rose to 27.8 percent from 22.9 percent. Harman’s professional division reported a $20.5 million operating profit, up from $6.7 million a year ago as sales improved to $132.8 million from $112.8 million.

Harman added store-within-a-store formats at Media Markt locations in Belgium, Denmark and France in fiscal Q2, Paliwal said. Media Markt has about 560 stores in 14 countries in Europe. Harman has similar plans for North America, where Nebraska Furniture Mart is installing the format at its Kansas City location.