Samsung and LG Ride the Future Car Without Vehicles... Accelerating in the Auto Parts Business (Comprehensive)

[Asia Economy Reporter Park Sun-mi] Samsung Electronics and LG Electronics are showcasing consecutive contract wins in the automotive electronics (electric and electronic equipment for vehicles) business. It is being evaluated that they are successfully expanding their presence into the advanced automotive sector, a future growth engine, without entering the complete vehicle market.

According to the industry on the 12th, Harman, an automotive electronics company acquired by Samsung Electronics in 2017, is set to supply 5th generation (5G) telematics equipment to Japan's Toyota for the first time. Although the main contract has not yet been finalized, it is expected to proceed at a scale of approximately 100 billion KRW. Harman's 5G telematics had already secured supply to BMW electric vehicles last year, and this time it has succeeded in winning its first order from Toyota.

Harman provides innovative connected car (smart cars connected to communication networks) solutions to automakers, possessing technologies such as digital cockpit (vehicle control space) platforms, advanced driver assistance systems (ADAS), cybersecurity, and telematics. In particular, telematics equipped with 5G technology offers real-time information to drivers, providing functions that alert them in advance about accidents ahead, making it a core technology for autonomous vehicles.

In the first year after Samsung Electronics acquired Harman in 2017, its sales and operating profit were only 7.1 trillion KRW and 57.4 billion KRW, respectively. However, last year, sales reached 10 trillion KRW, and operating profit surpassed 500 billion KRW for the first time. The securities market expects that if the current growth pace continues, Harman's sales will reach 11 to 12 trillion KRW this year and next year. The operating profit margin, which was around 3.8% in the first quarter, is also expected to rise to about 8% by the end of the year, making it possible to achieve an annual operating profit margin in the high 5% to low 6% range this year.

In the case of LG Electronics, its automotive electronics business turned profitable in the second quarter of this year, nine years after entering the business, raising expectations for future growth. The VS Business Division, which includes the automotive electronics business, saw smoother-than-expected supply to customers due to eased supply constraints on automotive semiconductors, with second-quarter sales estimated to be around 2 trillion KRW, the highest quarterly performance.

Notably, LG Electronics secured new projects worth 8 trillion KRW in the automotive electronics business in the first half of this year. It is widely expected that the total order backlog will exceed a record high of 65 trillion KRW by the end of the year. LG Electronics' automotive electronics business is composed of three main pillars: the vehicle infotainment system of the VS Business Division, the vehicle lighting system of its subsidiary ZKW, and the electric vehicle powertrain of the joint venture LG Magna e-Powertrain. Recently, these businesses have been showing balanced growth.

The market is also raising expectations for the automotive electronics businesses of Samsung Electronics and LG Electronics. Choi Bo-young, an analyst at Kyobo Securities, said, "In the case of LG Electronics, the VS Business is experiencing sales growth and a larger-than-expected significant turnaround to profitability due to eased semiconductor production constraints," adding, "Based on the surprising second-quarter performance, sales growth is expected to continue in the third and fourth quarters." Kwon Sung-ryul, an analyst at DB Financial Investment, also stated, "As vehicle production increases, the sales scale in the second half of the year could grow further, establishing a profit-making trend."

Meanwhile, as global IT companies are announcing consecutive entries into the electric vehicle and autonomous vehicle markets, Samsung Electronics and LG Electronics are focusing solely on the automotive electronics business, excluding the possibility of entering the complete vehicle market. An industry insider explained, "The dominant analysis is that there is no need to take the risk of competing with existing customers by entering the complete vehicle market at a time when results are already emerging in the automotive electronics business by leveraging advanced IT technology."

This content was produced with the assistance of AI translation services.