Harman International Industries' CEO Discusses F4Q12 Results - Earnings Call Transcript

Harman International Industries, Inc. (HAR)

F4Q12 Earnings Call

August 10, 2012, 11:00 a.m. ET

Executives

Dinesh C. Paliwal – Chairman, President and CEO

Herbert K. Parker – EVP and CFO

Analysts

Christopher Ceraso – Credit Suisse

Ryan Brinkman - JPMorgan

Ravi Shanker – Morgan Stanley & Co. LLC

Adam Brooks – Sidoti & Co. LLC

David Leiker – Robert W. Baird & Co.

Doug Thomas – JET Investment Research

Presentation

Operator

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Harman fiscal 2012 fourth quarter earnings call. (Operator Instructions)

I would now like the turn the conference over to Dinesh C. Paliwal, Chairman, President and CEO. Please proceed.

Dinesh Paliwal

Good morning ladies and gentlemen, and thank you for joining the Harman fourth quarter and full-year 2012 investor and analyst call. I’m joined in Stamford, Connecticut today by our Chief Financial Officer Herbert Parker and our Vice President of Investor Relations Robert Lardon.

We had an outstanding year, and I’m pleased to report solid progress with sales up 16% and operating income up 47% for the fiscal year, with a nice increase of 41% in earnings per share for the year.

I’m extremely proud to report that we continue to innovate and invest in technology. We added some 600 new patents and patents filings this past year, and our invention portfolio has grown to 4,400, almost doubled in the last five years. Our strong pipeline of new products in our [inaudible 2:27] branch and expansion of our channels globally position us for healthy secular growth.

We are on the forefront of developing connected car technologies, with a focus on active driver safety. As you know, we successfully collaborate and integrate technologies from Google, Apple, Microsoft and other partners. Actually as a very good example, just a couple days ago, Chrysler put out a press release, and let me talk about it. Harman just launched a latest infotainment system to Chrysler, it is called Uconnect. This will for the first time connect to a cellular network in the United States without an on-board smartphone. Just think of how many percent of Americans carry smartphone in the car, not too many. This is first in the industry that it is phone [inaudible]. The new technology will debut in the 2013 model Ram 1500 pickup truck and 2013 SRT Viper. This Harman technology will allow consumers to use voice command with a touch button on the steering wheel, to do Bing-powered internet searches, read and write text messages and enter navigation destinations without multiple prompts. Vehicles equipped with this Harman technology will also be able to serve as a mobile hotspot. Chrysler’s infotainment chief, actually, Mario Zenios, called it “one-stop shop and connectivity, online apps and smartphone integration.”

So moving along, car companies have done very extensive research on consumer needs and technology solutions available. Embedded infotainment ranks very high on each automaker’s priority list, principally due to safety requirements and the need for full integration with the car’s sensors and other subsystems in the car. Research validates that embedded infotainment system penetration will continue to grow rapidly, and it will be complemented by smartphones. I remind everybody that only 20% of the cars currently have embedded infotainment systems, and this is likely to go up to 50% within the next five years. In addition, basic telematics and basic connectivity will also grow in the car via smartphone integration. And it’s likely to go from less than 5% today to some 30% in five years. So, these trends really put Harman right in the sweet spot of a big growth opportunity, given our leadership in automotive embedded infotainment system, design and smartphone integration capability.

I also want to remind you that Harman has led the smartphone integration and we will provide the service to car companies just like what we did with Chrysler this past week, just like what we are doing with BMW this fall. With or without an embedded system in the car, our record car intake for embedded infotainment system and the recent awards from leading automakers confirm our strategy and business model.

On that note, we are pleased to have scored several key events during fiscal year 2012. We extended our relationship with BMW through a 2 billion+ order that we shared with you on the last call. And earlier in the year, we booked a 400 million [inaudible] award for Porsche-Volkswagen group.

To meet the growing demand for entry-level embedded infotainment systems, Harman launched a new scalable infotainment platform targeting entry and mixed segment vehicles. It didn’t take much. We had immediate success with this launch and we penetrated Asian automotive companies and one scalable next generation system orders from Tata Motors of India, China’s BRIC, [inaudible] and several others.

Today we are pleased to share with you a new [inaudible] major breakthrough award. We have received a significant new order from the world’s largest automaker, General Motors. This $900 million order will provide General Motors with a new, advanced, scalable infotainment technology. [inaudible] success in Europe, Asia and now North America with Chrysler, General Motors, thoroughly enforce our leadership in these technology areas. It is important to emphasize that our sales by final destination are very diversified, as shown on slide eight of your deck.

The EU5 represents only 30% of the company’s sales; 74% of that 30% is in robust German market. Therefore, our exposure to European uncertainty is hardly any. We have got nothing to do with Greece and several other slumping economies, so long Germany continues to do well.

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