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Harman International Industries Inc. (NYSE:HAR)

JPMorgan 2012 Auto Conference Call

August 14, 2012 10:00 am ET

Executives

Dinesh C. Paliwal – Chairman, President and Chief Executive Officer

Herbert K. Parker – Executive Vice President and Chief Financial Officer

Analysts

Ryan Brinkman – JPMorgan Chase & Company

Ryan Brinkman – JPMorgan Chase & Company

Our next presentation is going to be from Harman International. Harman is a leading provider of automotive infotainment systems, particularly growthy segment of the market. Harman’s Infotainment systems integrate telematics, navigation, entertainment and the vehicles growing array of active safety equipment as well. The firm is a leading provider of premium automotive, consumer and professional audio products as well.

Harman has the most attractive customer set of any company we cover. Its sales are principally levered to the growth in BMW and Audi brand vehicles around the world. Although the firm is also very quickly expanding into more mainstream brands as well as evidenced by a recent contract with General Motors.

The firm is coming off a strong fiscal 2012 with several exciting contract wins. It generated $4.4 billion in its most recent fiscal year and has a market cap of just over $3 billion. We’re happy to have Dinesh Paliwal, Harman’s Chairman, President and Chief Executive Officer with us; here with us as well is Herbert Parker, and you’re welcome to sit up here if you like; and Bob Lardon, Vice President, Investor Relations.

And with that, I’m going to thank them for coming and hand it over I think to Dinesh.

Dinesh C. Paliwal

Thank you, Ryan. Good morning and thank you for coming to this session. I’m going to take next 15 minutes to walk you through some of the highlights and then hopefully we can engage in active dialog and some questions-and-answers.

So, quickly getting into as Ryan mentioned, we’re very pleased to have a breakthrough in General Motors. This is first time General Motors and Harman will work to bring the cutting-edge Infotainment solutions fully connected with cloud and other apps, and that are brand-new and we just launched it together with our earnings call last Friday.

Same time we also announced an acquisition of a small firm Android Google-based open-source systems company in India. You might have seen track record of our company last five years without very good cash position. We’ve been very fiscal discipline. We have acquired small companies, but very accretive, one in Brazil and one in United States and now here in India.

Another good thing is we have closed the year with a record order backlog of $16.1 billion, which is almost four time our annual revenue. And we also booked record orders in automotive space $5.2 billion, $4 billion of which in Infotainment and $1.2 billion in a very high margin branded car audio business.

Quickly moving into some of the highlights; sales up 16% in nominal and constant currency 17%, operating income up 47%, and operating income up for the quarter, last quarter, as the fourth quarter 100%.

What we are extremely pleased about is BRIC country development. We grew in BRIC countries more than 30%, where China led the way with 42%. And I don’t know very many companies in our peer group close to this growth rate, but we have somehow figured out the secret sauce and we've been doing it for last three, three and a half years.

Talked about GM, another thing which is very critical for the sustainable future success of any company and which we're very proud to mention that, we are very technology innovation driven company. I don’t know any company close to what we are doing. In our pipeline, we added some 600 patents and patents filing during fiscal 2012.

In last five years, we have added more patents than an entire company's history. Actually our patents portfolio grew more than twice in last five years and during this five years, as you all know sitting in this room, we have experienced a lifetime’s worst recession. But that did not deter us from investing in innovation technology. We also doubled our annual dividend from $0.30 to $0.60, and we also executed buyback during this last quarter.

Now, it’s just a reminder, you’ve seen it many times, so I won’t spend much time. We finished the year with $4.4 billion, last 12 months EBITDA close to 10% with 13,400 people, half of our employees now are in high-growth emerging markets.

This is just Q4 and full year financials, I won’t spend too much time. You have the book, if you’re not please pick it up on your way out. Good thing is we’re growing in all areas and we are market leader in all three divisions, Infotainment, Lifestyle, that is car audio and home and multimedia, and in our professional audio business where we are clear market leader and generate double-digit operating margin year-over-year.

This is again, we are very happy that we have now 11 consecutive quarters of top line growth of 18% CAGR and bottom line EBITDA has grown 245% during 11 quarters. This is clearly an effort we put in few years ago and are starting to pay-off. We took lot of cost out and we invested heavily in technology, and we invested heavily in organic growth that is our BRIC country footprint. we are big player in Hungary, big player in Mexico, big player in China, and big player in Brazil and India now.

You can also see our return on invested capital. We’re quite pleased we are actually generating better return than the weighted average cost of capital. so we are generating value for our investors. And five-year growth plan for China coming from $35 million to $382 million in four years, that’s incredible development even for those who are China people here, Herbert and I are China people. We’ve lived there many years, we worked there.

This is an additional slide for our investors in our quest to keep on giving you more and more granularity in our business, so you understand as much as we think, we do. You can see our backlog analysis very clear. you can see how our backlog has developed. All that is repeat follow-on business in the dark blue color, I guess not, I thought I would have a point. The dark blue that’s going from $8 billion to $11.6 billion, that’s renewal of existing business and the yellow is brand new business or brand new customers. That being said, General Motors would fall in that and Volkswagen, Fiat, Tata, and Chinese auto, they are all into the yellow business.

Then you see on the right side of the slide, Infotainment broken out exactly in the same format to follow-on business which means not losing the customers we had, keep on replacing when their life cycle comes to an end, we keep replenishing but in addition the yellow is were growing the portfolio, growing the backlog.

On the bottom left, you see Infotainment backlog, revenue segmentation, we wanted to give you a color for profitability. We are very pleased that the business we inherited as a new management team five years ago with very poor margin profile, we have run it off or improved it to a point that as we enter fiscal 2013, the 74% of our backlog which will convert into revenue will carry 6% to 8% operating margin and one quarter of our business would carry 9% to 11% operating margin, which is a big improvement from where we are coming from and you can see how we’re developing year-over-year. This also gives you a pretty good idea without giving you exact guidance for the revenue. It tells you what the margin makeup for Infotainment would look like year-over-year.

And Audio is a fantastic story because this is anywhere from 16% to 18% operating margin business and a great backlog and it’s a branded business, very high barrier to entry because the brands like JBL, Harman Kardon, Mark Levinson, they are iconic brands.

This is another slide to give you a more granularity because there is lot uncertainty in the room and outside, people get very nervous when Greece sneezes. We have no exposure to Greece. We wanted to give you a clear picture, what is our revenue make-up. During 2012, 30% of our global revenue was destination to EU5, which is the Germany, UK, France, Italy, Spain, and of that 30%, 74% goes in Germany. This is how robust our destination profile for business is. So, as again shows clearly that how little dependence we have on some of the weak economies of Europe.

Another thing I would like to point out, 2008 in BRIC countries as Brazil, Russia, India and China, we were less than 1% of our revenue. Today, we are 12%, that’s again phenomenal growth in revenue, while we have much larger portion of backlog sitting in BRIC countries and by the way, BRIC business is very profitable for Harman. And we are destined to go in 2015 in short three years will be 25% of our revenue coming from BRIC. So again an excellent development and that’s the story behind balanced and secular growth story of Harman.

This is just to give you a snapshot. Most companies won’t give you, because this is a very powerful story for Harman. We want to share that our pattern portfolio has grown, and the business we are in, we don’t make mechanical gears and axles what have you. We’re a technology company. We provide high innovation based system solutions to create an experience in the car, whether it’s audio experience, Infotainment experience, or your home audio experience or your Kennedy Center, Lincoln Center, Yankee Stadium experience, these are all Harman audio systems. So this is all about technology and innovation.

This is a little look back, what made us, where we are today, what has brought us while we have done a lot of hard work. We have closed on high-cost country plant. We opened best cost country plant. We have added lot of R&D in Palo Alto, in Michigan, in India and China. And we have moved our workforce for the cost arbitrage as well as where the markets are growing, and we have also aligned our workforce for sourcing point of view and we are taking leverage of sourcing arbitrage. This I’ll skip, these are the four pillars of our strategy. We have been relentless unfashionably sticking with our four pillars of strategy and it has served us very well, and no need to change. So I’ll leave that.

The highlight of Infotainment is very quick. This is our largest business more than 50% of our revenue comes from Infotainment, which is telematics, navigation, multimedia cloud-based apps, like Toyota In-Tune in North America, Toyota Touch & Go in Europe, this is all apps-based Infotainment systems. Safety systems, active safety built into it, automatic lane management, night vision, distronics, all the future functionality you get used to camera-based 360 view and what have you. We booked $4 billion last year in high margin in this orders.

In Lifestyle division, which is our second largest division, double-digit operating margin, 28% growth in car audio, this is amazing and we are happy to report to you that take rate in car audio is starting to take-off for us, because when people are buying an emerging market car, just like (inaudible) will tell you, the bragging rights don’t come just buying a car, the bragging right comes that I have iconic JBL in my car or Mark Levinson infinity, and this is what we are seeing.

Going on to professional audio, this business is very active in London Olympics. We just finished with lot of audio from Harman, and now we’ll play similarly strong role in Sochi Winter Olympics more than half of the audio equipments would be from Harman and FIFA in Brazil and Rio Olympics, and of course all the installations and big infrastructure in China, India, and Russia, we’re playing a big role.

Liquidity, we’ve been very happy to report for the last couple three years that our liquidity is strong. Our balance sheet is very powerful and strong, $1.4 billion and we have $400 million debt, which we’ll payoff in six weeks time actually, I’m happy to say. And then we’ll be debt free. How we will finance, we can actually pay it off from our current cash or we can use other instruments, but we’ll review all options.

But important thing is for our investors, we’d prioritize how we return cash or value to our investors. We continue to believe that having investment grade is a priority for this management of Parker and Paliwal, we believe that’s an important thing even in a very inexpensive debt, we believe that’s a important milestone we want to achieve, continue to pay sustainable dividend, invest in capital project in organic growth, which has served this company extremely well, and look out for strategic best-fit acquisitions, and of course, use opportunistic time to buyback shares, which we just did in last quarter.

We’re using the star who have used Harman for their entire life in their professional career, and these are stars that helping us grow the take rates of car audio in our business. This is the guidance just bottom line here in the page is, we gave guidance for 2013 in October 2011 and we just confirmed the same guidance in constant currency last week, which we are very happy that we feel comfortable to make our guidance and that’s where we are.

So with that, I’ll actually open it up for any questions, clarifications for me and my colleague Herbert Parker.

Question-and-Answer Session

Ryan Brinkman – JPMorgan Chase & Company

Hi, thanks for that. First question from us, how do you feel about the European automotive market right now? What are you doing or could you do to prepare for a steeper downturn in that market?

Dinesh C. Paliwal

That’s a good question and we often get this question asked. And the key there is it’s not something you prepare in three months. It’s something we’ve been doing for last three – in fact we learned a lesson from the last recession. So three things, Ryan, what we have done to prepare. Number one, we have today first rate flexible manufacturing footprint, which means 75%, 25% model, 75% permanent workforce, 25% temporary workforce, which we can layoff anytime.

Second, we have moved our manufacturing from high-cost country environment of Germany, Switzerland, UK, which is a highly unionized and very difficult to – just the workforce to Hungary. Hungary today is near Budapest is the largest manufacturing operation for Harman in the whole world, and the second largest is Mexico today and third largest is China. So with that, we have tremendous capability of adjusting our manufacturing capability up and down to adjust the financial side. Same thing we have done in our workforce, 50% of our workforce today is in emerging market or in gross market.

And third, I would say is the break-even point of the business has significantly come down because we took nearly $500 million permanent cost out. So, our break-even point is significantly low and it has to be a very serious blowout in Europe to push us into the rate cut territory. We will remain profitable. We can absorb 10%, 15% slowdown. We can absorb it.

Ryan Brinkman – JPMorgan Chase & Company

Could you go back to slide 16 and prioritize the uses of cash now that you have paid down your debt? And then secondly, under what circumstance would you consider taking on debt? Are there any acquisitions out there that you’d look at? And then how would you prioritize it afterwards obviously dropping it…?

Dinesh C. Paliwal

What was your first question again?

Ryan Brinkman – JPMorgan Chase & Company

Just if you could prioritize those bullets, now that you are arguably debt free?

Dinesh C. Paliwal

Okay. It’s always dangerous thing, but this is the way actually we like to prioritize. So, return to investment grade first priority continue to pay dividend at sustainable level, high level, at the same level or increase it and invest in organic growth, which gives you ROIC over 20%, 25%, 30%, and look for a strategic bolt-on acquisitions and share buyback opportunistically.

Second part, are we looking at raising that to finance and the acquisitions. You have to look our history beyond Harman, Herbert and I worked together for 19 years for a very large company, ABB. We don’t like large acquisitions. We like small technology bolt-on acquisition or we like something, which will give us expanding our channels like Brazil.

We acquired a company, $55 million revenue, within next year we were actually at $85 million in revenue expanded our footprint. So, we’re looking such thing or distressed assets in U.S., not a big fan of our European assets unless they are very accretive or strategic, because of the union issues. But U.S. could be a good place to pick up a nice good technology companies if we can find. But nothing big we are looking at the moment.

Ryan Brinkman – JPMorgan Chase & Company

All right. I thought you made an interesting announcement on your last earnings call, which didn’t get may be enough attention. You said that the things what used to be called the consumer division had reached mid single-digit EBIT margins. When that was not part of Lifestyle, people looked at it all the time and obsessed over it and it was loss-making. Maybe you can just tell us, how did it get to mid single-digit margins from where it was?

Dinesh C. Paliwal

Thank you. It’s a great question. We used to have consumer division, automotive division, and professional division. What we did, we appealed off the car audio business and put the relevant our home audio, office audio and aftermarket audio and car audio. So anything audio is under one division. All of a sudden you had technology, R&D synergy; you had brand synergy, because car audio and home audio, they go together. And we weren’t really taking advantage of that. And now, we are seeing the car audio take rates are going up. And we are also able to amortize the branding expense in consumer division, car audio. so there, we are taking leverage.

And third, what we have done is focus effort on launching high-end home and multimedia new products. We’re launching end of this month in IFA, that’s the CES, Consumer Electronics Show of Europe, it’s in Berlin, we’re launching 25 brand-new products together with car audio companies. So I think that’s where it is, now we are sitting with former consumer division at mid single-digit operating margin and it grew 14% last year. So it’s a basic blocking/tackling, but a lot of new product, a lot of technology and leveraging car audio and home audio together.

Ryan Brinkman – JPMorgan Chase & Company

Okay. And then maybe the sort of dovetails into that Dinesh, I like to spend a lot of time in Apple stores, and I see your products in Apple stores. And I was just wondering if maybe you could kind of run down what do you build, sell, design to Apple that they sell or retail and how might that relationship expand in the future? How could you leverage that to help them even more?

Dinesh C. Paliwal

Great, I mean Apple is very secret and very confidential. So we can talk whole lot, but today we’re doing with Apple around $30 million, $35 million business. We are providing them laser thin transducers, which go into their iPhone and iPad devices, and we are also fitting their global Apple stores with high-end Harman Kardon headphones, which by the way, four of these SKUs in many stores that replace the voice headphones. and Apple actually helped design those and we also designed for Apple, the docking stations for iPad, docking stations for iPhone and some of the accessories, that’s Apple business. But we are also gone in with JBL branded headphones in Wal-Mart, all the Wal-Mart store. So we are getting into it, putting sort of turning the head on high-end audio products. The purpose is one. It’s not the consumer business we want to grow, we want to grow, but it has to help car audio, because that’s why we make 15% to 17% operating margins that‘s the game, so all about margins for us, margin extension. Is there question in the back please?

Ryan Brinkman – JPMorgan Chase & Company

Could you talk a little bit about the other business, you had the professional business kind of the profitability there in the growth prospects going forward?

Dinesh C. Paliwal

Yeah. The professional business is $600 million revenue, and it’s running in mid-teens 16%, 17% operating margin. And what we do is that the four clear distinct verticals, one is install sound, so places like (inaudible) or Madison Square Garden, Yankee Stadium, Mets’ Citi Field or Disney theme park, these are all installed sounds, we do big venues.

Olympic stadiums, we do toward sounds, when the artist like all these Maroon 5 by the way or Celine Dion or Jennifer Lopez they are all our artists, they use Harman equipment end-to-end, amplifiers, pre-processing, signal processing and ohms, and loudspeakers, microphones and everything. And we also do cinema sounds, so 63% of the world market share for cinema is with Harman. and then we have few other things, audio broadcasting, we do now airports, the traffic management, the big screen you see that the flight and the traffic flow we do that is a brand new technology, we have just launched last year.

So that business has worldwide market growth 3% to 4%, we grow about 6%. And you should expect us to grow that business from 6% to 8% in coming year or two. And our goal is to drive the profitability of that business between 17% to 19% operating margin, so this is one of our very strong profitable pillar, and we’d like to grow that business, and also add acquisitions in that business.

Ryan Brinkman – JPMorgan Chase & Company

There’s a question here please? There is one right here sir.

Unidentified Analyst

Could you talk a little bit about your moving down into the mid-priced cars, and how that’s going particularly in the Asian markets? And also on the GM, I’m not clear when you say across the board, whether it’s going to cover your mid-priced cars or just the high-end?

Dinesh C. Paliwal

So it’s easier to talk about emerging market in this segment and GM, because GM is very concerned that their technology might be copied by BMW. So they don’t allow us to talk about all of it. So GM is a $900 million order. This will go on multiple models, but unfortunately, I’m not at a liberty to say anything more, because they really told us not to say anything. But we’re excited, because this is going to allow us to do lot more non-GM hopefully.

Coming back to mid segment car or entry segment car, as you may recall for last two, three years we’ve been saying, look we literally lead the world in luxury cars, we have 80% market share. So when luxury cars grow, we grow. But to expand this business, we had to enter into mid segment and entry segment car. The challenge has always been, can you make money? And until we figured out how to do it, we weren’t going to go, and we launched our scalable platform three years ago, and that business has gone into Toyota, Honda, Chrysler, Fiat, Volkswagen, now GM.

So we make – we say 8% to 10%, so you can be sure of that business has double-digit margin whatever we’re booking and turning into revenue. Recently, we launched same scalable platform, which means you can scale it small, you can expand it, you can add more, it’s modular. We launched that for entry cars, entry to low-mid, and we immediately got successful awards from Tata Motors, from Geely Motors from China, Tata owes Jaguar Land Rover and Geely owes Volvo, so Geely for Geely Motors in China, and BAIC bike. We’re very happy that now we are covering end-to-end, we rounded out the whole portfolio from entry to mid-to-high, and we had a clear segmentation of future functionality, but one thing is common. We do not book any business below 10% margin. That’s assurance to you now.

Unidentified Analyst

Hi, my question is more on just branding. If you look at back in the days, looking at Harman Kardon versus now, looking five years what’s the goal of the firm in terms of how do you want your brand to be viewed, because clearly trying to be a company for the low-end consumer all the way to Audi and Bosch or BMW, how do you vision that company or the view?

Dinesh C. Paliwal

It's clearly, it’s a very strategic, good question, because having so many brand and they fit in, in the packing order. Mark Levinson is absolutely the best audio you can ever buy anyway that is really ultimate, and by the way, we mean it, when we say when we ship a Mark Levinson system, you’ve had absolutely the best experience. and then we have all the way – all the brands to fit in.

And the good thing is even car companies, high-end car companies like BMW and Mercedes, which we supply audio, they are trying to do three audio brands, the top brand, and the mid brand, and then entry brand like same thing in Ferrari, Fiat Group. we do Harman Kardon for Fiat. we do Bowers & Wilkins for Maserati, and we do JBL Professional for Ferrari. so there’s a three brand that’s the packing order. So in net-net, we have to be very careful, not to put Harman Kardon in a $8,000 car.

We will have some different brand or we will acquire if we have to, but we will position brand so that they maintain their sort of gravitas. And that’s the promise we make, given example, Rolls-Royce use our brand for Lexicon, and also Hyundai Genesis, Hyundai Equus, which are the car of the year, two years in a row, they also use Lexicon, but other cars in Hyundai use Infinity brand. so we’re very careful, we do a lot of market research together with car companies, and then we sort of make joint decisions what brand should go in what car models.

Unlike, if you look at GM, GM from low-to-up highest end as one brand, and same thing in Ford from low-to-high as one brand, you cannot do market segmentation even of your own car, and more luxury car companies have come to a conclusion that different brand to help them sell differently

Unidentified Analyst

I was just wondering how you protect your patterns in China as you expand there. It seems like that would be a risk with the brands and some of the knockoffs we’ve seen in that market?

Dinesh C. Paliwal

It’s a valid question, and the answer I’ll give you, you really can’t completely bulletproof protect yourself when you go in China, nobody can. And our experience from formal life, when we were running much larger company in China, the case in China, you always have to go with your latest innovation, latest technology, because there always be shadow economies, always be a copy products. But those people cannot keep up with you. They’re always three years behind. And the good thing is Chinese consumers have become lot more savvy. They in fact want to look for when they paying top dollars, they want authentic brand.

And in consumer products, we have done – we put at optical seal, so people can see we do a different packaging, which is unique to China. So copy people cannot catch. So we do a lot of things, but you cannot totally protect, and some things we did three, four years ago. I don’t care if they copy so long. We’re always launching the latest, the greatest in China. The mistake lot of companies make, they go to China thinking they’re going to launch their second grade technology in China that fall on their face.

Unidentified Analyst

As you guys move to better margins, particularly Infotainment to the mid-teens, where do you see like probably attract other competitors? Where do you see competition in the future for that business?

Dinesh C. Paliwal

We have lot of competition, which is good thing. I mean in Infotainment, we have probably too many companies, because they cannot long-term sustain, because we have literally marginalized many of our big competitors from Germany and Japan. They have German companies, they have not won a big contract in their own backyard in Germany in last three years against Harman. These are not price order, I mean they are not discounted orders, we get premium over our competitors.

So I think key is the – what is the core for company like Bosch $75 billion company, Infotainment is less than 1%. So is the CEO of Bosch going to invest his mind shift unlike Harman where my heart beat is at Infotainment or car audio, because that’s 75% of my company. So it's about focus, it's about innovation. We do lot of innovation in this area, and we still ahead in the market, and we work very closely with automakers, and that's why you see one third of our total auto backlog is today with BMW that's a good thing, because that's the world’s most technologically advanced car company, and they rely on us so much that futuristic pipeline they are seeing in Harman, that shows their future models.

So there's a lot of innovation, innovation is the only thing we keep us ahead, and innovation gives us the pricing power. We tested that when we had neodymium cost shot up and Chinese government decided that neodymium will go up 1000% in three months. We were able to pass it on to our customers, and they had no choice, but to allow that, because we have the pricing power. Same thing we do in Professional and Infotainment, Infotainment you can see our backlog has improved in margin, because we walk away from bad orders, we live it for competition. We don't take anything below 8% to 10% margin now. So you can only do that without looking as arrogant when you have good technology and very good solution and experience for these customers.

Unidentified Analyst

Hi, Dinesh, you've gone through this before, in terms of penetration of infotainment systems, but could you just sort of break that down between the luxury segment, the mid segment and the entry segment as to where the penetration is currently and where do you expect the penetration to be in like five years time?

Dinesh C. Paliwal

Sure. First of all, I’ll give just three layers. so luxury segment like our BMW 7 Series or Mercedes S-Class, they are 100% penetrated all the time. When their cars come to the dealership, they’re loaded. But then you go into the SUV and you’re talking 35%, 40% penetration. And then, when you go to the entry level like BMW has X1 or X3, there you may see 15% penetration. When you look at Fiat 500, that probably has less than 10% penetration.

So if you average out all the cars 65 million, 70 million cars sold every year, penetration is about 20%. that’s why I have said publicly many times, listening to automakers in next five years, this penetration of embedded infotainment is going to rise to 40%, 50%. At the same time, you will see a lot of penetration of smartphone devices being integrated in the car, which we are leading by the way. We are integrating not just Apple or Android, but also Nokia and Blackberry, and many other phones and new operating systems will come from China in coming years. So, we're doing the both.

So what I expect penetration to go up every year, and the world would look anywhere in five, six years time, embedded system around 50% penetration takeaway and about 30%, 35% it’s smart devices integrated, and it’s not mutually exclusive. Cars we will shift within embedded infotainment will also have smart device integration. Cars companies have said one thing, this is their promise to you as a consumer that, when you buy a car for $20,000 or $100,000, they will guarantee you an experience, which is not dependent on whether you have to have an iPhone or Android phone or Blackberry or Nokia, you must have experience and they also guarantee you that whether you have a service provider giving you network or not, but you always have guarantee experience. Therefore embedded systems will continue to rise in penetration.

Unidentified Analyst

Hi, Dinesh, question for you. You talk about infotainment penetration going form 20% to 50% North America and Europe, but I think in some other slides, you show already very high penetration in Japan, and you have a lot of business in automotive audio in Japan the Mark Levinson very successful. And I know some of your competitors are Japanese, but you’ve sort of beaten them when it comes to BMW and Audi, any chance that you could – take them on in their home turf and do infotainment systems for the Toyota Highlander in Japan or something like that.

Dinesh C. Paliwal

It’s a desire, and I’m not done yet. So I think it’s – Japan is not a level playing field, we honest with you, we all know that very well. Lexus and Toyota turn to us, because they were struggling to differentiate against BMW and Mercedes and Lexus with Mark Levinson, and they have had a great ride, Toyota with JBL had a great ride, and recently they are actually asked us to help them with Infotainment in Europe and America.

Having said that, we have entered in other companies with our other technology in active noise management, in our green edge technology, in Nissan and Honda in our Aha mobility connectivity, we’ve gone in Honda, which is not our car company, but – so with different angles, for different technology and pattern portfolio, we are entering in. And I hope that, since they’re computing globally, they will also see that they cannot protect the home turf. So I’m not giving up, but it’s extremely hard, it’s just not level playing field.

Ryan Brinkman – JPMorgan Chase & Company

(Inaudible)

Dinesh C. Paliwal

Thank you, very much, Ryan. And thank you all for listening.

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