Harman International Acquires Red Bend Software

By January 28, 2015Aquisition, M&A, Telematics

On January 22, Harman international announced the acquisition of venture backed Red Bend Software, a provider of software and services for remotely updating mobile device software using Firmware Over The Air (FOTA) technology. The company claims a customer base of over 80 mobile device manufacturers, cellular operators and semiconductor manufacturers, all an all managing some 1.75 billion mobile devices around the globe.

The $170 million transaction will be split into approximately $99 million in stock and $71 million in cash. Harman simultaneously announced the acquisition of software services firm Symphony Teleca.

Harman indicated that Red Bend will continue to operate as a separate business unit under the current management structure, which is more or less the standard language used when announcing this type of deals

Although the $71 million cash outlay made hardly a dent in Harman’s deep pockets, this acquisition certainly raises as many questions as it answers.

Connected Car, Take Two?

Harman is a major supplier of audio equipment and infotainment systems to the automotive industry, but Dinesh C. Paliwal, the company’s Chairman, President, and CEO wants a bigger pie of the connected car technology space. In 2012, Harman announced the formation of a Connected Car Software Engineering Center in Chicago, but apparently Paliwal wants to pick up the pace.

Harman’s previous acquisitions to establish a role in the connected car space didn’t play out well.

In 2004, Harman had acquired QNX Software Systems, the developer of the real-time operating system and several embedded software solutions for $138 million. Six years later, Harman sold off QNX for $200 million to Research In Motion (RIM), giving only a vague explanation for the divestiture. Today, QNX software is found in more automotive infotainment than any other software. Recently Ford announced that QNX will replace Microsoft as the operating system of the next version of its infotainment system.

Can Red Bend technology help Harman assume a more competitive role in connected cars?

In addition to FOTA technology, Harman gets access to Red Bend’s cyber security and mobile device management technologies. Harman could be thinking outside the audio equipment box here. The challenge for Harman—as it has been for Red Bend—is that these will require it to develop process expertise and closer relationship with parts of the automaker’s organization it does not currently possess.

Over the years, Red Bend has been hard at work developing relationship with OEMs and forging partnerships with wireless carriers and industry groups, trying to get them to adopt its FOTA software. While these efforts certainly made Red Bend is a recognized brand, the company wasn’t able to generate significant and sustained OEM business.

One successful outcome of Red Bend’s steady effort to take its technology to the automotive industry is a relationship it struck with AT&T to be the FOTA technology provider for AT&T Drive Connected Car Platform, which is in the center of the company’s connected car strategy. AT&T had a major win when it displaced Verizon at General Motors to become the telecom provider for OnStar starting 2015 model year.

With AT&Ts aggressive investment in automotive y and Harman’s broad footprint, is there a Harman-AT&T partnership in the making?

How Will Red Bend’s Major Customers Respond?

As a small independent provider of highly specialized technology, Red Bend was able to offer FOTA technology components and services to multiple mobile device companies. It’s unlikely that Harman has much interest in this space.

Will Red Bend’s customers see too much risk in using a technology owned by a company who is focused on selling car head units and home audio systems? Will they look for alternative sources to provide core device management capabilities and come with fewer strings attached? One example that comes to mind is Mformation, who might use the acquisition as an opportunity to offer an industry neutral alternative.