There continues to be significant merger, acquisition and strategic product development activity involving automotive supply chains and the stakes involve which company and which advanced technologies will ultimately control and benefit from the movement of more technology being embedded into automobiles.

If readers have not been up to speed with industry focused news, two recent major acquisitions add more evidence to this movement and to the pending battle between OEM manufacturers, transportation service providers and certain major supply partners as to whom will benefit the most from the ongoing technology wave.

In late October, fabless semiconductor manufacturer Qualcomm announced its intent to acquire NXP Semiconductors, a major supplier of semiconductor chips and microprocessors that control more sophisticated automobile functions in power management, security access, media and audio functions. Qualcomm is paying a hefty sum, upwards of $39 billion, a 34 percent premium in existing NXP stock value, to gain entry into automotive technology value-chain needs. The announcement represented one of the largest semiconductor related acquisitions to-date. With this proposed new arrangement, Qualcomm brings its own technology strengths in mobile cellular communications technologies along with an evolving thrust into Internet of Things based capabilities.

Earlier this week came the announcement from Samsung regarding its intent to acquire electronic components supplier Harmon International for a reported $8 billion all-cash deal. This deal represents Samsung’s largest deal in its history and is no doubt motivated by strategic intents to gain deeper access to the automotive product value-chain.  Here again, the deal has similar indicators of marrying Samsung’s technology based capabilities in mobile communications, electronic displays, memory chip and microprocessors with Harmon’s evolving capabilities to support connected vehicle and lifestyle audio product innovation. Harmon has already secured a reported $24 billion in order backlog from major automotive OEM’s.

In a prior automotive supply chain commentary, we called reader attention to a Bloomberg Businessweek report titled: The Foxconn of the Auto Industry, that indicates that Tier One supplier Magna has taken more proactive actions to position itself as the contract manufacturer of choice for self-driving vehicles. The premise is that if Apple, Google, Uber or other technology focused firms want to manufacture a self-driving vehicle than Magna may well remain as the first step as the design and manufacturing outsourcing option, freeing up resources of the automotive or transportation services provider to concentrate on a software and managed services business model. For Magna, the premise of its current strategy is twofold.  First, there is a belief that in the coming five years, the core of product design expertise and IP for hybrid or electric powered self-driving vehicles will rest in software and services, rather than automotive component design such as bodies, engines and transmissions. Second, the contract manufacturing industry itself is moving more towards a one-stop shop for product design as well as more automated manufacturing processes including additive manufacturing techniques. Such a shift allows contract manufacturers to broaden their margins while increasing a presence up and down the automotive value-chain.

Obviously, major global automotive manufacturers are not inclined to ignore technology forces and consumer desires for more connected and more safety oriented automobiles. Collectively they each are sinking serious investments into either developing their own advanced technologies or teaming-up with other advanced technology providers such as Apple, Google, Microsoft and others to gain added footholds in these technologies.

From our lens, the vulnerability of some OEM’s rests with supply chain strategy decisions undertaken several years ago, when conscious decisions were made to transfer product innovation of major automotive sub-systems to Tier One or Two suppliers. That strategy afforded OEM’s the flexibility to be able to select from various competing product designs, take advantage of quicker time-to-market, and to be able to maintain buying leverage among key suppliers. Indeed, these strategies have yielded faster product innovation cycles in vehicle safety and control systems, connected cars and navigation systems.

As consumers opt for even more fuel efficient and autonomous type vehicles that serve as both satisfying needs for transportation and another source of entertainment and content, the industry picture takes on a different perspective. Fleets of connected vehicles, leveraging mobile and IoT technologies among such connected vehicles, opens the opportunities for a contract manufacturing strategy that affords new transportation services providers such as Uber, Lyft and perhaps other automotive OEM’s, to be able to directly contract or build autonomous driving fleets.

For automotive OEM’s themselves the strategy has to focus on maintaining brand loyalty and a unique driving experience. That implies continuing to provide consumers with both driving and entertainment technology innovation, marrying modular sub-system hardware, software and respective vehicle platform capabilities with a far faster overall innovation timetable may well be outpacing the OEM’s themselves because industry disruptors may now rest within product value chains themselves.

When a major new technology trend emerges, innovators can try to capitalize on the trend by creating and fostering a consumer product or service, or by creating the tools and technologies (the product supply and value-chain) that both enables and controls the intellectual property of the consumer product or service.  Like the California gold rush analogy, you can either make money in providing the service to multitudes of consumers or in supplying all the pick axes and supplies needed to mine for gold. This is the analogy now emerging among today’s global automotive supply chains and there is big money and large technology stakes at-play.

Where these forces converge is indeed worth observing in the months and tears to come. Industry participants all along the supply chain should nor be surprised by other new entrants as well.  Indeed, automotive and high-tech supply chains are merging, and that includes cultures of fast innovation in products, coopetition in processes and in value-chain strategies. Future supply chain sourcing strategy decisions will surely be grounded in deeper knowledge of technology capabilities and overall scope of supplier.

Bob Ferrari

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