Autloiv's Investment in Sensors Makes Good Sense

Implications: Certain parts of the automotive passive and active safety original equipment market are moving towards commodity status, with volume being the key to future profitability. Tier One safety equipment suppliers must invest in those technologies that will bring greater value and margins.

Analysis: Autoliv's investment to purchase the radar sensors business of Tyco Electronics makes very good sense. And I believe Tyco's assessment of the future value of this business is accurate, if not conservative.
The vehicle that any consumer buys in 2011, will have a significant shift in value content. The passenger vehicle that was purchased in 2003, had about 35% of the content value as electrical, electronic, software, chipset, computing, and sensing content. The passenger vehicle of 2011 will have about 60% of the content value as electrical, electronic, software, chipset, computing, and sensing content. This value proposition will be driven by infotainment content and telematics, active and mild hybrid technology, emissions control, and active safety content.

The use of radar will see more application for active safety. The utilization of radar, infrared, and CMOS technology is already in place in Lane Departure, Lane Change Detection, Speed Limit Indicators, Active Cruise Control, Rear View Camera, Night vision, and Smart Beam applications. Much of this technology is currently in use in the premium segment. But like technologies before, such as side impact airbags, power windows, power mirrors, this technology will find its way into the more mass market automobiles. And some of the applications will be encouraged and even mandated through safety regulations in the EU, US, and in Asia.

There will be additional developments that will utilize radar, infrared thermographic, CMOS, sound wave, and magnetic wave sensor technology to enhance occupant safety and convenience, and to prepare a vehicle for an impending collision. And this too will move from the premium segment into the mass market. Simply, safety is not optional, once it is demonstrated in the market. And the regulations either proceed or follow.

So Autoliv's investment seems like a sure bet. There are other companies that are investing in sensing technology for use by the OEM's. This includes Gentex and Mobileye with advanced camera technology, FLIR with infrared thermagraphic technology, and Continental with a host of technologies that have been in the works with Siemens VDO. 

Expect to see Autolive and TRW continue to invest in the innovative and higher margin technologies such as sensors and ECU's for active safety applications, and continue to grow the commodity portion of their business in airbags through greater volumes for the global automotive market.