Samsung investors seek advice on plans for $ 100 billion stack

Samsung’s most powerful executive is touring the United States in what investors hope is a sign the company is looking to deploy its $ 100 billion in cash.

Third-generation heir Lee Jae-yong is on his first overseas trip since South Korean President Moon Jae-in accepted his early release from prison in August on the grounds that it was in the national interest.

The conglomerate’s cash reserves, which soared while Lee was behind bars for bribing Moon’s predecessor, put its potential mega-deal capacity on par with SoftBank’s original Vision Fund, the vehicle of technological investment.

Samsung, which last made a significant acquisition in 2016 with its $ 8 billion buyout of U.S. auto tech group Harman, has emerged from a transaction boom that has reshaped the tech industry.

Mergers and acquisitions at semiconductor companies have totaled more than $ 200 billion in the past four years, according to IC Insights, reaching a record $ 118 billion in 2020 – though the deal’s $ 54 billion Nvidia dollars to buy British chip designer Arm is now threatened by regulators.

“There have been a lot of mergers and acquisitions in the tech industry in recent years, but Samsung was not on the list,” said Kim Young-woo, analyst at SK Securities. “It’s something the top manager should take care of, but Lee was busy sorting out his legal issues.”

Lee, who faces a separate trial for alleged financial crimes, has met with CEOs of vaccine developer Moderna and US telecommunications operator Verizon and is expected to announce the location in the US of a new semi-trailer facility. – $ 17 billion drivers to secure more US businesses.

Shortly after its release, Samsung announced a three-year, $ 206 billion investment plan to expand its presence in semiconductors, biopharmaceuticals, artificial intelligence and robotics.

The world’s largest producer of memory chips and smartphones said it was optimistic that it could close a deal of “significant size” within three years and that it was actively examining fast-growing areas, including AI, 5G and cars.

Samsung’s recent acquisitions

August 2014

SmartThings

Internet of things platform company

february 2015

LoopPay

Mobile payment solutions company

november 2016

Harman

Connected car solutions, infotainment and telematics

october 2018

Zhilabs

AI-based network and service analysis company

Jan 2019

Corephotonics

Camera technology and solutions company

Jan 2020

TeleWorld Solutions

Network service provider

But investors fear the company has lost ground to its competitors and does not have a clear growth strategy. Its cash flow reached $ 102 billion in the third quarter, eclipsing the $ 7.9 billion of US rival Intel and the $ 31 billion of Taiwanese chip giant TSMC.

“With net cash of over 100 billion won, shareholders want Samsung to return more of its cash if it does not use it for expansion,” said an industry official with knowledge of the business.

Samsung shares have fallen more than 10% this year amid concerns over a planned 2022 oversupply of Nand memory chips, which allow files and data to be stored without power, and Dram chips, which allow storage. short term for graphics, mobiles and server chips. “They have too much liquidity and are not allocating capital efficiently,” said James Lim, analyst at US hedge fund Dalton Investments.

“There are fears that Samsung is falling behind in the memory race, while investors do not seem convinced that it can become a major player in non-memory,” he added, referring to to the chips used for data processing.

Samsung declined to comment. But a person familiar with the thinking of the business said the group believes it has created great value for shareholders.

Samsung’s ultra-cautious approach stems in part from Lee’s quest for stable management since taking control of the $ 357 billion company in 2014.

The company’s bitter experience with transactions, as well as concerns about potential antitrust issues, also contributed to its hesitation on large acquisitions.

Executives were burned by their experience of Samsung’s takeover of AST in 1995, fund managers say, when the company lost local talent in the struggle to integrate America’s IT company into its own corporate culture. More recently, Samsung has struggled to reverse Harman’s declining profitability.

Analysts say Samsung needs an acquisition in the foundry sector, the lucrative market for the production of memory-less processor chips for other companies where it lags behind Taiwanese rival TSMC.

“It is very important for Samsung to acquire a business without memory. Samsung is the world leader in memory chips, but the memory-less market is much bigger, ”said Paul Choi, head of research at brokerage CLSA in Seoul.

Investors are also concerned about advances by Chinese companies in the memory chip business, which Samsung has dominated for decades.

Line graph of the stock price (won) showing Samsung

In telecommunications and AI, Samsung is likely to identify highly specialized technology companies that could help it grow its wireless networks and the interoperability of its consumer electronics products, according to people familiar with the industry. business strategy.

But a Silicon Valley VC veteran, who has consulted on the sale of several tech companies, told the FT that the founders did not want to integrate with companies with conservative reputations like Samsung, further complicating its ability. to enter into agreements.

“For many founders, enterprise venture capital is seen as bottom of the barrel, even when the company has a very big name in the tech space like Samsung,” he said.

“There is always the fear that you are not aligned with the mothership and that they have not really thought about how they want to use your technology in their larger framework.”

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