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Samsung investors seek guidance on a $100 billion cash reserve plan

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Samsung’s most powerful executives are visiting the United States, and investors hope this is a sign that the company is seeking to deploy its $100 billion cash reserve.

The third-generation heir, Lee Jae-yong, left the country for the first time since South Korean President Moon Jae-in agreed to be released early on the grounds of conforming to national interests in August.

The conglomerate’s cash reserves soared, and Lee was imprisoned for bribing Moon Jae-in’s predecessor, bringing its potential large-scale transaction capabilities on a par with SoftBank’s original technology investment vehicle Vision Fund.

Samsung’s last major acquisition was in 2016, when it acquired Harman, an American automotive technology group, for US$8 billion, but it has already withdrawn from the deal craze that reshapes the technology industry.

According to data from IC Insights, the total number of mergers and acquisitions of semiconductor companies in the past four years has exceeded US$200 billion, reaching a record US$118 billion in 2020-although Nvidia’s US$54 billion acquisition of British chip design company Arm is now being regulated Threats to institutions.

SK Securities analyst Kim Young-woo said: “In recent years, there have been many mergers and acquisitions in the technology industry, but Samsung is not on the list.” “This is something the top manager should take care of, but Li Zheng is busy dealing with his legal issues. “

Lee faces a separate trial for alleged financial crimes. He met with the CEOs of vaccine developer Moderna and US telecom operator Verizon, and is expected to announce the establishment of a new US$17 billion semiconductor facility in the US to ensure more US business.

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

The world’s largest manufacturer of memory chips and smartphones said it is optimistic that it can complete a “meaningful scale” transaction within three years and is actively looking for fast-growing areas, including artificial intelligence, 5G and car.

Samsung’s recent acquisitions

August 2014

SmartThings

IoT Platform Company

February 2015

Recurring payment

Mobile Payment Solutions Company

November 2016

Harman

Connected car solutions, infotainment and telematics

October 2018

laboratory

Artificial intelligence-based network and service analysis company

January 2019

Core photonics

Camera Technology and Solutions Company

January 2020

Telecom World Solutions

Internet Service Provider

But investors worry that the company has lost to competitors and lacks a clear growth strategy. Its cash reserves reached US$102 billion in the third quarter, dwarfing US competitor Intel’s US$7.9 billion and Taiwanese chip giant TSMC’s US$31 billion.

“With more than 10 billion won of net cash, if Samsung does not plan to use it for expansion, shareholders hope Samsung will return more cash,” said an industry official who knows the company.

Because of concerns about Nand memory chips (allowing files and data to be stored without power) and Dram chips (which can be chips for graphics, mobile, and servers in 2022. James Lin, an analyst at Dalton Investments, a US hedge fund) (James Lim) said: “They have too much cash to allocate capital effectively.”

“Some people worry that Samsung may fall behind in the memory competition, and investors don’t seem to believe it can become a leader in the non-memory field,” he added, referring to chips used for data processing.

Samsung declined to comment. But a person familiar with the company’s thinking said the group is confident that it has created sufficient value for shareholders.

Samsung’s extremely cautious approach partly stems from Lee Jae-yong’s pursuit of stable management since he took control of the US$357 billion company in 2014.

The company’s painful transaction experience and concerns about potential antitrust issues have also led to its hesitation in large-scale acquisitions.

The fund manager said that Samsung’s experience in acquiring AST in 1995 was a blow to the executives. At that time, Samsung lost local talent in its efforts to integrate the American computer company into its corporate culture. Recently, Samsung has been working hard to reverse Harman’s sluggish profitability.

Won tn histogram showing Samsung's performance

Analysts said that Samsung needs to make acquisitions in the foundry sector, which is a lucrative market for producing non-memory processor chips for other companies, lagging behind Taiwanese rival TSMC.

“Samsung’s acquisition of a non-memory company is very important. Samsung is a global leader in memory chips, but the non-memory market is much larger,” said Paul Choi, head of research at CLSA, a brokerage firm in Seoul.

Investors are also concerned about the progress made by Chinese companies in the field of memory chips, where Samsung has dominated for decades.

Line chart showing Samsung’s stock price (KRW)

According to a person familiar with Samsung’s strategy, in the field of telecommunications and artificial intelligence, Samsung may look for highly specialized technology companies to help them develop the interoperability of wireless networks and consumer electronics products.

But a Silicon Valley venture capital veteran who has advised on the sale of many technology companies told the Financial Times that the founders did not want to integrate with companies with conservative reputations such as Samsung, which further complicated their ability to conclude deals.

“For many founders, corporate venture capital is regarded as the bottom layer, even if the company has a very big reputation in the technology sector, such as Samsung,” he said.

“There are always people who worry that you won’t be consistent with the mothership, and they haven’t really thought about how to use your technology on a larger scale.”

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