In 2016, newly appointed leader Lee Jae-yong began orchestrating Samsung’s last big deal to diversify its business: the $8bn acquisition of US automotive audio and electronics leader Harman International, positioning the company as a supplier for the sector as its use of digital technology grew.
Almost a decade later, Lee is once again turning to acquisitions to help Samsung secure its technological edge. He set up the company’s first official M&A team in November, led by president and veteran dealmaker Ahn Joong-hyun as it fights to stay competitive in the global AI race.
Samsung, one of the world’s largest chipmakers and electronics manufacturers, has lagged behind peers SK Hynix and Micron in the race to supply advanced memory chips for the artificial intelligence build-out.
The South Korean conglomerate has faced mounting pressure from shareholders to deploy its cash reserves of Won108.5tn ($74bn) to accelerate its growth in areas including AI, chip design and software.
“Samsung is facing the last golden time to restore its technological edge by investing in new growth areas with the profits made from this semiconductor supercycle,” said Park Ju-geun, head of corporate research group Leaders Index. “There is no better way out of its technological impasse than effective M&As.”
The company said that it was looking at M&A targets “to actively cope with fast-changing global technology trends” in areas including AI, medical technology and robots, the company told analysts during a quarterly earnings call in July.
The Harman acquisition marked Samsung’s biggest deal in its history. The US company’s initial performance was weak but the subsidiary now generates greater profits than Samsung’s television and home appliance divisions: it posted Won1.3tn in operating profit last year.
But since the purchase of the US company, Samsung has not closed any deals of that magnitude. Over the past year, the tech group has completed six acquisitions, including a deal to buy German data-centre cooling company FläktGroup for €1.5bn.
It also bought US digital healthcare company Xealth, French medical tech group Sonio SAS, US AI developer Oxford Semantic Technologies and South Korea’s Rainbow Robotics. However, these deals have underwhelmed investors hoping for game-changing acquisitions, according to analysts and fund managers.
After being cleared by the Supreme Court of accounting fraud and stock manipulation charges earlier this year, Samsung’s chair Lee is expected to focus on revitalising the business.
In recent weeks, the third-generation heir of the founding family has held a series of high-profile meetings with global technology leaders including Nvidia’s Jensen Huang and OpenAI’s Sam Altman to expand co-operation.
“Lee’s legal risks have put the company on the defensive for years but investors expect him to run the company more actively with his legal trouble gone now, to strengthen the company’s competitiveness in this AI-focused new business environment,” said Jongmin Shim, Korea equity strategist at CLSA.
Shim added: “Despite the recent improvement, investor concern lingers over Samsung’s competitive edge in HBM [high bandwidth memory] or other next-generation chips.”
Albert Yong, managing partner at Petra Capital Management, a Seoul-based hedge fund and Samsung investor, said the creation of the M&A team signalled Samsung’s determination for “more aggressive” deals but cautioned that investors have raised concerns over the tech group’s capacity for post-acquisition integration.
“If you look at US Big Tech companies, they have been able to sustain their growth mostly through M&As,” he said. “Acquisitions can be an effective means for Samsung to catch up in the AI space, chip design and software businesses.”
He added: “But I still doubt if they [Samsung] are good at integrating their acquisition targets. Bolt-on acquisitions rather than big deals seem more desirable to strengthen their technological edge while avoiding risks.”
Until recently, Samsung was seen as a laggard in advanced memory chips. However, sentiment has shifted after the company began shipments of its most advanced HBM chips to Nvidia in September and its quarterly profits jumped more than 30 per cent on higher chip prices.
Strong AI-driven demand for memory chips has helped Samsung recover from a series of mis-steps, such as its underestimation of HBM chip potential, with the stock price doubling this year to Won100,800, a near record high.
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Industry insiders and analysts question if Samsung can sustain the growth and regain its technological edge in advanced memory chips. Competition is intensifying in the company’s other main businesses, including smartphones, where it is battling Apple and Chinese rivals for dominance.
Some analysts suggested it was not the right time for Samsung to pursue big acquisitions, given high valuations, growing geopolitical risks and the increasing need for capacity expansion to meet surging demand for memory chips.
“I don’t think M&As are particularly needed for Samsung at the moment. There are not many attractive targets out there,” said James Lim, analyst at US hedge fund Dalton Investments. “More money is needed for capacity expansion to maintain a strong position amid the AI boom.”
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Samsung, along with South Korean rival SK Hynix, signed a deal with OpenAI last month to supply semiconductors for the ChatGPT maker’s $500bn Stargate data centre project. Analysts estimate this would require the two companies to spend at least Won40tn to double their HBM production capacity.
Samsung’s capital expenditure last year was Won53.6tn, with Won46.3tn spent on semiconductors. Samsung said in October it is considering a “substantial increase” in next year’s spending on memory chips.
Lim stressed that Samsung needs to regain lost ground in its mainstay chip business through more capacity expansion.
“Investors will not welcome any big deal just to broaden its business areas,” he said. “Now seems to be the time for the company to strengthen its existing core businesses through bigger facility investments.”