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ANALYSISHow Samsung could react to Intel CEO's visit

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Rare Gelsinger-Lee meeting at Samsung headquarters in Seoul raises expectations beyond today's collaboration

By Kim Yoo-chul

Intel's chief executive Pat Gelsinger's recent visit to Samsung raised lots of expectations in the global tech world, especially regarding the Korean tech giant's updated stance on mergers and acquisitions (M&As), as the company said recently it's on track to strike "sizable M&A deals."

Regarding the specifics of Gelsinger's meeting with Samsung leader Lee Jae-yong, Samsung representatives in Seoul said the pair "discussed how to cooperate between the two companies." It's unclear if their meeting went beyond the reaffirmation of the two sides' long-standing partnership, or was just aimed at chit-chatting while Gelsinger was in Seoul as part of his Asia tour.

But according to sources contacted by The Korea Times, all of whom are familiar with Samsung- and semiconductor-related issues, whatever was discussed is of great interest, for a variety of reasons.

The bottom line is that Samsung plans to invest a whopping 450 trillion won with a focus on semiconductors and the bio industry. From the budget announced, Samsung is looking to invest at least 20 percent in business ideas that will help strengthen its core competiveness.

Intel has 'structural' problems; Samsung's core businesses challenged

Reports said given the two companies' moves in searching for partners to jointly acquire stakes in U.K.-based chip designer Arm, Lee and Gelsinger might have touched on the possibility for the two companies to create a consortium of sorts to acquire Arm. The establishment of a consortium made up of Arm's clients would ease concerns regarding any antitrust issues raised by regulators in China, the United States and Europe.

Therefore, doing this would make the deal go through quite quickly. Mobile chipset titan Qualcomm confirmed its intention to jointly acquire Arm stakes with partners, while SK hynix is also ready to join a consortium for Arm. But still, SoftBank, Arm's top stakeholder, said it plans to list Arm as soon as possible, and added it aims to maintain a majority stake after an initial public offering (IPO), which may happen within the fiscal year ending March 31, 2023.

Intel CEO Pat Gelsinger, with U.S. President Joe Biden (not pictured), announces the tech firm's plan to build a $20 billion plant in Ohio, from the South Court Auditorium at the White House in Washington, D.C., Jan. 21. Reuters-Yonhap
Intel CEO Pat Gelsinger, with U.S. President Joe Biden (not pictured), announces the tech firm's plan to build a $20 billion plant in Ohio, from the South Court Auditorium at the White House in Washington, D.C., Jan. 21. Reuters-Yonhap

But a senior industry executive said while Samsung had considered acquiring a minor stake in Arm, it started reevaluating Arm recently, as a small stake won't bring sustainable profit and it also wants to avoid any conflict of interest with its clients ― a key lessen Samsung learned from its long fight with Apple.

The executive claimed that Gelsinger shared Intel's ongoing difficulties in both technology development and investments during his meeting with the Samsung leader, adding it's feasible for Samsung Electronics to acquire a major stake in Intel.

"As the smartphone industry won't be stronger than it was before, Samsung has no clear reason to acquire a stake in Arm, as it already uses the Arm architecture and has a weaker presence beyond its mobile devices. We have to put more focus on the details of Gelsinger's recent Stratechery interview, in which he said that he never wants to be in memory," the executive added.

During the interview, Gelsinger said, "I never want to be in memory, you see I'm doing everything I can to exit our memory businesses in that regard."

Plus, because Wall Street investors have questions about the validity of the current and future paths of Intel's IDM 2.0 services, Gelsinger said his budget isn't going to be carved up between memory and logic and added it's all about logic.

Intel is no longer a semiconductor company that produces the most advanced chips, having long ceded that title to TSMC and Samsung. These two Asian companies are looking good in terms of possessing the extreme ultraviolet lithography (EUV) technology needed to manufacture premium chips.

Intel's technology roadmap announced recently failed to reflect investors' expectations, due to capital challenges raised over an ongoing semiconductor shortage and Intel's huge struggle with its Optane memory business. This calls into question the possibility of payoffs of its announced multi-billion-dollar investment for fabrication lines in the U.S. state of Ohio and other purposes. Samsung is already a leader in Compute Express Link (CXL), although a lot of its memory is designed to operate inside Intel servers.

Intel stock problems haven't gone away. Its stocks fell below $40 last week in New York from a 52-week high of $58.42.

Eyeing stakes in Intel?

The question is can Samsung review the possibility of acquiring stakes in Intel? Could it be worth thinking? What benefits can Samsung get?

Samsung Electronics Vice Chairman Lee Jae-yong arrives at Seoul Gimpo Business Aviation Center in Seoul for his trip to Europe, June 7. Yonhap
Samsung Electronics Vice Chairman Lee Jae-yong arrives at Seoul Gimpo Business Aviation Center in Seoul for his trip to Europe, June 7. Yonhap

The sources said given the "sense of urgency" that Samsung is feeling with challenges facing all its core businesses other than memory chips, from Samsung's viewpoint, it's worth considering making a direct investment into Intel.

"If Samsung acquires a stake between 20 percent and 30 percent in Intel, it would be a significant move on Samsung's stated goal to further cement its leadership in the memory business and expand its foundry business, given Intel's broadened foundry service portfolio," another industry executive said. Intel's current valuation is at about $176.79 billion, according to market research firms. SK hynix already acquired Intel's NAND flash business for $9 billion.

Institutional investors hold a majority ownership in Intel, controlling 63.88 percent of outstanding shares. Samsung's cash- and cash-equivalent assets in the first quarter of this year reached 124 trillion won ($96 billion), market research firms said. In 2017, Samsung acquired Harman International for $8 billion. No large-scale M&A deals have been made since then.

The sources said the estimated cost for the given range of share sizes would vary between 55 trillion won and 65 trillion won. As Samsung's credit rating is good enough, it could hedge against investment risks through financial help from outside investors, if needed.

"It's worth thinking about how Intel would be positioned under the current management because the company is highly likely to shift its business model from that of integrated device manufacturing (IDM)-focused to a hybrid-driven business model with more focus on production outsourcing," Kim Sun-woo, an analyst at Meritz Investment in Seoul, said in a recent report. Intel is the top manufacturer of PC microprocessors and the holder of the x86 processor architecture patent.

From left are U.S. President Joe Biden, President Yoon Suk-yeol and Samsung Electronics Vice Chairman Lee Jae-yong at Samsung's cutting-edge semiconductor manufacturing plant in Pyeongtaek, Gyeonggi Province, May 20. Korea Times file
From left are U.S. President Joe Biden, President Yoon Suk-yeol and Samsung Electronics Vice Chairman Lee Jae-yong at Samsung's cutting-edge semiconductor manufacturing plant in Pyeongtaek, Gyeonggi Province, May 20. Korea Times file

Samsung recently hired chip investment banker Marco Chisari, who previously worked at Credit Suisse, JPMorgan Chase, GlobalFoundries and Bank of America Merrill Lynch, where he managed M&As, according to his LinkedIn profile. Bank of America was the key adviser on sizable M&As in the semiconductor industry, including Xilinx's $35 billion sale to Advanced Micro Devices (AMD).

What to note from that example is that both Samsung and Intel have aggressive plans to expand their position in the lucrative foundry space, but both these companies have yet to win significant bulk orders from major chip design rivals, said analysts. Chip foundries manufacture semiconductors for third parties.

"U.S. President Joe Biden's visit to Samsung's semiconductor factory in Pyeongtaek and Samsung's opening of the current status of chip development using a 3-nanometer-level manufacturing technology illustrate its growing confidence in terms of providing a stable supply of advanced chips when requested. The deepening semiconductor alliance between Seoul and Washington can help Samsung Electronics win more foundry customers in the United States, many of which are using TSMC for chip manufacturing," said Park Jae-keun, chairman of the Korean Society of Semiconductor and Display Technology.

But despite Intel's lackluster performance and falling behind in process technology, its foundry business has a rich client portfolio and some of its clients overlap with Samsung's ― AMD, Qualcomm, Nvidia and Broadcom. An acquisition of a stake in Intel could possibly help Samsung broaden its foundry customer base, as the world's top memory chipmaker could offer better wafer pricing with high quality, they said.

"A lot of challenges still remain for Intel and Samsung at least in the foundry business. If the two companies share proprietary data relevant to the foundry business and vow to provide guaranteed service with better pricing, then that will be beneficial to both, given Intel's transition to logic chips and Samsung's shift towards the foundry business," an industry source said.

Last month, Samsung Executive Vice President Kang Moon-soo told investors that worries about its foundry business "are excessive and unfounded," adding it is back on the expected yield improvement curve.

A senior executive in the investment management company said that while Samsung Electronics is eligible to get trust and credits thanks to its long-term commitment in the United States and its solid support for the Biden administration's chip alliance initiative, Washington holds the key to making this scenario actually happen.



Kim Yoo-chul yckim@koreatimes.co.kr


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