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By Baek Byung-yeul
With Samsung Electronics declaring it will actively seek opportunities for mergers and acquisitions (M&A) as part of a strategy to improve its competitiveness, eyes are on which companies the tech giant will add to its shopping list.
Industry sources said Monday that the firm may try to acquire companies in the automotive semiconductor business such as NXP of the Netherlands, Texas Instruments of the United States, Renesas Electronics of Japan or Germany's Infineon.
Acquiring one of these firms could be a suitable move given the automotive chip business has high growth potential while Samsung, the world's largest memory chip maker, is way behind them in this sector.
Samsung was mentioned as a potential buyer of NXP a few years ago, but Qualcomm reached an agreement to acquire the Dutch company for $44 billion. However, the acquisition did not go through following objections from the Chinese government.
Currently, numerous players are fiercely competing in the automotive chip business, with NXP leading with around a 21 percent market share, followed by Infineon (19 percent), Renesas (15 percent) and Texas Instruments (14 percent). According to data from IHS Markit, the automotive chip market was expected to be valued at $38 billion in 2020, but will grow to $69 billion in 2026.
Pak Yu-ak, an analyst at Kiwoom Securities, said there is no clear leader in the automotive chip business and so there is room for Samsung to improve its share. The company has sought to boost its presence by offering its Exynos Auto chips to prominent carmakers such as Audi.
Though Samsung didn't reveal any details about its M&A targets, the company is seeking to create huge synergy when acquiring an automotive chip firm. The company currently sells its Exynos Auto chips to Audi and its 5G telematics control unit chips will be featured in BMW's new electric vehicle. Its automotive image sensor business will also be greatly improved as well.
In terms of capital flexibility, Samsung has ample funding to acquire any of the mentioned companies. The tech giant's cash-equivalent assets as of the third quarter of 2020 stood at a whopping 116.2 trillion won ($104.1 billion).
The automotive chip business has been increasingly highlighted these days as carmakers are undergoing unprecedented difficulties in securing stable chip supply chains. The car semiconductor shortage issue has emerged due to excessive demand for chips for IT devices which came with the COVID-19 outbreak.
Due to the chip scarcity, global carmakers have announced postponements in car production. Also, TSMC, the world's largest contract-based chip manufacturer, is reportedly considering charging carmakers up to 15 percent more for its chips.
According to market researcher TrendForce, the shortage will be prolonged because chip manufacturers have to transform production lines to make more automotive semiconductors.
"As automotive integrated circuits generally operate in wide-temperature and high-voltage circumstances, have relatively long product lifecycles and place a heavy demand on reliability as well as longevity support, it is more difficult for the industry to alternatively transition production lines and supply chains elsewhere," Park said.
"Nevertheless, given the current shortage of production capacity across the foundry industry, wafer capacities allocated to automotive semiconductor components have been noticeably crowded out by other products."
However, it remains to be seen whether Samsung can smoothly earn regulatory approval from fair trade bodies in chip powerhouse countries as semiconductors have been increasingly regarded as a strategic product.
There is the chance that Samsung will strengthen investments in what it is doing now. During a Jan. 28 conference call with investors, Chief Financial Officer Choi Yoon-ho said that while "a lot of preparations for M&As have been in progress," there will also be massive facility investments.
