By Kim Hyun-bin
Samsung Electronics has expressed that it may to pursue large-scale acquisitions within the next three years. But it remains to be seen if the tech giant will do so as it faces some uncertainties, including the imprisonment of Vice Chairman Lee Jae-yong.
During a conference call announcing fourth-quarter earnings, CFO Choi Yoon-ho said Samsung will actively utilize its capital assets to conduct acquisition deals in a bid to solidify its market-leading position and bolster growth.
"For the past 10 years, we have been very carefully reviewing our M&A options," he said. "We think a significant deal could be sealed in the next three years."
Samsung currently has cash reserves totaling 116.2 trillion won as of the third quarter of last year. Even though Samsung plans to use 50 percent of its free cash flow for dividends, the rest will be kept for future investments.
Samsung Electronics has said it is likely to take over another firm within the next three years. And industry insiders believe a large-scale acquisition may be in the works considering the fact that the electronics giant will seek to invest in the semiconductor and display sectors.
Last year, the tech giant announced its "system semiconductor 2030" vision through which it aims to become a global leader in the system semiconductor sector by that year. In order to accomplish this, Samsung needs to further enhance its investments and competitiveness in the market.
Samsung Electronics has secured a substantial market share and level of competitiveness in the DRAM and NAND Flash sector, but lags behind in system semiconductors.
Some industry watchers believe the company will acquire a system semiconductor and foundry company to quickly catch up with global rivals.
The last big deal Samsung Electronics was involved in was the $8 billion acquisition of vehicle component manufacturer Harman in 2016.
Rivals bulking up
Samsung's global rivals recently conducted large-scale takeovers to enhance their competitiveness and to better meet an expected surge in future demand.
Many industry insiders expect Samsung's next large-scale acquisition to be in the semiconductor sector as its competitors have been busy bulking up their sizes by acquiring well-known brands in the industry.
According to market researcher IC Insights, the value of M&A deals in the semiconductor industry reached a record high of $118 billion last year.
Major deals include top names, such as Nvidia's acquisition of British processor-design firm Arm Holdings for $40 billion and U.S. Advanced Micro Devices' acquisition of Xilinx for $35 billion.
Korea's No. 2 chipmaker SK hynix also sealed a deal to acquire Intel's NAND business for $9 billion last year, which includes the U.S. chip giant's solid state drive (SSD) business and a NAND flash chip plant in Dalian, China.
SK hynix aims to triple its NAND flash sales in the next five years with the acquisition.
Acquisitions are an effective way to drastically enhance a company's competitiveness over a short period of time and Samsung Electronics can no longer sit back and watch as its competitors continue to bulk up.
In recent weeks, speculation has been mounting that it may spend big money to construct production facilities in the United States to catch up with foundry leader Taiwan Semiconductor Manufacturing Co. (TSMC).
Bloomberg reported that Samsung is considering building a $10 billion chip plant in Austin, Texas, which would be capable of fabricating chips with 3-nanometer technology.
According to the report, the plans are in their preliminary stage and are subject to changes. But construction could commence this year, with major equipment installation beginning in 2022, and operations as early as 2023.
The New York Times also reported that Samsung was thinking about building a semiconductor plant, either in Arizona or New York, further fueling speculation.
TSMC announced plans to spend 30 trillion won this year, so Samsung has no choice but to come up with large scale investment plans of its own.
However, Samsung has denied all speculative reports and said nothing has been decided about any new U.S. plant construction. But during a recent conference call it said that an optimum utilization plan is being reviewed considering all locations.
Lee's imprisonment to become risk
All deal possibilities were most likely discussed with Vice Chairman Lee Jae-yong, who is serving a two-and-a-half-year prison sentence following a Jan. 18 court ruling.
"No matter what my circumstances may be, Samsung will need to continue on its path," Lee had said. "We will fulfill our duty to invest and create jobs as part of our corporate responsibility."
Industry insiders believe the latest comments indicated the company would continue pursuing large-scale investments even in his absence.
Although Samsung Electronics is willing to engage in investment deals, there will be uncertainties with its chief, who has the final say, stuck behind bars.
Industry insiders believe it will be difficult for a company head to make mid-to-long term decisions and especially large-scale deals while in confinement.
When Lee was first imprisoned in February 2017 through February 2018, there were no large deals.
Samsung completed the acquisition of Harman in March 2017, but all of the groundwork had been completed soon after the deal was announced in November 2016.
In August 2018, Samsung said it will invest 180 trillion won and hire 40,000 people. And in April 2019, Samsung unveiled the system semiconductor vision 2030 that targets 133 trillion won in investments and hiring 15,000 workers, which was all decided when the vice chairman was free.
"Although Samsung Electronics has announced plans for a deal within the next three years, they will face some difficulties as Vice Chairman Lee is in jail," an industry official said.