Posted : 2008-12-08 15:42
Updated : 2008-12-08 15:42

Samsung SDI Pushes Ahead With Rechargeable Batteries

By Kim Yoo-chul
Staff Reporter

From laptops to cars, advanced batteries have become a major factor in innovation.

Samsung SDI hopes to compete in this fast-growing business by strengthening partnerships with the world's leading auto-related manufacturers, boosting battery production and simplifying its business structure.

Electronics makers have been scrambling to

develop or procure batteries that are smaller, reliable and more powerful to run mobile devices with an increasing number of functions.

Additionally, the main batteries fueling these gadgets ― based on lithium-ion technology ― also are being adapted to next-generation, eco-friendly cars.

Analysts say this has spurred technology companies to team up with automakers in alliances that are changing the manufacturing landscape.

Samsung SDI is the first mass producer of next-generation active matrix organic light emitting diode (AM OLED) displays, while it also makes plasma display panels and outdated cathode-ray tubes for emerging markets.

SDI has already spun off its AM OLED and LCD division in a joint venture with Samsung Electronics ― the new entity is named Samsung Mobile Display.

Now, SDI wants to transform itself as an authoritative battery maker by boosting production of lithium-ion batteries.

New Business Focus

SDI, as well as major Japanese electronics makers, is boosting production of lithium-ion batteries to meet soaring global demand for the secondary cells which has seen worldwide growth.

While South Korea's leading electronics makers were scrapping their ambitious mergers and acquisitions (M&A) deals because securing as much liquidity as possible has emerged as the top concern amid the global economic downturn, Samsung SDI plans to push its ongoing alliance talks with German autoparts maker Bosch GmbH.

"The joint venture will fuel momentum for reshaping the structure of the battery market currently dominated by Japanese car manufacturers. The partnership with Bosch is a key catalyst for us to expand on the global battery market," spokesman Seo Hae-su said, Monday, adding SDI doesn't plan to delay the project.

In June, the company and Bosch agreed to form a 50:50 joint venture to produce rechargeable batteries for hybrid electric vehicles (HEV).

The venture, named "SB LiMotive" will be constructed either in Cheonan, South Chungcheong Province, or Busan, South Gyeongsang Province and start production in 2010 with an initial combined capital of $20 million, the company said.

Seo said total investment is initially expected to reach $500 million over the next five years, however, the amount could be quadrupled depending on the market situation.

SDI is the world's No. 3 lithium-ion battery producer, while Bosch is the No. 1 auto electric devices manufacturer.

"We are aiming to produce two million lithium-ion battery cells for HEVs in 2010," according to another spokesman Song Young.

According to Hiedge, a Japan-based research firm, the HEV market will reach five million by 2015, a 14-fold increase from 365,000 in 2006.

SDI has engaged in detailed talks with the world's leading automakers including Ford of the U.S. over the development of batteries, according to the spokesmen.

The new business has proved to be a success considering profit flows during the last six months.

The company posted its second straight quarterly net profit in the third quarter mainly propelled by the strong performance of its rechargeable battery business.

On a consolidated basis, including its overseas operations, SDI posted a net profit of 58.7 billion won during the July-September period, reversing a loss of 103 billion won a year ago.

Sales from its rechargeable battery business rose to a quarterly record high of 531 billion won on tight supplies, globally.

Local brokerages are generally positive over the new business, citing an increasing demand for more powerful and eco-friendly batteries from consumer electronics to cars.

"Samsung SDI is to post 63.9 billion won in the fourth quarter on a consolidated basis thanks to tight supply in secondary cells and a rising demand for laptop PCs equipped with new applications," Kang Jeong-won, an analyst at Daishin Securities said.

"Its rechargeable business could maintain an over 10 percent operating profit in the fourth quarter as the company is expected to ship 10 percent more batteries than the previous quarter, and despite the fact that the average selling price of the products will fall a low single-digit," Choi Seung-hoon, an analyst at LIG Investment said.

SDI expanded its monthly output of secondary cells to 54 million in the second half from 38 million earlier this year.

The company said the time is ripe to inject more cash into the medium- to large-sized battery business to escape from its traditional mobile device-focused business.

Top company executives say the company plans to become the No. 1 player in the global secondary battery sector by 2011.

Industry sources say the combined market share by Japanese makers fell to around 50 percent from 70 percent in 2005.

But the ambitious target seems currently unlikely, considering intensifying challenges from Japanese and even local makers.

Panasonic, Sanyo in M&A Talks

Japan's Sanyo is a key player. And now, its much larger peer, Panasonic is in talks to buy a majority stake in it in a tender offer.

Like SDI, Sanyo has recently turned itself around with a new focus on energy. The current management put more money into batteries, saying earlier this year it would spend 125 billion yen over three years to bolster its lithium-ion operations.

Sanyo now controls about 30 percent of the $6 billion global market for lithium-ion batteries in electronics devices such as laptops and cell phones ― and is ramping up production.

The company plans to raise lithium-ion battery output to 100 million a month by 2010, from the current 73 million.

Add to that Panasonic's own lithium-battery output, which the company will boost to 75 million a month from 25 million over the next four years, and the new company would dwarf plans by Sony Corp., the current No. 2 lithium-ion battery maker, to produce 74 million a month ― with all the cost benefits of economies of scale and shared technology costs.

"The one clear sign is that the world's No. 1 plasma panel TV maker Panasonic has been shifting to the highly profitable secondary cell business from its traditional and loss-making plasma business. For me, the moves will be a burden to SDI," a high-ranking industry source said.

Analysts say competition for developing advanced lithium-ion batteries and gaining a greater shares of the market is set to intensify as South Korean makers and others overseas are ready to boost production.

"Well, there are risks going forward. Both Sanyo and the No. 2 maker Sony have been hit by recalls, raising questions over both companies' ability to expand production while maintaining strict quality control and keeping costs down," a local analyst said.

SDI's local rival LG Chem, currently the world's No. 5 lithium-ion battery producer, followed by Sanyo, Sony, SDI and Taiwan's BYD, has also been increasing its monthly battery output to over 35 million from 28.5 million at the end of last year in a hope to eventually challenge SDI.

LG Chem expects battery technology to dominate the hybrid electric car market for the next 15 to 20 years.

The company, which is in the running to supply battery packs for the struggling General Motors highly anticipated Chevrolet Volt plug-in electric car, is also in discussions with other automakers on potential supply deals.
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