Samsung keeping eye on struggling SoftBank unit

Samsung Electronics Vice Chairman Lee Jae-yong, left and SoftBank CEO Masayoshi Son, right, arrive at the Korea Furniture Museum in Seoul, in this July 4, 2019, file photo, to attend a dinner with the chiefs of Korea's conglomerates. / Korea Times file

By Baek Byung-yeul

Samsung Electronics has a rare opportunity that may not appear again after Japan's SoftBank recently put its chip-designing affiliate Arm up for sale.

Industry analysts said Thursday Samsung must join the acquisition race as this is the fastest way for the company to become a leading player in the non-memory chip business by 2030.

SoftBank is reportedly considering either selling the chip-designing affiliate or going through with an initial public offering for the unit. It is strapped for cash after its $100 billion Vision Fund recorded losses for two consecutive quarters, hit by the COVID-19 pandemic's impact on the global economy.

To offset the investment losses, the Japanese tech giant has said it plans to sell off up to $41 billion in assets. In 2016, SoftBank acquired Arm for $32 billion, which was the company's largest-ever purchase, with the aim of expanding into the connected devices business.

Established in 1990, the U.K-based company Arm is a global leader in mobile chip architecture design, and licenses its intellectual properties to other companies including Samsung, Apple and Qualcomm.

Mobile application processors chips are used in most smartphones, and Apple's A-series, Samsung's Exynos and Qualcomm's Snapdragon chips are based on Arm's architecture. Every chipmaker using the architecture pays a licensing fee upfront, which depends on the complexity of the design, and royalties, which Arm gets for each chip sold.

In 2019, Samsung unveiled an ambitious plan to dominate the global logic chip sector by 2030, detailing an investment of 133 trillion won ($111 billion) to improve its competitiveness. If one of Samsung's competitors succeeds in purchasing Arm, this could be a huge blow to the Korean tech firm, which pays royalties to Arm every year.

The acquisition cost of Arm is estimated to be around $41 billion considering SoftBank plans to sell up to that value in assets as part of its debt reduction efforts.

Given Samsung's ample cash-equivalent assets, it is seen as one of the “potential buyers” to purchase Arm independently. As of the first quarter of this year, Samsung's internal cash and cash-equivalent assets stood at 97.53 trillion won ($81 billion).

Given the complex nature of Arm's shareholding structure, in which the Chinese government has a 51 percent stake, some officials say it would be difficult for Samsung to independently pursue an acquisition deal with Arm. China has also identified the semiconductor and display industries as the country's next growth engines. China is financially assisting its semiconductor companies to catch up with the industry leaders.

But because of the significance of Arm in the entire semiconductor industry, it's also likely Samsung may join with other chipmakers including Qualcomm, MediaTek and Huawei to acquire controlling stakes in it. Given the ongoing trade conflict between Beijing and Washington, if Huawei participates in a possible consortium for Arm, then Washington may sanction it.

Regarding the possibility of Samsung pursuing the chip designer, Samsung officials said the company has “no comments for the time being.”

Along with global tech giants seeking to evolve and grow in the post-COVID-19 pandemic age, Samsung is expected to aggressively seek M&A opportunities. After Samsung Electronics acquired U.S. automotive electronics company Harman for 9.3 trillion won ($7.7 billion) in 2017, the group has remained passive.

In 2016, SoftBank CEO Masayoshi Son decided to acquire Arm, betting big on the growth potential of connected device technology. Though many expressed concerns that SoftBank had massively overpaid for the British firm, Son claimed this was a rare opportunity, as Arm had a leadership in the chip designing sector.

“People think this was a stupid move, but they've voted with their money,” the CEO said at that time. “It's easy to look at where your pieces are now and place the next one nearby. This one is 10, 20, 50 moves ahead.”

Industry officials said Samsung will seek to takeover companies that have disruptive technologies but are struggling financially due to the pandemic.

It remains to be seen whether Vice Chairman Lee Jae-yong will pursue Arm. All eyes are also on whether Lee will use his relationship with the SoftBank CEO as a leverage point to promote Samsung as a potential buyer.

The two are known to maintain a close relationship with each other. In 2019, Son had a meeting with Lee in Seoul to discuss future growth engines and joint business opportunities here and abroad.