Samsung SDS reviews strategic options as M&As loom

Samsung SDI office in Seoul / Courtesy of Samsung SDS homepage

By Kim Hyun-bin

Samsung SDS is reviewing strategic investment options for its capital assets worth 4 trillion won, looking at possible acquisitions and investments in startups to better enhance its future competitiveness.

Last year, Samsung SDS obtained a record high 4.19 trillion won in cash assets. The company's operating profit dropped 12 percent to 871.6 billion won with a loan of 800 million won, which industry experts consider maintaining healthy management.

Samsung SDS' capital was not highlighted much, being overshadowed by Samsung Electronics' cash assets worth 100 trillion won revealed last week in the company's 2020 fourth-quarter earnings report.

However, Samsung SDS' capital assets greatly exceed other Samsung affiliates. Samsung Electro-Mechanics holds 1.48 trillion won and Samsung SDI has 1.67 trillion won in cash assets.

Some industry insiders expected Samsung SDS capital to be used to ease the owner family's inheritance tax burden by expanding dividend allotment. Despite the speculations, the company's dividends have been set similar to the previous year's at 2,400 won.

Now all eyes are on how the capital assets will be utilized. Many companies are starting to invest more in the IT sector amid hopes of an improvement now the COVID-19 vaccines are being rolled out, while some are expected to increase capital expenditures (CAPEX) including plant and equipment investments.

“The funds will be utilized for facility investments for cloud servers and data centers as well as investing to hold stakes in startups with innovative technologies, and lastly we plan to use the funds to fuel future growth via acquisitions,” a Samsung SDS official said. “We are currently in search of a company to acquire.”

In recent years, Samsung SDS' infrastructure has been in need of an upgrade with facility abrasion and high depreciation costs exceeding CAPEX in recent years. From 2013 to 2015, the company spent up to 500 billion won a year in CAPEX, but in recent years only spent 200 billion won annually. However, the depreciated cost of its infrastructure continues to rise after exceeding 400 billion won for the past two years.

The fastest way to fuel growth in a short period of time is to acquire new businesses. This is the reason why Samsung SDS has been for years considering acquisitions of diverse innovative companies that could create greater synergy.

Last month, rumors of the possible acquisition of a vehicle component manufacturing company as well as a merger with Samsung Electronics led company stock prices to shoot up.