Samsung 'hungry' for acquisitions, R&D for new growth

Samsung 'hungry' for acquisitions, R&D for new growth

Summary: The electronics giant wants to invest more of its huge war chest in new technology and marketing, and is looking to reward investors more by at least doubling its dividend yield.

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Samsung Electronics wants to invest more money for new growth technologies, and part of that will come from being more aggressive in mergers and acquisitions as well as R&D.

M&A will aim to reinforce current businesses, secure talent and find new opportunities, said Lee Sang-hoon, president and CFO of Samsung Electronics. The company has already spent about US$1 billion investing in 14 companies since 2010, which has been "somewhat conservative".

Lee was kicking off Samsung's first Analyst Day since 2005 in Seoul which was streamed live. The event is seen as a platform for the company to better communicate with investors and analysts, amid sagging share prices and returns.

Samsung currently has a cash pile of around US$50 billion, which is about 20 percent of its market capitalization and has attracted complaints from investors of being at a level too high at their expense. According to Lee, the war chest will now being prepared for "significant investment" in strategic technologies, mergers or acquisitions.

"We plan to allocate a significant portion of our annual cash flow into capex and R&D to secure future growth and shareholder return," Lee said.

capex
Samsung has been shifting its focus away from building capacity and capturing market share, to developing new technologies and creating new markets. (source: Samsung)

Balancing growth vs dividends

Despite a more aggressive stance to invest more for growth, Samsung also announced a more generous dividend policy to distribute its free cash.

Samsung will double its dividend yield to around 1 percent of its share price, compared with 0.5 percent last year. This ratio would be reviewed every three years to reflect changes in business conditions, added the CFO.

The new approach is an interesting balance as many high growth mode companies, particularly in technology such as Google, typically shy away from offering dividends in favor of investing their spare cash.

Spending more on R&D

fonblet
Samsung explains how it created a new market segment. (source: Samsung)

Samsung will invest US$14 billion on research and development by the end of 2013, compared with US$8 billion in 2010, said the CFO. A key area of focus will be beefing up its competencies in software to match its strengths in hardware.

Lee noted the company has been gradually shifting its focus of investment from making gains in existing markets to "new market creation," and will "continue this strategy in the near future". This was highlighted in an example later brought up by JK Shin, president and CEO of IT and mobile communications, who pointed out Samsung created the "fonblet" market, also known as phablets.

In the mobile space, Samsung expects the rollout of LTE-Advanced (LTE-A) networks across the developed world to drive handset sales in markets that already have a high level of smartphone penetration.

Patent protection planning

Samsung has also been investing big on the patent front, said Lee. "As products become more complex, the number of patent disputes is on the rise, leading to greater exposure to patent risk."

In 2010, the company set up an intellectual property center to centralize its patent capability efforts, along with country-level IP centers worldwide. The CFO added Samsung now also ropes in its in-house team of patent experts, which number about 600, into the new product development cycle "at the planning stage."

Just last month, Samsung was among the Android handset makers along with Google who were sued by Rockstar patent consortium--owned by Microsoft, Apple, BlackBerry, Ericcson and Sony. This came just weeks after Samsung said it would no longer bring rivals to court over certain patent infringement cases for the next five years.

Topics: Tech Industry, Samsung, Korea

About

Loves caption contests, leisurely strolls along supermarket aisles and watching How It's Made. Ryan has covered finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller "Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

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13 comments
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  • If it's got the money...

    ...then the priorities appear to be reversed. R&D should be the focus, but if it can save some effort by buying a company or two without building up a massive debt burden, then it should do so.

    And if Samsung is one of the Rockstar defendants, then it will also want to spend some money making an example of the plaintiff and its owners.
    John L. Ries
    • Samsung's R&D is mainly copy and steal from others

      People should actually check how Samsung constantly rips-off other Korean companies, and because they are so big the government is constantly protecting them.
      wackoae
      • All companies steal

        All companies steal from competitiors, or do similar stuff

        Coca-Cola v's Penpi Cola
        McDonald's v's Burget King
        Ford v's GM
        Microsoft, IBM, Apple, Google, Oracle, Intel, AMD, NVidia, Quallcomm
        NASA v's European/Japanese space agencies
        Boeing v's Airbus
        Sony, Nintendo, Panasonic, Sharp, LG
        Dell, HP, Lenovo, Samsung etc

        I've even willfully stolen the knowledge, idea's, techniques and prior art taught to me at school and university, and am making a living off the back of other peoples work :-)
        neil.postlethwaite
        • typo's

          apologies for the typo's, and ZDNet can you not sort the f**king editing out - it's been shagged for years.
          neil.postlethwaite
  • Only $1B in acquisitions?

    What has samsung been doing? I guess its really true that they have become apple, pay nobody, invest in nothing, make cash, stockpile it.
    Jimster480
  • I wonder if they asked shareholders a question...

    Would you like a payback on your investment NOW or would you rather wait and hope we hit a long ball "someday" with new tech?

    Somehow I don't think that question is ever asked of the company OWNERS.
    NoAxToGrind
    • But if shareholders are unhappy...

      ...they can sell their stock or even (horrors!) decline to re-elect the Board of Directors. I'm not sure exactly how chaebols are governed, but I doubt it's much different than the manner in which U.S. corporations are governed.

      Says me, most corporate CEOs focus too much on short term gain, rather than too little. In any case, management ultimately serves at the pleasure of the stockholders, so they get what they deserve.
      John L. Ries
      • hmmm, yes and no...

        When I invest in stock it's to see a real ROI, not an exercise in buying and selling or trying to replace the board.

        I do agree with you that many are to worried about "this quarter" but I say that with the reservation that I want to see a real game plan for the future, not, "we'll come across something in R&D or by acquisition". Right now, Samsung is sitting on a mountain of cash (that belongs to stockholders) and doesn't really have, or at least can't articulate, a real plan for future growth.

        Consider it like this. If I had $1000 of your money and say I want to hang on to it and will make you money with it aren't you going to ask exactly how I'll accomplish it? What is your reaction when I say I don't really know but I'll come up with something? I'm betting it doesn't give you that warm and fuzzy feeling investors like.
        NoAxToGrind
        • A long term plan is essential

          I agree with everything you said. Thanks for the comment. But stockholders enjoy at least nominal control of the company for a reason and should therefore vote wisely. Too often, they simply rubber stamp management proposals and nominees, unless a corporate raider comes along promising a quick buck.
          John L. Ries
          • In any case...

            ...it's up to stockholders to decide how much confidence they have in management, just as employees and customers do. If they really want that money returned, they'll likely have it one way or another (a luxury employees, who invest their careers rather than money, don't enjoy).
            John L. Ries
  • IMO, Samsung should buy

    Blackberry and the Palm patents. This would help considerably in their patents portfolio and perhaps help to inject some great features into their products.
    Spiros Lambrinidis
    • BB is one of the owners of Rockstar

      So maybe Samsung should have considered buying BB sooner (I think it would have been a good candidate). It certainly would have gotten less official scrutiny than has Lenovo.
      John L. Ries
  • Tom Tom

    Samsung - Buy Tom Tom, integrate the App into your phone, and withdraw the licence/data from Apple for the maps underlying Apple Maps.
    neil.postlethwaite