Samsung has announced a $160bn three-year investment in new technologies, with the aim of ensuring profitability in the face of stiff competition from Chinese rivals.
The announcement came days after Samsung Electronics, the lucrative technology division of the South Korean conglomerate, reported its first drop in profits for seven quarters, raising investor concerns about its long-term trajectory.
On Wednesday, the company spelt out its priorities. Samsung will, over the next three years, plough more than $22bn into technologies including artificial intelligence, automotive electronics components and biopharmaceuticals. Samsung Electronics will account for the bulk of the spending.
The remaining $138bn will go towards investment in crucial semiconductor and display manufacturing facilities as well as fostering external start-up projects, creating up to 40,000 jobs in South Korea.
By far the country’s largest conglomerate, Samsung is a bulwark of the economy. Samsung Electronics alone accounts for almost 20 per cent of the value of the main Kospi Composite stock index and last year it briefly moved ahead of Apple as the world’s most profitable technology company.
But, like its home nation, Samsung faces headwinds that do not bode well for growth.
Chinese technology groups such as Xiaomi and Huawei are eating into Samsung’s position as the world’s largest smartphone maker, while Beijing-backed companies are increasingly targeting Samsung’s mainstay memory chip business.
Sanjeev Rana, an analyst at brokerage CLSA, said the investment plans come at a critical time.
“Samsung needs to find new growth areas as their existing businesses are saturated. They are a little late to areas such as artificial intelligence, but they don’t need to start from scratch. With that money, they can do M&A,” he said.
That sentiment was echoed by a Samsung executive: “We know technologies are changing and we can’t keep doing what we were doing. It is about time [to change].”
With the announcement, Samsung has indicated it is willing to employ serious financial firepower to maintain its edge. The investment plan eclipses a pledge made by Apple in January to divert $30bn to expand its US operations.
Samsung was already making more gradual increases to capital spending and research and development. Last year, it spent almost $55bn on capex and R&D, up from more than $35bn in 2016.
Its last announcement of longer-term investment plans was in 2010, with a figure of just over $20bn over a five-year period.
The situation the company now faces is complicated by growing pressure from the government, which is desperate to boost an economy that has been plagued by high youth unemployment.
On Monday, Kim Dong-yeon, the finance minister, met Lee Jae-yong, Samsung’s de facto head and heir-apparent, and urged the billionaire to create more jobs and spearhead South Korea’s efforts to nurture “innovative growth” based on new technologies.
For its part, Samsung has been at pains to demonstrate that it is a good corporate citizen. Wednesday’s announcement comes almost a year after Mr Lee was convicted of corruption in a case that set swaths of South Korean society against the powerful conglomerate.
Mr Lee was granted a suspended sentence on appeal this year, but the case is set for a final trial in the coming months and Samsung is keenly aware of the importance of public sentiment.
“The timing of an investment plan now doesn’t mean Samsung hasn’t planned this out well in advance,” said Kim Rok-ho, an analyst at Hana Financial Investment. “[But] now is the appropriate time to launch it.”
Additional reporting by Kang Buseong
