Samsung’s $63 Billion Cash Pile Augurs Tech Takeovers

Whether or not Samsung Electronics Co. (005930) has BlackBerry Ltd. (BBRY) in its sights, it should spend some of its $63 billion of cash on takeovers. Samsung, which has an alliance with BlackBerry, this month denied reports it proposed buying the Canadian smartphone maker for as much as $7.5 billion. Even so, a takeover would give Samsung the software to help its products communicate, according to Current Analysis Inc. The $190 billion South Korean conglomerate makes dozens of consumer goods, from phones and televisions to vacuum cleaners and ovens. What it needs is technology to link all the devices together online in the wireless homes of the future. Other potential targets include Atmel Corp. (ATML) and Freescale Semiconductor Ltd. (FSL), whose chips help devices talk to each other, said CM Research Ltd. “Samsung is a hardware company caught up in a software revolution,” said Cyrus Mewawalla, managing director at London-based CM Research. “So it needs to make acquisitions.” The goal is to profit from what’s known as the Internet of Things, a world where everyday items, from toasters and washing machines to phones and printers, are sewn together online and controlled by devices. The market for the Internet of Things could reach $7.1 trillion by 2020, research firm IDC has said. Photographer: Woohae Cho/Bloomberg An employee demonstrates using the air conditioner control function of the Samsung... Read More “There are many areas in Internet of Things,” from sensor technology to components, Samsung said in an e-mailed statement. “Samsung regards M&A as one of our key business strategies, in conjunction with organic growth, and we continue to remain open to partnership and acquisition opportunities.” Not Enough Shares of Samsung rose 0.2 percent to 1,389,000 won at the close of trade in Seoul. The stock has gained 7.5 percent in the past year. The Suwon-based company in August bought SmartThings, a startup that makes mobile applications to remotely control household goods. And the previous year, Samsung bought Novaled AG, a German maker of material to light up a gadget’s screen, and MOVL, which has developed a service that allows users to share content between devices such as phones and TVs. Those deals don’t go far enough, said Neil Shah, research director for devices and ecosystems at Counterpoint Research. “Samsung has the vision of how the connected future will be, but still lacks the expertise and capabilities to tie all the assets together,” Shah, who is based in Mumbai, said in an e-mail. Competitive Pressure Samsung said in November 2013 it would be more aggressive in pursuing targets after spending only $1 billion on takeovers in three years. The earnings power from its Galaxy smartphone lineup is fading and Apple Inc. and Xiaomi Corp. are gaining ground. Samsung’s own Tizen software platform has struggled to gain traction. “In the near term, it’s hard to see the pressure coming off them from Xiaomi and all the others,” said Dan Baker, an analyst at Morningstar Inc. in Hong Kong. “Samsung at the moment doesn’t really have a software advantage.” BlackBerry could “potentially be a great acquisition,” Shah at Counterpoint Research said. BlackBerry has messaging software that could be rolled out to connect a chain of Samsung products, and a software program that manages different devices at once. BlackBerry’s QNX automotive software, which enables drivers to make hands-free calls, sports three-dimensional navigation and 3-D gaming for rear seats, is also a draw, he said. Samsung co-Chief Executive Officer Shin Jong Kyun said this month he wanted to develop the two companies’ alliance, rather than pursue an outright purchase of BlackBerry. Both denied a Reuters report that Samsung had made a takeover offer. Chip Push While Samsung is the world’s second-largest semiconductor maker, it still could make acquisitions in this area to boost its capabilities. Last week, people with knowledge of the matter said Samsung will use its own chips in the next Galaxy S smartphone and drop a Qualcomm Inc. unit. That’s a sign Samsung wants more control of the processors in its products, Morningstar’s Baker said. San Jose, California-based Atmel, which has a market value of $3.5 billion, and the $7.9 billion Freescale, are both feasible chipmaking targets for Samsung, he said. Atmel is among chipmakers focusing on the Internet of Things, developing technologies that help machines talk to each other and building wireless-radio capabilities. Atmel’s chips power washing machines and cookers as well as car doors and windows. Freescale’s semiconductors are used in everything from space hardware to household goods. A representative for Atmel declined to comment on whether it’s been approached by buyers or has explored a sale. A representative for Austin, Texas-based Freescale didn’t respond to a phone call or e-mail seeking comment. European Targets Other targets that Samsung might consider: Opera Software ASA (OPERA), a Norwegian maker of Internet browsers for phones, tablets and computers, which has a market value of $1.9 billion; and closely held AlertMe Ltd., a U.K. company that has developed technology to control dozens of devices from different manufacturers on a single network, according to Mewawalla at CM Research. Sensor makers would also make sense as targets, said Park Hyun Je, a creative planner at a research and development center under the South Korea’s science ministry. Still Early For companies attempting to profit from the Internet of Things, it’s tough to pick the right targets because the concept is in its infancy, said Avi Greengart, research director for consumer devices at Sterling, Virginia-based Current Analysis. “It’s not clear which layer of the technology stack will provide the most value and control,” Greengart said in an e-mail. “Any investment, whether homegrown or via acquisition, may lead to dead ends.” Samsung is willing to spend. The company this month said it will invest more than $100 million in developers of smart technology for homes and devices. Samsung Ventures, a venture capital firm, led a $20 million funding round for Israel’s EarlySense Ltd., the companies said in a Jan. 20 statement. All the same, takeovers might be the fastest way for Samsung to prepare for the explosion of connected devices that’s expected this decade. When it comes to software, Samsung “looks far behind its competitors,” said Mewawalla at CM Research. To contact the reporters on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Beth Williams at bewilliams@bloomberg.net Beth Williams, Elizabeth Wollman