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Samsung urged to rebuild shipbuilding business

After being paroled from prison, Samsung leader Lee Jae-yong should be able to move forward on a lot of sizable investment and mergers and acquisitions (M&As), which are seen as “major decisions” requiring Lee’s signoff. The Samsung vice chairman is the group owner.

Given Samsung Electronics’ strengths in memory chips, top smartphones, displays and electric vehicle (EV) batteries, investors’ primary focus is on how quickly Lee can resume his management, as well as if the global technology heavyweight will specify its investment targets to stay competitive in these designated four business areas.

As its cash- and cash-equivalent assets totaled up to 200 trillion won as of last year, market analysts say Samsung will become more active in actualizing large-scale M&A deals to gain such hardware-driven technologies, now that Lee is able to approve major investments. Plus, any investments in Samsung’s core businesses will be justifiable, as investors are seeking higher profits and more dividend payments.

In semiconductors, Samsung is considering various options on how to level up its competitiveness, not just in memory chips but also in the contract-based chip manufacturing foundry business, as the demand for such advanced and high-efficiency chips will grow, on the back of driverless EVs, 5G wireless services and artificial intelligence (AI). Samsung announced earlier its intention to invest at least $17 billion to expand its foundry chip-making line in the United States, but it has yet to announce any final statements regarding the initiative.

In EV batteries, its battery affiliate, Samsung SDI, was in talks with officials in the U.S. state of Illinois to establish its first battery cell-manufacturing plant in the United States. In the mobile business, the company was on track to find measures to stay afloat amid the continued rapid ascent of mainland Chinese rivals.

While Samsung is best known as a top-tier tech company, it is also active in hotels, insurance, leisure, biosimilar drug manufacturing and shipbuilding. Analysts say its leader may face some questions regarding the validity of its shipbuilding business.

Rethinking the shipbuilding business model?

Unlike the group’s electronics and biosimilar drug-manufacturing affiliates, Samsung’s shipbuilding business isn’t in very good shape. What seems to matter most to Samsung Heavy Industries (SHI) is that the company’s long-term future is increasingly being questioned.

“It’s too early to talk about the future of the group’s shipbuilding business, as SHI is seeing lots of hiring. But like the semiconductor business, shipbuilding is also cyclical, and it has certainly been among the sectors worst affected by financial crises. I would say that Samsung is the global top in semiconductor manufacturing, but its shipbuilding business isn’t. It’s a business that can’t guarantee its sustainability from Samsung’s standpoint, I think,” an industry executive said.

The global shipbuilding industry is seeing signs of rationalization as the EU is considering approving a suggested takeover by Hyundai Heavy Industries (HHI) of Daewoo Shipbuilding and Marine Engineering (DSME). The suggestion has received approvals from antitrust agencies in six countries but has yet to receive official approval from Korea and the EU.

“For an industry that is cyclical and volatile, only the market leader will have bargaining power and the competitive edge, two required prerequisites to stay competitive,” another industry official said. SHI is the country’s No. 3 shipbuilder.

SHI is on track to improve its financial fact sheets by applying various measures. It reported an operating loss of 944 billion won for the first six months of this year, pushing the company to initiate large-scale financial improvement protocols.

When contacted by The Korea Times, a source who is familiar with the issue said on condition of anonymity that the shipbuilding business is losing its luster.

“With semiconductors and batteries, shipbuilding is viewed as a strategic industry. That means Korea doesn’t have a lot of shipbuilding companies. A new order is prevailing in the market. The factors determining the competitiveness of shipyards are production range, productivity and cost position. These are the conditions that can benefit only the market leaders,” the source said.

The EU raised its concerns that the proposed HHI-DSME merger may remove DSME as another competitive force in the construction of large containerships, oil tankers and liquefied natural gas (LNG) and liquefied petroleum gas (LPG) vessels. But reports said that the transaction proposal will get final approval from the EU only with the assurance that the merged unit will not hurt fair market competition.
Source: The Korea Times

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