Multilateral Groundwork
Samsung is to scale up its automotive electronic business, which is considered a new growth engine, through merger and acquisition.
According to foreign news outlets and local industry sources on August 4, Samsung Electronics is considering a plan to buy major automotive parts supplier Magneti Marelli from Fiat Chrysler Automobiles. The deal is said to be worth US$3 billion (3.34 trillion won). Once Samsung takes over Magneti Marelli, it will be its largest-ever purchase outside of South Korea. Samsung Electronics Vice Chairman Lee Jae-yong, who has been a director of Exor, the holding company of Fiat Chrysler, since 2012, has led the M&A deal.
Magneti Marelli, which was founded in Italy in 1919 and acquired by Fiat Chrysler in 1967, is one of the world’s top 30 automotive parts supplier. The firm employed around 40,000 workers and recorded 7.3 billion euros (US$8.12 billion or 9.05 trillion won) in sales last year. It has 12 research and development centers and 26 application centers across the world, including the U.S., China and Brazil, and spends about 6 percent of the total yearly sales on research and development.
Samsung’s attempt to take over Magneti Marelli can be interpreted as placing a multilateral groundwork. Ushering in the era of the Internet of Things (IoT), the automotive sector is rapidly emerging as a new growth engine in the future, along with semiconductors and electronic components. However, the automotive sector has very different features from the electronics sector, which has been the main business of Samsung Electronics. Accordingly, it will be hard for Samsung to build the business from scratch.
Samsung has already said that it will enter the automotive business in earnest from last year. The group launched the automotive electronic business team, which is in charge of automotive business, under Samsung Electronics at the end of last year, and the automotive semiconductor development task force team under Samsung Electronics’ device solutions (DS) division earlier this year. It announced its plan to establish automotive semiconductor production lines in April, and invested 500 billion won (US$448.51 million) in China’s BYD, the world’s biggest maker of electric vehicles, last month.
Samsung can seek technical cooperation with Magneti Marelli first. Magneti Marelli currently supplies dashboard, car suspension and exhaust systems to European automakers, including Fiat Group. Samsung Electronics is also particularly interested in Magneti Marelli’s in-car entertainment and Telematics technology.
Moreover, Samsung can expand its sales outlets into the car market. Electronics firms place an emphasis on the automobile market but they have had difficulties to push into the market. This is because there are high market entry barriers as automakers have trust in car component producers, who have had business relations with them, for a long time. Samsung Electronics believe that it can sell the products of Samsung’s electronics affiliates to Magneti Marelli’s automaker customers in Europe with the acquisition deal.
Currently, Samsung’s numerous subsidiaries consider the automotive business as a new growth engine. Samsung Electronics handles system and analog semiconductors, light-emitting diode (LED) and automotive embedded operating systems. The company has already been developing automotive semiconductors based on its system semiconductor and DRAM technology. Automotive semiconductors include sensors, which measure internal and external temperatures, pressure and speed, electronics control systems, which control engine and transmission, and chips for drive systems, including motors. About 200 semiconductor chips, such as memory and non-memory semiconductor, microcontroller (MCU) and sensor, are being used to produce a car. They are also indispensable components to manufacture autonomous vehicles.
Samsung Display realizes various functions through transparent displays. It can display detailed driving related information on the windshield and turn the dashboard into a display. Samsung Electro-Mechanics produces multi-layer ceramic condensers (MLCC) for automotive electronics devices and rear camera modules. Samsung SDI focuses on improving battery technology for electronic vehicles.