Samsung’s Lee, SoftBank’s Son to discuss partnership on ARM

Samsung Electronics Co. Vice Chairman Jay Y. Lee will meet with Japan’s SoftBank Group Chairman Masayoshi Son next month to discuss a deal regarding ARM Ltd., a British semiconductor design company.

“When Chairman Son comes to Seoul next month, he will likely make a sort of proposal about ARM,” Lee told reporters on Wednesday at Gimpo Airport after returning from his two-week trip to Europe.

Lee said he didn’t meet with ARM executives during his stay in the UK.

According to Bloomberg News, Son was also quoted by his spokesperson as saying, “I want to discuss a strategic alliance for ARM with Samsung.”

Headquartered in Cambridge, England, ARM is a SoftBank Group subsidiary. Global semiconductor companies such as Samsung and Qualcomm rely on ARM's chip architecture. SoftBank owns 75% of ARM while SoftBank’s affiliate Vision Fund has the remaining 25% stake.

ARM controls 90% of the chip design market for mobile application processors, the brain of smartphones.

POSSIBLE INVESTMENT IN PRE-IPO

While in Seoul, industry sources said, Son will likely ask Samsung to invest in a pre-initial public offering (IPO).

SoftBank, which purchased ARM for $31.4 billion in 2016, signed a $40 billion agreement to sell the fabless chip design company to US rival Nvidia Corp. last year. But the deal broke down when the US antitrust body opposed it, citing monopoly concerns arising from the combination of the two chip design firms.

Following the deal's collapse, SoftBank, instead, is seeking to take the company public in New York or London by the end of next March.

The Japanese company is expected to request Samsung’s participation in pre-IPO fundraising, the sources said.

With growing interest in ARM, the chip design firm’s enterprise value has risen to $66 billion from $40 billion, according to investment banking officials.

“Samsung has enough cash to buy a majority stake in ARM, but it may not be worth it,” said one of the people with knowledge of the matter.

According to market research firm Statista, ARM’s sales revenue was about 2.2 trillion won ($1.6 billion) in 2020, up from 2.1 trillion won in 2019.

SEEKING M&As ARMED WITH $89 BILLION CASH

While sitting on cash reserves of 125 trillion won ($89 billion) as of the second quarter, Samsung has been absent from the M&A market since its $8 billion deal in 2017 to acquire Harman, a US electronics systems maker for automobiles.

During its general shareholders’ meeting last year, Samsung executives said the company will see meaningful M&As within three years, particularly in the system chip business, where its presence is weak.

Samsung is the world’s largest memory chipmaker, although the South Korean tech giant has some catching up to do in the system chip and foundry segments.

In the global semiconductor industry, memory chips account for about 30% while the remaining 70% are taken up by non-memory chips such as system-on-chips, a market where Korean companies are distant followers.

Samsung has just a single-digit market share in the non-memory market.

In the foundry market, where chipmakers make chips for fabless companies and chip designing firms, Samsung is the world’s No. 2 player with a low double-digit market share, far behind market leader Taiwan Semiconductor Manufacturing Co. (TSMC), which controls more than half the market.

In 2019, Samsung said it will spend 133 trillion won on system chip production and research and development by 2030 to strengthen its system chip and foundry businesses.

KEEN INTEREST IN ARM

Several chipmakers have already expressed their interest in the UK chip designer.

Park Jung-ho, chief executive of Korea’s SK Hynix Inc., the world’s second-largest memory chipmaker, said in March the company is considering forming a consortium with other strategic investors to buy ARM.

Qualcomm CEO Cristiano Amon has also said the company is considering forming a consortium to acquire a controlling stake in ARM.

Industry watchers said Samsung is expected to seek a minority stake in ARM to avoid regulatory challenges, including the antitrust issue.

Samsung also needs to address the issue of a possible conflict of interest.

A number of semiconductor companies that rely on AMR for chip design are using Samsung’s foundry facilities for production. If Samsung acquires ARM, it would raise concerns over the possible leak of their chip design secrets.

If Samsung acquires a meaningful stake in ARM, it will strengthen its competitiveness versus its non-memory rivals, including Intel Inc.

Currently, about 70% of Samsung’s semiconductor sales come from the memory business such as DRAM and NAND chips.

Samsung's investment in ARM would also provide momentum for a share price rebound.

Samsung’s shares have fallen 31% to 54,400 won so far this year.

Write to Ji-Eun Jeong at jeong@hankyung.com
In-Soo Nam edited this article.