On the 21st of last month, Samsung Electronics Vice Chairman Lee Jae-yong returned from a two-week overseas business trip. The destinations were North America, Central America and Europe. After meeting with reporters after returning home, Vice Chairman Lee Jae-yong suddenly mentioned the name of one of the richest people in Japan. He said he would consider taking over the company he invested in.
The name of this company is ‘ARM’. It is a semiconductor company based in the UK. However, Samsung Electronics is not the only company that has paid attention to this company. Intel, a top semiconductor company in the United States, also showed interest, and global companies such as SK Hynix and Qualcomm also expressed their desire to acquire this company.
Two years ago, an American company has even signed a contract to acquire ARM for about 50 trillion won. The US and UK governments objected, so we finally gave up earlier this year. Now, the price is said to be up to 100 trillion won. What kind of company is Samsung Electronics paying so much money? And what are the chances of a successful acquisition?
ARM, which account?
To understand the unique appeal of ARM, you need to understand the structure of the semiconductor industry. There are memory semiconductors that store information and system semiconductors that operate and process information.
Companies that make system semiconductors can be broadly classified into three categories. A company that only designs semiconductors is called fabless, and a company that manufactures semiconductors designed in this way is called a foundry. A company that designs and manufactures both is called an integrated semiconductor (IDM) company.
Fabless refers to companies that have the technology to design semiconductors but do not have large-scale production plants. They design the semiconductors they will use or sell themselves, and leave the production to other companies. Apple is a great example. Apple designs the semiconductors used in MacBooks and iPads, but does not make them directly, but entrusts them to external manufacturers.
Foundries are companies that specialize in producing loads of semiconductors. They see the circuit diagram of the semiconductor circuit made by fabless and make the semiconductor as it is. A Taiwanese company called ‘TSMC’ has an unrivaled share in the foundry market.
a general semiconductor company
A comprehensive semiconductor company is a company that independently deals with the development, design and manufacture of semiconductors. Samsung Electronics is a great example. Samsung Electronics produces its own designed semiconductors, or it manufactures on consignment after looking at the semiconductor circuit designs provided by customers.
ARM, which Samsung Electronics wants to acquire, is usually classified as fabless. However, it is different from general fabless. ARM has drawn up a number of ‘drafts’ for fabless to create blueprints. Fabless like Apple take an appropriate one of these sketches and paint or color it to suit their needs to complete the blueprint.
Of course, it’s not free. ARM has several patents for these sketches. Other fabless have to pay a patent fee to use this sketch. After all, ARM can make money comfortably by sitting still and earning commissions as long as he draws a good sketch once. Like others, there’s no reason to wrap your head around it every time you design a new semiconductor, and there’s no need to run a factory like a foundry.
It is said that by using the ARM sketch, it is possible to make a semiconductor that consumes less power and can produce good performance. That is why it is widely used to make semiconductors for mobile devices where extending battery life is important. More than 90% of all smartphones and 85% of tablet computers are said to use semiconductors made using ARM designs.
Why do you sell a company so well?
The wealthy Japanese that Vice Chairman Lee Jae-yong mentioned is Son Jeong-eui, Chairman of SoftBank Group. His original name is ‘Son Masayoshi’, but in Korea he is usually called Fab Jeong-ui. ARM’s current owner is SoftBank Group, Japan’s largest information technology (IT) company. SoftBank Group acquired ARM in 2016 for about 33 trillion won.
The problem is that the companies that Softbank Vision Fund has invested in for several years have been in the red after another, and their stock prices are falling significantly. The SoftBank Vision Fund is a fund created by SoftBank, sovereign wealth funds (funds invested with government assets) and large corporations from various countries. SoftBank tried to recoup its investment by an IPO (IPO) of the ‘good’ ARM to compensate for the loss of the Vision Fund. However, with the cold wind blowing in the global stock market these days, even this has become difficult. In the end, I thought it would be better to sell directly to a company like Samsung Electronics.
However, there are people who say that even if ARM is a good company, the price is too high. The company’s annual sales are just over 2 trillion won, and up to 100 trillion won is being discussed as the acquisition price.
Why does Samsung live?
Samsung Electronics pays hundreds of billions of patent money every year to use the drafts made by ARM. You may have thought, ‘I have to pay a fee every year anyway, wouldn’t it be better to buy the company outright?’ Companies like Apple also pay fees to ARM.
There is also the purpose of diversifying the business. Korea is second to none in the memory semiconductor market, but its share in the system semiconductor market is not high. However, in terms of the entire semiconductor industry, the market share of memory semiconductors is less than 30%. In addition, system semiconductors have a more complex structure than memory semiconductors and are difficult to manufacture, so there are many leftovers when they are sold.
In addition, Samsung Electronics, which is in the foundry business, may need to acquire ARM to catch TSMC, the industry leader. If you acquire ARM, you can secure a competitive advantage that will attract great customer attention. You can discuss something like, ‘If you entrust the production to us, we will also reduce the fee for using the sketches needed for design’.
So can I live immediately?
Once you have enough money. Samsung Electronics can spend about 125 trillion won on the acquisition of the company. Of course, it will not be easy to offer up to 100 trillion won for the acquisition. The problem is that money is not the only thing. In fact, two years ago, an American semiconductor company was already trying to acquire ARM. We reached an agreement with Softbank Group and even signed an agreement.
As soon as the news spread, other semiconductor competitors in the United States came out to oppose it. This is because it could undermine ‘fair competition’. It’s like, ‘Now, everyone uses the blueprints made by ARM, but what if one company acquires ARM so that competitors like us can’t use it or have a big price increase?’
In the end, the US government did not approve the deal, saying, ‘If a company acquires ARM, it could undermine fair competition’. So is the UK government, where ARM is headquartered. The European Union (EU) and China also came together, eventually ending their acquisition of ARM earlier this year.
For this reason, there is also a prospect that Samsung Electronics will acquire ARM along with other companies and share a small stake in it. Intel and SK Hynix, which had previously expressed interest in acquiring ARM, also reviewed this approach.
However, this approach defeats the advantages of the ARM argument. Everyone is nobody. Vice Chairman Lee Jae-yong has yet to reveal his strategy for acquiring ARM. Only this month they announced plans to meet SoftBank Chairman Son Jeong-eui. What are his specific plans to acquire ARM?
[박재영 기자 / 임형준 기자]
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