Tuesday 21 May 2013

How Samsung Spends its Profits

Authored by Mike Roberts

Samsung has an interesting approach to when, where and what the company spends its money on. Below is an excerpt from the Wall Street Journal that explains it better than I can:

Samsung routinely outspends rivals on capital expenditures to build newer and bigger factories. During market downturns, when competitors would scale back on investment, the world's top producer of memory chips would continue to spend billions of dollars—allowing it to extend its market-share lead and give it scale to gain more bargaining power in price negotiations.

Because the China-based manufacturer typically reinvested large sums of its profits back into the business, its cash reserves were conservative. However, this is quickly changing as profits from the mobile division grow, and Samsung’s spending slows.

So what is prompting the shift in strategy? Here are two theories I have been reading about:

  • Preparing for the innate risk that comes with the tech industry. Samsung may be gaining traction in the mobile phone market, but a competitor (Apple) could come out with a new product that quickly changes Samsung’s profit projections. The company may be investing for future changes in the competitive market. 
  • Planning for larger acquisitions. To date, Samsung is buying up smaller companies as a part of its more conservative strategy. Could they be preparing for a headline-grabbing acquisition? 
Time will tell what Samsung is plotting. I’m surely interested in watching what will happen next…

No comments:

Post a Comment