Vice President of Samsung Electronics Li Zaiyi visited Shenzhen BYD on May 2nd, which is a signal that Samsung will accelerate the automotive electronics business in the Chinese market.
In the first quarter of 2018, Samsung Electronics set a new record high. However, the second quarter was facing difficulties and China's business was far from satisfactory. Therefore, Li Zaichen’s trip attracted much attention.
Samsung China stakeholders confirmed to the First Financial Journalist that Li Zaiyu visited BYD, but the remaining itinerary was not disclosed.
It is worth noting that the accompanying Samsung executives include Jin Qinan, CEO of Samsung Electronics Co., Ltd. and the semiconductor business, Jinqiao Yong, head of storage business, Kang Renxi, head of system LSI business, and Li Dongxun, CEO of Samsung Display.
BYD is one of the major domestic electric vehicle manufacturers. It is speculated by the outside world that Samsung hopes to seize the opportunities for the rapid development of China's electric vehicles and expand the sales of chips, display panels, power batteries and other upstream components in the Chinese automotive industry.
However, regarding Li Zaiyu’s negotiation with a Chinese business partner including BYD in Shenzhen, regarding the content of the negotiations between the two parties, BYD stakeholders declined to disclose details when interviewed by CFA reporters on May 3rd. In terms of power battery cooperation, BYD said the above-mentioned persons also refused to answer.
Car chips or ceilings that will break the chip business
In the first quarter of this year, Samsung Electronics recorded a record high profit: operating income of 60.56 trillion won (approximately US$56.98 billion), an increase of nearly 20% from the previous year; operating profit of 15.64 trillion won, a surge of 58.03% year-on-year. The profit rate was 25.8%, which was 6.2% higher than the same period of last year.
Samsung said that the first quarter results growth was mainly driven by the memory chip business and increased the sales of flagship mobile phone products, including the Galaxy S9.
In the first quarter, Samsung’s semiconductor business realized operating revenue of 20.78 trillion won and operating profit of 11.55 trillion won. In other words, the chip business contributed more than two-thirds of operating profit to Samsung in the first quarter of this year.
In addition, Samsung IT and the mobile communications sector achieved 28.45 trillion won in revenue in the first quarter of this year, operating profit was 3.77 trillion won; the consumer electronics sector earned KRW 9.74 trillion, and operating profit was 280 billion won, a year-on-year decline.
Some South Korean media believe that Samsung Electronics will face difficulties in the second quarter. Although the storage chip business is expected to maintain strong growth in the second quarter of this year, but due to the slowdown in global mobile phone market growth, Samsung's mobile device business is expected to appear high-end flagship model sales decline. At the same time, in terms of panel business, although the demand for flexible OLED panels is strong, the LCD (liquid crystal) panel industry may face excessive competition due to capacity expansion. There are also analysts worried that the market for memory chips will be oversupply in the second half of the year.
How to find a new growth space for Samsung Electronics and to break the 'ceiling' of the chip business that is about to peak is the problem that Lee Jae-hyun needs to solve in order to regain his freedom of imprisonment in February this year. Visiting BYD in Shenzhen is his release from prison. , The second event overseas, he visited Canada and Europe a month ago.
Automotive electronics is one of Samsung’s strategic priorities for the future. Li Zaijun once led Samsung Electronics in 2016 to acquire the famous automotive electronics supplier Harman International. Recently, Samsung also mass-produced automotive chips.
According to a report from the Korean Herald Tribune, Samsung Electronics began mass production of automotive DRAM chips in April this year. Its 16GB DRAM is the industry's first automotive solution, and its temperature can be increased from the current 105 degrees Celsius to 125 degrees Celsius. The data processing speed is 14% faster than 8GB DRAM. The power efficiency of the new memory is also increased by 30%.
'The 16GB LPDDR4X DRAM is our most advanced automotive solution that provides global automotive manufacturers with superior reliability, durability, speed, capacity and energy efficiency,' said Chun Sewon, senior vice president of Samsung's memory chip marketing.
Cooperation with BYD to Expand B2B Business in China
Expanding the business in the Chinese market is also one of the strategies for Samsung Electronics to maintain its growth. When the share of consumer electronic products such as mobile phones is inferior to the leading brands in China, how to expand the B2B business such as chips and automotive electronics in the Chinese market becomes Samsung's natural choice.
According to Sun Yanji, Dean of the first mobile phone industry research institute, according to statistics from Sino, Samsung’s mobile phone currently has a share of about 3% in the Chinese market. In recent months, Samsung’s mobile phone sales in the Chinese market have picked up. The leading brand's share in the Chinese mobile phone market is about 15%.
For this trip to BYD, a person from Samsung said: 'Vice-Chairman Li Ziyi and President Kim Jinnan plan to hold meetings with Chinese business partners including BYD.'
A senior BYD told the media that BYD produced almost all metal casing products for Samsung Electronics. From the current situation, the common interests of both parties will be more in the electric vehicle industry chain in the future.
Samsung Electronics holds a 1.92% stake in BYD, a Chinese electric vehicle manufacturer. The talks with BYD are believed to be related to Samsung’s strategy to accelerate automotive electronics business. This strategy is led by Li Zaiyu.
According to public information, in July 2016, BYD raised a total of RMB14.473 billion from specific investors through non-public issuance of stocks. Among them, Shanghai Samsung Semiconductor purchased 52.26 million BYD A shares for about RMB 3 billion, holding the total equity of BYD. 1.92%. BYD's main purpose of raising funds in this round is to rapidly expand the production capacity of lithium-ion battery, to better meet the needs of new energy vehicle production, and to promote the implementation of new energy vehicle R&D projects, which will benefit the company's follow-up models. At the time, BYD said that Samsung Electronics was mainly based on its strong confidence in the long-term development prospects of BYD and the future strategic cooperation between both parties in the field of electric vehicle parts and components.
BYD took the first place in the domestic Ningde era for its first shipment of lithium-ion battery companies last year. Ningde Era was a power battery supplier for BMW, Yutong, SAIC, BAIC, Geely, Dongfeng, Changan and many other OEMs. The Ningde era is accelerating the pace of seizing power batteries. Following the orders for power batteries from the Volkswagen Group's MEB project in March, Dongfeng Nissan also announced that it will use the Ningde era batteries for the first domestically produced pure electric vehicle. The Ningde era was last month. After successfully passing the conference, the next step will be to land on the capital market. With the help of capital, we will conduct new contests with BYD in terms of market and technology.
In the face of the ups and downs of the Ningde era, BYD is breaking the vertical closed supply system of its original parts and components. Currently, it is in full swing to promote the supply of open-battery power batteries. Unlike the Ningde era, the strengths of the two major segments of Sanyuan Lithium and Lithium Iron Phosphate are similar. BYD is known for its lithium iron phosphate battery. Although it has also started research and development of ternary lithium technology, it is relatively late in terms of entry time. Samsung has a certain technical advantage on ternary lithium batteries.
Taimu Yingsi (Beijing) Information Consulting Co., Ltd. Car Industry Director Sun Muzi said in an interview with a CFA reporter on May 3 that Samsung and BYD are likely to cooperate on the power battery. Samsung and other foreign companies are not yet able to enter the power. The battery catalog cannot get new energy subsidies and it is difficult to become a supplier of power batteries for domestic automakers. Once Samsung and BYD cooperate in power batteries, it will help improve the competitiveness of both companies in the domestic power battery market.
Liu Buchen, senior observer of the household appliances industry, told the Chief Financial Officer that it is not yet possible to determine what the purpose of Li’s trip to BYD is. We are more concerned about the background of Li’s trip. At present, Samsung’s performance in the Chinese market is unsatisfactory. No matter the color TV, mobile phone or refrigerator, they have not achieved the industry status that matches their global influence. As the world’s second largest economy and the most growth market in the world, the Chinese market is extremely valuable to Samsung and how to reverse the current How to develop new business growth point? It is believed that Samsung executives think most of the issues. Li Zaiyi's trip is based on this background. It can be achieved concretely how to achieve the results of the visit. It is worth looking forward to.