[EXCLUSIVE] Samsung wary over pre-IPO investment in Arm

Samsung Electronics is reviewing the equity purchase of British chip designer Arm, taking “a conservative approach,” according to Samsung’s executive, due to its perceived overvaluation and regulatory risks.

British chip designer Arm [ARM]

Samsung Electronics is taking a conservative approach to an equity purchase in British chip designer Arm, according to Samsung's executive, due to its perceived overvaluation and regulatory risks.

SoftBank, the Tokyo-based investing group that owns Arm, has been approaching industry heavyweights like Intel, Apple, Amazon and Google to court them as anchor investors ahead of Arm's planned listing on the Nasdaq as early as September.

“We are evaluating the issue, but no decision has been made yet,” an executive at Samsung Electronics said.

“But one thing is clear: acquiring big pieces of Arm shares is not attractive price wise and possible regulatory scrutiny associated with buying sizable stakes in Arm is another drag,” said the source who spoke on the condition of anonymity.

“It is also unlikely that the participation as an anchor investor could ensure exclusive benefits for Samsung when striking a licensing deal with Arm, because it risks backlash from other anchor investors,” the source said.

Arm has been a problematic proposition because its designs for application processors are so widely used, and it is a risk for it to be monopolized, especially by a company that competes with Arm's clients.

Nvidia’s attempt to buy Arm from SoftBank was blocked by antitrust regulators including the U.S. Federal Trade Commission due to concerns over market monopoly.

Greg Roh, head of the research center at HMC Investment & Securities, echoed the skepticism.

“The investment would not deliver immediate benefits for Samsung compared to the size of spending required for becoming an anchor investor,” he told the Korea JoongAng Daily.

Arm is seeking to raise up to $10 billion through the blockbuster listing. Winning big institutional investors before the listing is critical for Arm to rally the stock and support a higher valuation.

The highly-anticipated listing comes as Samsung is unloading its key securities assets in an effort to secure cash amid dwindling profit due to the market downturn in the chip industry.

Samsung Electronics sold more than half of its shares in ASML, a Dutch chip equipment manufacturer, according to the Korean chipmaker’s semiannual report, raising about 3 trillion won ($2.2 billion).

Its holding of ASML shares went from 6.29 million to 2.75 million during the April-June period which dropped Samsung’s ownership of the equipment maker from 1.6 percent at the end of the first quarter to 0.7 percent.

The 3 trillion won secured from the selloff is expected to be invested in facilities, according to local media outlets, especially in contract chip manufacturing lines in Pyeongtaek and Taylor, Texas in the United States.

Samsung Electronics is expected to start contract manufacturing at its Line 3 facility at its Pyeongtaek plant in the latter half of this year. The line is currently focused on churning out memory chips.

Its Taylor, Texas plant is poised to start mass production of 4-nanometer chips by the latter half of next year.

The Korean chipmaker is arduously chasing after TSMC, an unrivaled player in the contract chip manufacturing business with more than 50 percent market share.

Samsung, despite sluggish market conditions, has been making bold investments in facilities and research and development (R&D).

The company, in the first half alone, invested 25.3 trillion won in facilities amid generating 8.9 trillion won in operating loss for its chip business.

“Investment in facilities in the latter half of 2023 is unlikely as it’s not the right timing considering the market condition,” said another industry insider who wished to stay anonymous.

“But in the long-term, it seems like Samsung will use the secured cash to invest in chip facilities.”

BY PARK EUN-JEE, JIN EUN-SOO [park.eunjee@joongang.co.kr]