Samsung Electronics Vice President Li Zaiyu visited BYD on May 2, which is a signal that Samsung will accelerate its automotive electronics business in the Chinese market.
In the first quarter of 2018, Samsung Electronics hit another record high. However, the second quarter faced difficulties and the Chinese business was also unsatisfactory. Therefore, Li is very popular in this trip.
Relevant persons from Samsung China confirmed to the First Financial Reporter that Li Zaijun visited BYD, but the rest of the trip was not disclosed.
It is worth noting that the accompanying Samsung Electronics executives, including Samsung Electronics CEO and semiconductor business leader Jin Qinan, storage business leader Jin Qiaoyong, system LSI business leader Kang Renxi, and Samsung Display CEO Li Dongxun.
BYD is one of the major electric vehicle manufacturers in China. It is speculated that Samsung hopes to seize the opportunity of rapid development of China's electric vehicles and expand sales of upstream components such as chips, display panels and power batteries in the Chinese automotive industry.
However, for Li Zaijun to negotiate with Chinese business partners including BYD in Shenzhen, regarding the content of the negotiations between the two parties, BYD related parties refused to disclose the details when interviewed by the First Financial News reporter on May 3. As for whether the two sides are involved in cooperation on power batteries, BYD’s above-mentioned people also refused to answer.
Car chip or will break the chip business ceiling
In the first quarter of this year, Samsung Electronics achieved a new high profit: operating income of 60.56 trillion won (about 56.98 billion US dollars), an increase of nearly 20%; operating profit of 15.64 trillion won, a sharp increase of 58.03%. Its operating profit margin for the first quarter was 25.8%, an increase of 6.2 percentage points from the same period last year.
Samsung said that the first quarter performance growth was mainly driven by the memory chip business and increased sales of flagship mobile phone products, including the Galaxy S9.
In the first quarter, Samsung's semiconductor business achieved operating income 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 mobile communications division achieved revenue of 28.45 trillion won in the first quarter of this year, operating profit of 3.77 trillion won; consumer electronics sector revenue of 9.74 trillion won, operating profit of 280 billion won, a year-on-year decline.
Some 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, due to the slowdown in the global mobile phone market, Samsung's mobile device business is expected to decline in sales of high-end flagship models. At the same time, in the 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 memory chip market will be oversupply in the second half of the year.
How to find Samsung Electronics' new growth space and break the "ceiling" of the chip business that is about to peak is the problem that Li Zaiyu, who is ending in prison in February this year and regaining his freedom, needs to be cracked. Visiting BYD in Shenzhen is his second overseas event after he was released from prison. He visited Canada and Europe a month ago.
Automotive electronics is one of Samsung's strategic priorities for the future. In 2014, Li Zaiyi led Samsung Electronics to acquire Harman International, a well-known automotive electronics supplier. Recently, Samsung has also produced car chips.
According to reports from the Korea Herald Tribune, Samsung Electronics began mass production of DRAM chips for automobiles in April this year. Its 16GB DRAM is the industry's first automotive solution to withstand temperatures from the current 105 degrees Celsius to 125 degrees Celsius. The chip's 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 state-of-the-art automotive solution that provides automotive manufacturers with superior reliability, durability, speed, capacity and energy efficiency," said Chun Se-won, senior vice president of Samsung Memory Chips Marketing.
Cooperate with BYD to expand B2B business in China
Expanding the business in the Chinese market is also one of Samsung Electronics' strategies to maintain its growth. In the case that the share of consumer electronics such as mobile phones is not as good as that of China's leading brands, how to expand the B2B business such as chips and automotive electronics in the Chinese market has become Samsung's natural choice.
Sun Yanxi, dean of the First Mobile Phone Research Institute, said that according to Sanno’s statistics, Samsung’s mobile phone market share in China is about 3%. In the past two months, sales of Samsung mobile phones in the Chinese market have rebounded. And some of China's leading brands in the Chinese mobile phone market share of about 15%.
For this trip to BYD, a Samsung person said: "The Vice Chairman (Li Zaiyu) and the President (Jin Qinan) plan to hold meetings with Chinese business partners including BYD."
A former BYD executive told the media that BYD produced almost all metal casing products for Samsung Electronics. From the current situation, the common interests of both sides will be more in the electric vehicle industry chain in the future.
Samsung Electronics holds a 1.92% stake in BYD, a Chinese electric car manufacturer. The talks with BYD are considered to be related to Samsung Electronics' strategy to accelerate the automotive electronics business, and this strategy is led by Li Zaiyu.
According to public information, in July 2016, BYD raised funds of 14.473 billion yuan to specific investors by way of non-public offering of shares. Shanghai Samsung Semiconductor purchased 52.26 million BYD A shares for about 3 billion yuan, holding the total equity of BYD. 1.92%. The main purpose of BYD's fundraising in this round is to rapidly expand the production capacity of lithium-ion power batteries, better meet the needs of new energy vehicle production, and promote the implementation of new energy vehicle research and development projects, which is conducive to the development of the company's follow-up models. At the time, BYD said that Samsung Electronics was mainly based on the firm confidence in BYD's long-term development prospects and the strategic cooperation between the two parties in the field of electric vehicle parts.
For the first time in the Ningde era, BYD took the No. 1 position in the domestic lithium-ion battery business. Ningde era is a power battery supplier for many OEMs such as BMW, Yutong, SAIC, BAIC, Geely, Dongfeng and Changan. At present, the Ningde era is accelerating the pace of grabbing the power battery. Following the acquisition of the power battery order of the Volkswagen Group MEB project in March, it has recently announced that Dongfeng Nissan's first domestically produced pure electric vehicle, Sylphy, will use the batteries of the Ningde era. The Ningde era has successfully passed through the meeting last month. It will then land in the capital market and use the power of capital to compete with BYD in terms of market and technology.
In the face of the turbulent Ningde era, BYD is breaking the vertical closed supply system of the original parts and components, and is currently pushing the open supply of power batteries. Different from the Ningde era, the strength of the two major plates of ternary lithium and lithium iron phosphate is quite similar. BYD is known for its lithium iron phosphate battery. Although it has also started the development of ternary lithium technology, the relative entry time is slightly later. Samsung has certain technical advantages in the ternary lithium battery.
Sun Muzi, director of the automotive industry of Taibo Yingsi (Beijing) Information Consulting Co., Ltd., said in an interview with the First Financial News on May 3 that Samsung and BYD are likely to cooperate on the power battery. Foreign-funded enterprises such as Samsung are not yet able to enter the power battery catalog, and they cannot get new energy subsidies. It is difficult to become a power battery supplier for domestic automakers. Once Samsung and BYD cooperate in power battery, it will help to enhance their competitiveness in the domestic power battery market.
Liu Buchen, a senior observer of the home appliance industry, told the First Financial Reporter that it is still not possible to judge the purpose of Li’s trip to BYD. Everyone is more concerned about the background of Li’s trip. At present, Samsung's performance in the Chinese market is not satisfactory. No matter whether it is color TV, mobile phone or refrigerator, it has not achieved the status of its industry with its global influence. As the world's second largest economy and the world's most growth market, the Chinese market is extremely important to Samsung. How to reverse the current trend? How to develop new business growth points? I believe it is the most worrying issue for Samsung management. Li Zaiyu’s trip is based on this background. It is worth looking forward to the specific results of the visit.
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