Samsung Electronics Co. is well known for its ample cash reserves close to $100 billion, ready to spend where it deems necessary for growth.
But the South Korean tech giant is finding its cash reserves dwindling despite decent earnings in recent quarters as it gradually increases spending for investment and facility expansion.
According to its regulatory filing with financial authorities, Samsung had 131.87 trillion won ($111 billion) in cash and cash equivalents at the end of the first quarter, but the amount went down to 111.1 trillion won at the end of the second quarter.
Its net cash, calculated by subtracting the company’s liabilities from its total cash, fell even further to 94.4 trillion won from 111.89 trillion won in the same period.
The reduction comes as Samsung Electronics posted 9.63 trillion won in net profit in the second quarter.
Analysts say the company’s cash flow won’t be affected as it is expected to continuously post handsome earnings going forward, with some brokerages projecting Samsung’s third-quarter operating profit at 15.76 trillion won.
Samsung Electronics' chip clean room CASH FLOW
However, the tech company is widely expected to spend more than it earns in coming quarters to expand its facilities in the face of growing competition with its global peers.
Samsung Electronics said last month it will make a fresh investment worth 240 trillion won until 2023, meaning more than 20 trillion won in spending on average every quarter until then.
“Unlike R&D spending, most facilities investments are made with cash. We expect a steady fund outflow,” said a Samsung official.
While sitting on its ample cash reserves, Samsung has been absent from the M&A market since its $8 billion deal in 2017 to acquire Harman, a US electronics systems maker for automobiles, partly contributing to the company’s subdued share price movement.
Shares of Samsung Electronics have been trapped in a boxed range since the start of the year, dashing retail investors’ hope that the tech giant would easily top the psychologically important 100,000 won ($86.7).
The stock finished down 1.2% at 73,200 won last Friday.
Among Samsung’s immediate spending plans are the announced expansion of its Austin foundry plant and the ramp-up of its Pyeongtaek factory.
Samsung is struggling to narrow the gap with bigger competitor TSMC STRUGGLING TO CATCH UP TO TSMC
Samsung is the world’s second-largest foundry player but has been struggling to narrow the wide market-share gap with bigger competitor Taiwan Semiconductor Manufacturing Co. (TSMC).
Samsung is also seeking mega deals to grow through mergers and acquisitions.
“We are positively considering at least one significant M&A over the next three years,” said Suh Byung-hoon, a Samsung vice president in charge of investor relations, during its second-quarter earnings conference call with analysts in July.
Samsung analysts recently slashed their target price for the tech giant, citing its lack of new growth drivers and the company’s inability to execute meaningful M&A activities.
The Korean tech giant is known to be spending over 10 trillion won ($8.5 billion) annually in its foundry business alone since 2019 but its global foundry market share has largely been stuck in the 10% range.
“Global competition for semiconductor leadership is getting fiercer. Samsung may considerably raise its investment to get ahead of its rivals,” said an industry official.
Write to Hyung-Suk Song at click@hankyung.com In-Soo Nam edited this article.
