Samsung's Acquisition of ARM... Global Semiconductor Landscape Set for Rapid Change [Semiconductor M&A]

③Synergy When Excellent Manufacturing Capability Is Combined with Design
Samsung-SK Alliance Brings 'Good News' to Korean Semiconductor Industry

Samsung Electronics Vice Chairman Lee Jae-yong, who completed a two-week overseas business trip, returned to Korea on the 21st through the Seoul Gimpo Business Aviation Center in Gangseo-gu and is answering questions from the press. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok]

#On the 18th of last month, the System (Non-memory) Semiconductor Design Support Center reportedly began building a system semiconductor design asset (IP) platform database (DB) with the goal of launching by the end of the year. This is aimed at improving IP accessibility for component suppliers and fostering excellent IP companies. This is also noteworthy for Samsung Electronics and SK Hynix, which are evaluated to have business portfolios focused more on 'hardware (components)' than 'software (brain)'.

According to the business community on the 26th, the reason Samsung Electronics is known to be actively pursuing M&A of IP companies is due to a sense of crisis that without software development capabilities, the company's growth momentum will fall behind competitors.

The biggest advantage of ARM's semiconductor design technology is its 'versatility.' Its applications are expanding from automotive advanced driver-assistance systems (ADAS), data center data processing units (DPU), to smartphone application processors (AP), tablet APs, cloud servers, and artificial intelligence (AI) processors. In particular, Samsung Electronics' smartphone Galaxy series' main mobile AP, Exynos, is reportedly manufactured through a technology partnership with the 'ARM family.'

First, it is expected that the non-memory semiconductor business capabilities of Korean companies, known as 'memory powerhouses,' will strengthen. Samsung Electronics and SK Hynix are the world's top 1 and 2 memory semiconductor leaders, but their overall non-memory semiconductor business capabilities, including design skills, are considered to lag behind competitors. This has been a factor causing difficulties in various investments and securing set (finished product) companies. This is why there have been consistent rumors of Samsung acquiring companies such as the UK-based ARM, Germany's Infineon Technologies, and the Netherlands' NXP.

In Samsung's case, there have been market forecasts that it could pursue a domestic design house acquisition strategy to secure IP capabilities. Design houses are companies that receive design blueprints from fabless companies and redesign them to fit foundry production processes. Samsung has also selected several design houses, including SemiFive, as ecosystem partners (DSP·Design Solution Partner) and collaborated with them. Around 2015, there were even rumors of GlobalFoundries, which had business relations with AMD and others, being sold. This is why acquiring ARM is seen as fulfilling a long-cherished wish.

The synergy between securing IP capabilities and Samsung Electronics' memory semiconductor business is also favorable. Recently, the industry trend is shifting from a management style that relies solely on supplying high-quality DRAM, NAND flash, and other memory semiconductor components to set companies, to 'memory-centric computing.' This trend also motivates component supplier Samsung Electronics to pursue acquiring IP company ARM. Memory-centric computing means that memory semiconductor components not only enhance system processing speed but also play a central role in computing and storage functions of devices such as smartphones. Having both high manufacturing capability and design capability gives an advantage in this field.

Although this is somewhat limited to Samsung, the 'ARM deal' is also good news for the Korean semiconductor industry. It could accelerate the restructuring of the system semiconductor business. There is also positive speculation about the possibility of a consortium between Samsung Electronics and SK Hynix in the deal. Both companies, which excel in mass production of memory semiconductors, now have the opportunity to seek synergy through securing design capabilities.

There is a growing voice that the system semiconductor industry must establish its position before it is too late. Samsung Electronics is number one in memory semiconductors globally but lost major set companies like Apple to TSMC, the number one foundry. Expanding the business portfolio to include the 'third market,' system semiconductors, is essential.

It is urged to quickly secure an open 'ARM family' supply chain rather than the conservative 'Intel family' in the system semiconductor IP field. Although it may be difficult to enter PC server CPUs, which have high entry barriers due to pressure from U.S. set companies, it is necessary to show a certain level of presence in mobile and automotive (autonomous vehicle) system semiconductors. It is said that acquiring ARM could reduce trial and error. Professor Kim Jeong-ho of KAIST's Department of Electrical and Electronic Engineering said, "If Samsung Electronics secures ARM shares, it will open a path to enhance system semiconductor competitiveness and secure long-term growth momentum."

However, experts advise that Samsung-ARM deals should consider the conservative approach of 'share acquisition' because governments worldwide regard semiconductors as a key to national security, and there is a significant risk of approval rejection. Realistically, there is also speculation that Samsung Electronics might only receive ARM's technology transfer, increase license value, and then, as Chairman Son Jeong-ui wishes, ARM could go public (IPO) on the U.S. stock market.

Because Samsung Electronics conducts the 'design' (System LSI division) business alongside foundry, there is growing support for the view that vertical integration through ARM acquisition might be difficult. Strengthening design capabilities could increase concerns about technology leakage from set customers who outsource semiconductor production to Samsung Foundry. If this happens, the vertical integration scenario of 'Samsung hardware + ARM software' may be difficult to realize.