[This Week's Focus] Samsung 'Picks'... Future Technology Company Rainbow Robotics

KAIST Humanoid Robot Research Center Alumni Who Developed HUBO
Developed Collaborative Robots, Quadruped Robots, Autonomous Driving Robots, etc.
Samsung Electronics Invests 60 Billion KRW to Become Second Largest Shareholder of Rainbow Robotics

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[Asia Economy Reporter Park Soyeon] Rainbow Robotics has been a hot topic in the top inquiry rankings on the financial information provider FnGuide over the past week. Its stock price surged about 60% compared to the beginning of the year.

Rainbow Robotics is a venture company founded in 2011 by researchers from the Humanoid Robot Research Center at the Korea Advanced Institute of Science and Technology (KAIST). It gained recognition by developing 'HUBO,' Korea’s first humanoid bipedal walking robot.

The company’s main product is collaborative robots. Collaborative robots refer to robots that perform simple repetitive or hazardous tasks in the same space as humans. They are mainly used in industrial sites. Rainbow Robotics develops not only collaborative robots but also quadruped walking robots, autonomous driving robots, ultra-small collaborative robots, bipedal walking platforms, and logistics gripping robots.

Disaster Rescue Robot DRC-HUBO by Rainbow Robotics
[Source=Rainbow Robotics Homepage]

Rainbow Robotics has suddenly attracted public attention because it was revealed that Samsung Electronics made a large-scale investment in the company. Rainbow Robotics recently announced that it decided on a third-party allotment paid-in capital increase worth 59 billion KRW targeting Samsung Electronics. In other words, Samsung Electronics will invest about 60 billion KRW to acquire approximately 10.3% of Rainbow Robotics’ shares.

As a result, Samsung Electronics will become the second-largest shareholder of Rainbow Robotics, and the shareholding ratio of the largest shareholder and related parties, which was 56.19% at the beginning of the year, will decrease to 50.39%.

Samsung Electronics has made equity investments in very important material and component partners. This is because if a partner company falters for any reason, it could disrupt Samsung Electronics’ entire product supply. This investment can be interpreted as Samsung Electronics recognizing Rainbow Robotics as an indispensable key partner for its future business.

Samsung Electronics recently declared its entry into the robot business, viewing robots as a new growth industry. It plans to launch robot products within the year. These are known to be senior care specialized robots equipped with functions to assist elderly exercise. It is expected that an era where humans and robots coexist in daily life will officially begin.

Rainbow Robotics’ greatest strength lies in the technological competitiveness emerging from its corporate research institute. According to the business report as of the end of September last year, Rainbow Robotics’ corporate research institute has 32 specialized personnel engaged in research and development (R&D) activities. The workforce consists of 9 PhDs, 11 Masters, 10 Bachelors, and 2 others.

Rainbow Robotics has developed not only core components but also software and control algorithms in-house. In-house development means that the company does not need to purchase necessary items for product manufacturing from external sources, which can lead to strengthened cost competitiveness.

Because it develops and uses core robot components and software directly, it produces up to 60% of its costs internally. The reason Samsung Electronics decided to invest directly is interpreted as the company having original technology and research personnel capable of advancing the technology.

Looking closely at the contract between Samsung Electronics and Rainbow Robotics, it is evident that there are measures to prevent the departure of key personnel. Samsung Electronics signed a contract with Rainbow Robotics’ inside directors and shareholders and secured the right to appoint one director.

The four inside directors?Oh Junho, Rainbow Robotics’ Chief Technology Officer (CTO) and largest shareholder, CEO Lee Jeongho, and technical directors Heo Jeongwoo and Lim Jeongsu?have agreed not to dispose of their shares without Samsung Electronics’ consent for a certain period. When disposing of shares, Samsung Electronics has the right of first refusal. Such shareholder agreements effectively prevent the loss of key personnel. Researcher Yang Seungyun of Eugene Investment & Securities predicted, “Rainbow Robotics has excellent robot development capabilities and will be able to manufacture robots that meet Samsung’s specifications. Comprehensive technological cooperation will be carried out in walking robots and home-use robots.”

Although the earnings announcement has not yet been made, securities firms’ earnings forecasts suggest that Rainbow Robotics, which was a deficit company until the year before last, succeeded in turning a profit last year. Looking at sales over the past three years, it recorded 1.7 billion KRW in 2019, 5.4 billion KRW in 2020, and 9 billion KRW in 2021.

Rainbow Robotics has shown substantial sales growth by launching collaborative robots and quadruped walking robots. From next year, the production volume of collaborative robots is expected to increase from the current level of about 1,000 units to about 3,000 units.

Exports have been made since 2021, and overseas sales in 2022 are estimated to have increased by about 40% compared to the previous year. This year, the company plans to expand sales mainly in North America and Europe.

Looking at the financial situation, it is clear that Rainbow Robotics is a growth company. The operating profit margin improved from -318.91% in 2019 to -24.85% in 2020 and -11.49% in 2021. It is analyzed that in 2022, the company achieved a double-digit operating profit margin and turned profitable.

Regarding CAPEX investment in production facilities, the amounts were 700 million KRW in 2019, 500 million KRW in 2020, and 600 million KRW in 2021, which are not large sums. Interest-bearing debt was almost zero until 2019 but sharply increased to 3 billion KRW in 2020 and 14 billion KRW in 2021. A Rainbow Robotics official explained, “Currently, there is no borrowing, and internal reserves are about 50 billion KRW. The increase is due to accounting for amortization costs from convertible bond issuance, and no actual debt has occurred.”

Although it is a robot company attracting attention domestically, securing superiority in capital and technological competitiveness in the global market is another challenge. The massive capital power of global complete robot companies such as Tesla and aggressive intelligent robot industry promotion policies by governments in China and other countries are hurdles Rainbow Robotics must overcome. As the robot industry grows, the competition to retain and additionally recruit specialized personnel in the robot field is expected to intensify. Meanwhile, the industry expects the robot market size to grow at an average annual rate of 21.9% until 2027, reaching 140.94 billion USD (approximately 175 trillion KRW).