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Former CEO Advises Samsung to Buy AMD(Korea Times Via Thomson Dialog NewsEdge) By Cho Jin-seo Staff Reporter A former star CEO of Samsung Electronics urged the firm to be more aggressive on international M&As, noting that U.S. high-tech chipmaker AMD will be the optimal choice for the slowing Korean giant. Chin Dae-je, who also served as South Korea's Minister of Information and Communication from 2003 to 2006, said that merging with a foreign company is the only way that the largest Korean firm can keep rolling forward, given that its current business portfolio is losing momentum. "Samsung's real crisis is not its short-term performance but its failure to find future growth engines. Bold M&As can be a solution for it," Chin was quoted as saying by Maeil Business Daily as he attended a conference on Jeju island on Sunday. "Acquiring AMD is risky, but it is not too late. The problem is that the firm has no responsible leader who is willing to challenge a new business sector." Chin was one of driving forces behind Samsung's phenomenal growth in the memory chip industry since he joined the firm in 1985 from IBM. After serving three years as minister, he is currently running Skylake Incuvest, a venture capital. Figuratively, the deal can be made without much difficulty as Samsung had a cash reserve of 9.8 trillion won ($11 billion) at the end of last year, while AMD's market capitalization is only $8.6 billion. The ailing U.S. chipmaker had a net loss of $600 million in the second quarter with $1.4 billion in sales. It is even more attractive since Samsung has been seeking new opportunities. Its memory chip and mobile phone businesses become sluggish this year. Its net profit hit a four-year low in the second quarter. However, Samsung, as well as other South Korean conglomerates, has been shy of cross-border M&As. The last time it was involved in a major M&A deal was in 1997, when it bought AST Researches, then the world's sixth largest PC seller, for $547 million. The AST deal ended as a blockbuster failure. Many of the engineers and technicians left the firm after the takeover. To make it worse, the Asian financial crisis put more pressure on the Korean firm. It was finally sold to a U.S. investor in 1999 at only $12.5 million. Such a painful experience had made the firm shudder whenever there is a talk of a buying out. The negative public image on chaebol's expansionism among Koreans also made it take a passive attitude. "We have experienced a failure of an international acquisition so we are taking a conservative stance in M&As," Chu Woo-sik, chief of investors relations team, said during a press conference on July 13. "We are still conservative regarding this matter. But that doesn't mean we are allergic to M&As." Not only Samsung but the whole South Korean industries have become a backwater of the global M&A boom this year. The only sizable acquisition from a Korean firm since last year was the purchasing of Babcock, a British power plant engineering firm, by Doosan Heavy Industries for 20 billion Japanese yen (151 billion won or $165 million). Meanwhile, some $2 trillion of deals have been unveiled between January and May this year globally, putting it on track to smash the record set in 2006 by a whopping 60 percent or more, according to Economist magazine. Even Japan, which has been as shy as Korea before, has also seen a dramatic rise in international M&As since last year. The Samsung-AMD deal has been speculated in the market for some time. AMD, one of the two makers of central processing units (CPU) for personal computers along with Intel, has a good reputation of a technology pioneer. Samsung has plenty of cash that can quench AMD's thirst for investment. At the same time, it can benefit from AMD's know-how in the non-memory chip industry as well as from its brand power and global retail network. But the big obstacle for a possible merger lies in the human aspects. While Silicon Valley firms are known for their liberal and horizontal culture, Samsung is famous for its top-down decision making, tight control on workers and high level of integrity. Every new university graduate is sent to a training camp where he or she spends six weeks of intense training on the conglomerate's history, corporate culture and management philosophy of chairman Lee Kun-hee. There are similar courses for new managers and executives though the length is shorter. Samsung also has a glass ceiling for foreigners just like any other Korean conglomerates. Foreign executives are not so many in the company even though more than 80 percent of its revenues are generated from outside of Korea. English is encouraged as one of its official language but in reality Chinese characters are more often used in official documents by managers of older generations. Samsung's attitude toward labor unions will also make it difficult to take in a foreign firm. The group is well-known for not allowing workers to voluntarily form a union, and have had some troubles in dealing with local employees at foreign subsidiaries. Copyright 2007 The Korea Times Company Ltd, Source: The Financial Times Limited |