Acquisitions Key to Samsung Success

Updated April 10, 2013, 9:55 a.m. ET

Acquisitions Key to Samsung Success

By MIN-JEONG LEE

To maintain its new lead over Apple Inc. AAPL +2.04% in the global smartphone market, South Korea’s Samsung Electronics Co. 005930.SE +0.33% will need to get busier buying the assets it needs to continue to innovate and expand its client base, bankers and analysts say.

Samsung, which overtook Nokia Corp. NOK1V.HE +3.25% last year as the world’s largest mobile-phone maker and surpassed Apple in smartphones, has already been buying technologies and investing in companies no one else wants, largely to differentiate itself. And with cash and cash equivalents of more than $30 billion, it is sure to keep buying, bankers say.

In a recent interview, Samsung Co-Chief Executive J.K. Shin said the company is on the lookout for acquisitions, especially “intellectual property, advanced technology, components and areas that will enable us to offer better applications on smartphones.”

Thus far, its acquisitions have been small. In the past year, its purchases have included a 5% stake in stylus maker Wacom Co. of Japan, the mobile-technology business of the U.K.’s CSR CSR.LN +3.85% PLC, and California-based storage-software pioneer NVELO. Those deals have given Samsung access to technology to develop a better stylus for its smartphones and tablets, advanced wireless connectivity, and software that enables its phones to retrieve data faster.Its most recent and most high-profile deal was last month’s purchase of 3% stake in embattled Japanese display maker Sharp Corp., 6753.TO +6.55% which will enable Samsung to focus on its next-generation display technology for mobile phones by making it easier to outsource production of liquid-crystal displays.

But Samsung is hungry to establish itself in the business-to-business market, which would be a major development in its race for market dominance, analysts say. “This could be a big new untapped market for Samsung and an acquisition here would help the company get a foothold quickly,” said Mark Newman, a Hong Kong-based senior analyst with Sanford C. Bernstein.

There are several ways to go about this, analysts say. Samsung could acquire a company with a strong corporate client base for handsets or one that can open the door to building sales through the right channel.

In fact, Samsung’s offer to buy Sharp’s copier business earlier this year indicated that it probably intends to use M&A to strengthen its business-to-business marketing operations, analysts say. Samsung didn’t provide its reasons for the offer, which Sharp rejected.

“Samsung employs M&As as one of our main business strategies and will continue to apply the same principles,” a spokesman for the company said this week. “Acquiring a company is also an effective means of developing technological capacity and patent competence.”

He declined to comment on any forthcoming deals.

Samsung could also use acquisitions to strengthen security software to a degree that would enable it to attract corporate clients, analysts say.

Improved software would also enable Samsung to generally enhance user experience in its smartphones. The company has recently shown an interest in health-related companies, perhaps indicating plans to offer improved health-care applications and software, analysts say.

Bankers say more deals are likely in the offing, but they probably won’t be of the multibillion-dollar variety. Not that Samsung is a stranger to big purchases. In 2008, it tried to buy flash-memory supplier SanDisk SNDK +3.57% for $5.85 billion but the parties couldn’t agree on a price.