South Korean electronics giant, Samsung, has reduced or sold stakes in four companies to raise one trillion won, or around $890 million. Although it is unclear when the stock was sold, Samsung explained that this cash is to be reinvested into their core businesses. The company has reduced holdings in Dutch semiconductor supplier business ASML by about half, and full stakes in Seagate, Sharp Corp and Rambus Inc, amounting to 4.2%, 0.7% and 4.5% of these companies respectively. Where significant holdings in one company are reduced, the business selling often stages transactions over a number of weeks or even months in order to avoid upsetting the market. In a statement, Samsung explained that: "There is no impact on the business cooperation with the relevant companies."
The reason why Samsung is investing into its core businesses is that, after a long period of diversification and expansion, Samsung is struggling to perform. Growth is slowing in Samsung's consumer electronics division, which drives overall business performance - although we have seen the business seeking additional investment for other parts of the business too such as kitchen appliances. There are a number of reasons for this slowdown in sales, including how many markets are now saturated and customers are upgrading an existing device rather than purchasing their first smartphone. Here, the 2014 and 2015 Samsung Galaxy S and Galaxy Note flagship lines struggled with poorer than expected sales and part of the reason was a plastic build quality and boring design. Samsung revised and improved their flagship Galaxy S and Galaxy Note models, starting with the Samsung Galaxy S6, by introducing a new metal design, an integrated battery, a bleeding edge chipset and yet more technologies crammed into the device. Although not a perfect device, the Galaxy S6, was an improvement over former Samsung Galaxy flagship devices. The follow-up smartphone, the Samsung Galaxy S7, features a number of improvements over the Galaxy S6 and has been almost universally praised. In the still-developing regions of the world, Samsung's devices have typically been more expensive than the competition whilst offering a lesser specification and here we've seen Samsung improve specification, such as upgrading devices to AMOLED panels.
In the short term, Samsung is also suffering from the exploding battery problem of the Galaxy Note 7 model, which has been recalled in several key markets and the company must replace these. Galaxy Note 7 sales have temporarily been suspended until Samsung is able to get new devices to various markets. For a company competing with arch-rival Apple, the last thing Samsung wanted was a recall. It's unknown as to how this recall will impact Samsung's short term profits, but the company needs to increase production of the new, revised Galaxy Note 7 units, and rush them to the market in order to resume sales before momentum is lost. This short term action is quite probably expensive and is perhaps the reason why Samsung raised money by selling shares in other businesses.