Transfer Pricing Associates

Samsung's Bold Investment in New Generation Intangibles

post Thursday February 9, 2012



The South Korean conglomerate, Samsung Group (which includes Samsung Electronics Co), has recently released plans to step up 2012 investments to a record $41.4 billion.  This investment will include research & development, capital investments, and other investments as the group seeks to consolidate its leading position in mobile chips and flat screens.

Even as Samsung’s key rival, LG Electronics releases plans to cut its 2012 investment budget due to fears of stagnant global consumption, Samsung is considering record spending up 12% from last year’s numbers.

Samsung has traditionally benefitted from first mover advantages in the technology sector due to its massive investments in new technologies ahead of rivals.  In this “rat race” of technological innovations, Samsung is leaving competitors in the dust who are sticking to more conservative investment plans.  Even in the currently gloomy global economy, Samsung is aggressively injecting money into R&D of logic chips and OLED displays.  By doing this, Samsung hopes to repeat past successes it has had in flash chips, computer memory chips, and LCD flat-screens sectors.

Samsung also makes the mobile processors that power Apple’s iPhone and iPad, as well as, its own line of Galaxy mobile products.  It is within this sector that Samsung has had great success with their innovations in OLED displays, which are used in mobile gadgets and TV screens.

International Business Times quoted Lee Sun-tae, an analyst at NH Investment & Securities, as saying "Samsung's got strong cash flow to make bold bets in new technologies. No other IT company can beat it in terms of investment and that's how Samsung finds new revenue sources ahead of rivals and widen its gap”.  

New generation intangibles come in many shapes and forms, but many are created by companies with a significantly different configuration compared to its competitors, like Samsung in its innovative technologies.  And although new generation intangibles are a reflection of strong innovative powers, the economic lifetime of these intangibles is often no more than 1 to 2 years, depending on how intensely the competition is able to innovate replacement technologies. Such short life cycles do impact the relationship between R&D and/or marketing spending and the potential return on such intangibles.  In Samsung’s case, however, since the competition seems to be lagging behind in terms of investments in innovation, the conglomerate is posed to continue to see many first mover advantages in the coming months given global consumption levels do not experience any severe dips.  

Image courtesy of Sujin Jetkasettekorn

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