Samsung Electronics Co. bought a South Korean medical-equipment company, the first step in a long-discussed plan to diversify from consumer electronics.
Samsung’s purchase Tuesday of a controlling stake in Medison Co., a maker of ultrasound monitors, was small enough that Samsung wasn’t required to disclose the terms.
The purchase is more significant as a signal of Samsung’s direction than for any financial impact. Medison’s revenue amounted to 154 billion won ($134 million) in the first nine months of the year.
That is tiny in comparison to Samsung’s four main product divisions—semiconductors, liquid-crystal-display panels, cellphones and television sets—with revenue of $22 billion to $38 billion each in the same nine months.
The decision to enter the medical-products field mirrors that by manufacturers in other countries—including General Electric Co. in the U.S. and Philips Electronics NV in the Netherlands—in decades past as the competitive landscape changed and earnings from consumer electronics faded. GE today is only a marginal player in electronics, while Philips gets only about one-fourth of its revenue and profit from electronics.
Samsung started selling a portable blood-test kit earlier this year, its first medical product. The company declined interview requests about the Medison purchase.
Samsung’s sales this year surpassed Hewlett-Packard Co.’s to make the Korean company the biggest electronics manufacturer in the world. Samsung’s profit will be around $15 billion this year, well above its record of $10.8 billion set in 2004.
But the company in recent years has had to cope with slimmer profit margins in its main businesses. Its record profit this year is being driven largely by a jump in sales, nearly double the level of 2004.
In TV sets, where Samsung is by far the world’s leader with nearly a 25% global market share by units, not even size is cutting it. The business reported an operating loss in the third quarter and is expected to do so again this quarter.
For more than a year, Samsung executives have touted plans to spend billions of dollars in the coming decade to enter higher-margin industries, such as medical products and solar equipment. Many of those statements have come as part of a campaign to rehabilitate the image of Lee Kun-hee, who was found guilty of tax evasion and fraud two years ago. Mr. Lee, the son of the company’s founder, returned as chairman this year.
Samsung Electronics did, however, start a pilot production line for solar panels and has invested in start-up companies, including Samsung LED for lighting and Samsung Mobile Display for a type of display technology called OLED, that may one day be folded into the main company.
Samsung beat another South Korean conglomerate, SK Group, and the country’s largest cigarette maker, KT&G Co., in bidding for a 43.5% controlling stake in Medison, said Consus Investment, the Seoul-based investment firm that sold the stake.
A Consus executive, Kim Kwang-yeon, declined to provide the terms of the deal, but he said Consus has invested 120 billion won in Medison since 2005. “This is one of our most profitable investments,” he said.
Samsung has made few acquisitions. It bought a near-majority stake in AST Research Inc., a U.S. maker of personal computers, in a series of deals valued at about $440 million in the mid-1990s. Samsung later wrote off much of that investment. Samsung bought an Israel-based chip design firm in 2007 for about $70 million.
Samsung in 2008 attempted a $6 billion takeover of SanDisk Corp., a rival maker of memory-chip products, but dropped the effort after a month.
WSJ
