Sam­sung looks be­yond smart­phones with plans to buy AI Mak­ers

The Pak Banker - - 6BUSINESS -

Sam­sung Elec­tron­ics Co. is "ac­tively look­ing" to ac­quire de­vel­op­ers of ar­ti­fi­cial in­tel­li­gence and other soft­ware as the world's big­gest smart­phone maker tries to over­come flat-lin­ing sales for its de­vices.

Sam­sung, which has $61 bil­lion in cash and equiv­a­lents, wants to morph into more of a soft­ware-driven com­pany, Ex­ec­u­tive Vice Pres­i­dent Rhee In Jong said in an in­ter­view. The South Korean con­sumer-elec­tron­ics giant also is spend­ing more to de­velop its own ser­vices be­cause the global mar­ket for gad­gets is sat­u­rated and can't be counted on for sig­nif­i­cant rev­enue growth, he said. "We are ac­tively look­ing for M&A targets of all sorts in the soft­ware area," said Rhee, who runs the mo­bile divi­sion's soft­ware re­search-and-devel­op­ment busi­ness. "We are open to all pos­si­bil­i­ties, in­clud­ing ar­ti­fi­cial in­tel­li­gence. In­tel­li­gence is no longer an op­tion -- it is a must."

Ship­ments of Sam­sung's Gal­axy smart­phones and other mod­els fell for a sec­ond straight year in 2015 as new iPhones gained trac­tion in the high-end cat­e­gory and mod­els from Huawei Tech­nolo­gies Co. and Xiaomi Corp. swayed bud­get buy­ers. Rev­enue and net in­come have fallen two straight years, and shares are down 16 per­cent since the end of 2012. Shares rose 0.2 per­cent in Seoul on Thurs­day, while the bench­mark Kospi de­clined 0.5 per­cent.

The com­pany faces an­other dif­fi­cult year be­cause over­sup­ply is forc­ing down prices for smart­phones, TVs and mem­ory chips, Chief Ex­ec­u­tive Of­fi­cer Kwon Oh-Hyun said in a let­ter to share­hold­ers be­fore the March 11 an­nual meet­ing. Sam­sung is the largest maker of each. Two new Gal­axy S7 mod­els went on sale this month. They look al­most iden­ti­cal to the pre­ced­ing S6 lineup, with the main dif­fer­ences be­ing an added mem­ory-card slot and a longer-last­ing bat­tery.

"With all that cash on hand, it's the right thing for Sam­sung to spend more on soft­ware devel­op­ment that could also drive sales of its hard­ware prod­ucts," said Yoo Eui Hyung, an an­a­lyst at Dongbu Se­cu­ri­ties Co. in Seoul. "Its key hard­ware, such as chips and phones, can be over­taken by Chi­nese brands." Asia's big­gest tech­nol­ogy com­pany com­pleted just eight deals last year, ac­cord­ing to data com­piled by Bloomberg. They in­cluded the pur­chase of LoopPay Inc., a com­pany that de­vel­ops tech­nol­ogy for mo­bile pay­ments. Sam­sung didn't dis­close the terms. The in­clu­sion of AI on smart­phones can help en­sure brand loy­alty be­cause of the amount of time it takes to "train" the soft­ware to un­der­stand your pref­er­ences, Rhee said. To that end, Asia's largest tech­nol­ogy com­pany made a strate­gic in­vest­ment of less than $20 mil­lion in the AI startup Vi­car­i­ous.

Other parts of the Sam­sung Group con­glom­er­ate also tar­geted AI de­vel­op­ers. Sam­sung Ven­ture In­vest­ment Corp., a ven­ture-cap­i­tal firm partly owned by group af­fil­i­ates, took part in a $25.3 mil­lion fund­ing round for house­hold ro­bot­ics startup Jibo Inc. last year. "Ar­ti­fi­cial in­tel­li­gence will make things we do on smart­phones much more con­ve­nient," Rhee said. "Your well-trained phone will bring about a huge cus­tomer loy­alty."

Sam­sung's ri­vals also are speed­ing up their ef­forts. Al­phaGo, an AI sys­tem de­vel­oped by Google Deep­Mind, beat a top-ranked South Korean player of the board game Go in a five-match tour­na­ment this month.

Ap­ple Inc. last year ac­quired the startup Per­cep­tio, which is de­vel­op­ing tech­nol­ogy to let com­pa­nies run ad­vanced AI on smart­phones while lim­it­ing the amount of user data shared. Baidu Inc., owner of China's big­gest search en­gine, is ex­plor­ing deep learn­ing and au­ton­o­mous driv­ing with sci­en­tists in Bei­jing and Sil­i­con Val­ley.

Sam­sung used to con­sider soft­ware sec­ondary to its hard­ware, but that's chang­ing now, Rhee said. It wants to re­verse that re­la­tion­ship and have new soft­ware drive the devel­op­ment of hard­ware with enough com­put­ing power. If Sam­sung were to con­join its own soft­ware with its own hard­ware, it could cap­ture more rev­enue from users, he said. To ex­em­plify that shift, the new pres­i­dent of the mo­bile-phone divi­sion is Koh Dong Jin, who helped de­velop Sam­sung's mo­bile-pay­ment and soft­ware-se­cu­rity plat­forms. Vice Chair­man Lee Jae Yong also ap­proved an in-house in­cu­ba­tor for en­gi­neers and the spend­ing of bil­lions of dol­lars on an ecosys­tem con­nect­ing home ap­pli­ances and cars to the In­ter­net.

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