Samsung Electronics plans US IPO to raise profile

After several years of cost-cutting and reorganization, Samsung Electronics is ready to raise its global profile with an initial share offering in the US.

Samsung Electronics, Korea's largest electronics maker, said it plans an initial public offering of its shares in the US as early as next year as it seeks to achieve a global financial presence to match its internationally recognized brand name.

The Korea-based company has formed a task force to examine whether to apply to the technology-heavy Nasdaq or to the main New York Stock Exchange. It wants to ensure it is in compliance with all listing requirements and other obligations such as corporate governance before applying to either.

The planned move is part of a broader strategy by Samsung Electronics to transform itself into a global powerhouse by bringing its accounting practices in line with international standards, increasing transparency and disclosure, boosting demand for its stock and raising its financial profile in the world's major capital markets.

"Our aim is to raise this company to a world class company from a just being aáfirstáclass Korean company," says Woosik Chu, vice president in charge of finance at Samsung Electronics and head of the listing task force. "Raising funds is not a priority at the moment but the generation of additional demand in the capital market for our stock will enable our company to realize its full valuation and help us in raising resources in the future should the need arise."

Chu says the company has not fixed a date for the listing û it will take many months for it to bring all its subsidiaries in line with the requisite accounting standards û or on the size of the offering, though to be effective it will necessarily be sizeable.

"The general consensus in the market is that you would have to have some volume to have an impact," he says. "Even if the need for new funds is small, we still have to consider that aspect."

Stock buyback in the works

Samsung Electronics, which makes semiconductors, telecommunications equipment, personal computers and consumer electronics, reported sales of W26.1 trillion ($22.8 billion) in 1999, up 30% from W20.1 million in 1998. Net profit rose to W3.2 trillion from W0.3 trillion in 1998 as it reaped the benefit of a reorganization that included debt reduction, selling off unprofitable assets and cutting costs.

Partly as a result, Samsung Electronics has seen its net cash flow rise from negative W5.022 trillion in 1997 to positive W869 billion in 1999. That's a figure the company would like to reduce. A portion of the cash will be used to finance capital investments this year. The company may use the remainder to buy back stock, although local regulations require the company to obtain both shareholder and creditor approval for such a buyback, which could make that difficult.

In addition to its internal restructuring, Samsung Electronics is benefiting from increased demand for dynamic random access memory (DRAM) chips as rising internet use boosts PC sales. The company expects the global PC market to grow by 20% this year.á It expects the market for DRAMs to rise 28% to $25.3 billion in 2000 from $19.7 billion in 1999. By 2002 it expects that figure to rise to $37.2 billion, of which Samsung expects to have a 24% share. In 1999 the company had 22% of the market.

"I'm confident that shortages of DRAMs will happen starting in the second half of this year," says Young Taeg-Park, general manager of investor relations. "Our inventory levels are running at less than a week."

Still, the company is moving to reduce its dependence on the volatile DRAM market, which rises and falls with the underlying economy. It plans to expand production of its larger capacity flash memory chips for portable electronic devices such as hand-held personal computers. In the meantime it will develop new DRAMs based on technology from US-based Rambus and a rival technology known as double data rate (DDR) until it becomes clear which will emerge as the industry standard.