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Why Samsung is borrowing $16 billion from the Samsung Display?

For a long time, the semiconductor division of the tech giant Samsung has performed quite well. It was considered the cash cow for the South Korean conglomerate. Since it had the capacity to contribute immense profits to the company. But given the current global economic situation, things have tumbled. Less demand and supply have badly impacted the business of Samsung’s chip division.

Despite this, the company is eager to invest in the semiconductor business. It seems like the company is aimed at grabbing any possible opportunity presented in the near future. For this reason, the tech firm has decided to borrow a loan of close to $16 billion.

Several reports have indicated the data about revenues and YoY profit earnings of the company. It was observed that the company suffered a lot in Q4 2022. Since the overall profits declined by 70%. Where a 9% decline in revenue was also observed. The chip division for the first time in almost ten years faced an operating loss. Since the division faced an overall decline of 97% in profits.

Back in 2019, the company planned to invest around $100 billion in the chip sector. Furthermore, the overall infrastructure investments of the company surpassed $40 billion in 2022. Almost 90% of this amount was used for the semiconductor business.

Besides all this, the company wants to keep up its investment plans. For this reason, the company is going to borrow money from another Samsung unit. Samsung Display is having $16 billion in reserve funds. Where Samsung Electronics holds an 85% stake in the company. Given this fact, it is not difficult for Samsung Electronics to use those reserves.

It seems like Samsung Electronics has opted to not use its own reserve funds. Where Samsung Electronics has $80 billion in reserve. It consists of cashable assets of various types. Well, it makes sense that these funds can be sued for other business units. Moreover, there is a possibility that those funds could be outside South Korea. So it is a good idea to borrow from Samsung Display.  

For 2023, the company has defined the investment outlay. It includes the plan to construct a new production line at the Pyeongtaek Campus. Furthermore, it also considers the capacity expansion for next-generation chips, and the completion of Samsung’s new chip manufacturing plant in the United States. A significant portion of the funds could be allocated specifically for research and development. Well, the company might be hoping that the situation changes in the upcoming years.