Samsung writes $22bn cheque for AI and 5G to fill smartphone hole

With the smartphone segment not looking as profitable anymore, Samsung has announced an investment worth roughly $22 billion to boost credentials in artificial intelligence and 5G.

The announcement comes off the back of slightly disappointing quarterly results, ending a run of record breaking figures, with sluggish S9 sales proving to be the downfall. The semiconductor business is still booming, but investments in next generation technologies will be needed to ensure this momentum is continued. $25 billion over the next three years should do the trick.

“Samsung announced plans to boost investments in businesses that will drive its future growth, committing to a KRW 25 trillion investment over the next three years, primarily led by Samsung Electronics, in the areas of artificial intelligence (AI), 5G, automotive electronics components and biopharmaceuticals,” the team said in a statement.

What is worth noting however is this is not the largest number Samsung is throwing around. $22 billion is just a slice of $161 billion which include investments into capital expenditure and R&D. In the semiconductor unit, Samsung will expand investments in manufacturing hubs, while in displays, investments will be increased to develop high-value, differentiated products. Through this cash injection, Samsung expects to create 40,000 new jobs over the next three years.

The main focus on this announcement is artificial intelligence and 5G. 5G factors in for obvious reasons, it will be a significant boost, directly and indirectly, for almost every aspect of the telecommunications, technology and media industry, though AI will power the next era. In AI, the plan is to significantly expand its research capability, increasing the number of advanced AI researchers to 1,000 across all operations. It will also invest aggressively to establish itself as a player in the advanced markets for 5G chipsets, as well as related devices and equipment.

Two future targets for the team are electronics components for future cars, developing system-on-chips for autonomous driving, and biopharmaceuticals. This is an area Samsung has seen strong growth from both its contract manufacturing and biosimilar businesses, with future investments focusing on developing and manufacturing biosimilars to combat chronic and difficult-to-cure diseases. It will also extend its existing support of basic sciences to identify new growth opportunities.

Another interesting area for development will be its C-Lab initiative, Samsung’s answer to Google’s moonshot labs. Over the last couple of months, Samsung has funded several internal projects, spinning off products to form standalone businesses. Since 2015, 34 projects have been spun off in areas such as smart gardening, directional speakers and predictive analytics platforms.

Through additional investments, 500 projects, 300 external and 200 internal, will be funded over the next five years. Alongside the Korean government, the team will also fund software education centres across the country. The search for the next big idea can be a frustrating job, requiring much patience and an acceptance of failure, but Samsung seems to have taken on Google’s sense of adventure in searching for success in the dark and uncomfortable corners of the unknown.

The Samsung smartphone business might be suffering, but it seems the Koreans are determined to stay on top of the technology world. In truth, the business is in a very attractive position which enables it to explore new areas. Samsung is still the number one smartphone brand, a product which will continue to bring in billions, while the semiconductor unit is gathering momentum each quarter. It’s in the comforting position of searching for diversification as a bonus, not for survival like so many others are.

Some might look at the business enviously, but it is an excellent lesson in how to do business properly. A cash cow cannot be milked forever, the good days are the time to search for a replacement.