Samsung Techwin sold to S. Korean conglomerate

Dec. 1, 2014
Market analyst says it's still too early to tell if move is a sign of more widespread industry consolidation

Samsung Electronics announced last week that it has entered into an agreement to sell the holding stake in its security division, Samsung Techwin, to South Korean conglomerate Hanwha Group.  According to a statement, Samsung plans to sell more than 13.5 million shares of Samsung Techwin to Hanwha Group for 661 billion won ($596 million). The company said that the funds from the sale would be used for investments in new businesses and to strengthen its core competencies.

With the acquisition, Hanwha Group now owns a 32.4 percent stake in Samsung Techwin, which the company says will catapult it to the top of the defense industry in Korea. Hanwha Corporation, the parent company of Hanwha Group, was founded in 1952 and consists of four major business units including; defense, explosives, trade and machinery. In a statement, Hanwah Group says it plans to focus on advancing next-generation defense technology being developed by Samsung Techwin, but doesn’t specifically mention any plans as it relates to the commercial security or video surveillance sector.

"Hanwha Group's investment in Samsung Techwin will provide continued focus on the technologies and markets we serve,” Samsung Techwin America President Soon Hong Ahn said in a statement. “Most important is that our Samsung brand will remain intact and this partnership will be otherwise transparent and seamless, as management and all operations at Samsung Techwin will remain the same with no significant changes in the foreseeable future.”

According to Jon Cropley, principal analyst for video surveillance and security services at IHS, Samsung Techwin has grown rapidly over the last decade and was estimated to be the fifth largest supplier of video surveillance equipment globally in 2013. Despite their success, however, Cropley said that 2013 was a rough year for the company as they didn’t manage to gain market share.   

“I think that they were just looking at sort of what they’re core businesses are. Samsung has always stated that it wants to be one or two, either the leader or second place, in any market that they are in and they hadn’t yet achieved that in video surveillance - although they had been increasing their share greatly,” said Cropley. “There had been some rumors that they were going to do something like this for some time, but whether it is because they’re looking to focus on their core industries or whether they had an issue with video surveillance market itself and they thought they couldn’t get to that one or two position that’s to be debated I suppose.”

Given that Samsung also sold off the controlling stake in its chemicals division to Hanwha Group in this agreement, Cropley said the move by Samsung appears to be part of an overall restructuring effort by the company to place a renewed focus on their core business and is not an indictment of the direction of the video surveillance market, which is expected to grow at an average of over 10 percent during the next five years.

“I don’t think the motivations of Samsung to do this were due to the characteristics of the video surveillance market,” added Cropley. “I think it was general strategy.”    

Although many analysts have said that market consolidation in the video surveillance industry is inevitable, Cropley believes that it is still too early to say whether or not the sale of Samsung Techwin is a precursor of other large-scale M&A activity in the market.        

“We’ve said for some time that there are probably too many suppliers of video surveillance equipment. There are literally hundreds and hundreds of suppliers out there and it’s a very fragmented supply base,” explained Cropley. “China alone has hundreds and hundreds of suppliers, some of them very small companies that are producing cameras. Companies the size of Samsung are few and far between really in the video surveillance space. Whether this signals broader consolidation in the market, my instinct says probably not. Consolidation will come, but it is probably a little bit early for widespread consolidation.”

Because prices fell quickly for video surveillance products last year, due in large part to undercutting from vendors in China, Cropley said manufacturers like Samsung are going to have to find a to compete beyond price points.

“Brand development is particularly important and making sure you’re offering some kind of (value) proposition that isn’t offered by lower price competition, so it could be features that aren’t offered or it could be services.  A lot of video surveillance manufacturers are looking at what services they can offer in addition to their products,” said Cropley. “But the brand is important. I think when companies are looking to buy security solutions they want to know that what they’re buying is going to work in the way that it is designed to when there is an incident. A lot that comes from buying a brand that is familiar to them.”