Samsung and Apple add billions to their countries’ economies, but why?
For Samsung Electronics, the answer was 180-trillion won ($161bn). For Apple, it was $350bn.
The question was: how much are you going to contribute to your home economy? But for the smartphone giants’ finance teams, it might just as well have been — what’s the biggest number you can rustle up to impress politicians?
On Wednesday, Samsung announced with fanfare its plan to spend that 180-trillion won over the next three years, almost three-quarters of it in South Korea. Apple said in January it will "contribute" $350bn to the US economy over the next five years.
The Samsung announcement came a few days after Lee Jae-yong, the vice-chair and de facto CEO, met with finance minister Kim Dong-yeon at a chip factory, Bloomberg News reported. It’s being described as "lending support" to President Moon Jae-in’s efforts to shore up a slowing economy.
For both companies, however, these impressive sounding numbers are somewhat routine. Samsung had capital expenditures of 43-trillion won last year to keep building its chip, display and phone factories. It shelled out a further 17-trillion won on research and development (R&D) to develop the technologies for those factories. That’s 60-trillion won of spending. And 60 x 3 = 180.
Most of the outlay will be at home. No surprise there, either. While Samsung has expanded overseas, South Korea is still host to most of its factories and research engineers. As for the 25-trillion won the company will spend on future technologies, such as artificial intelligence (AI), 5G, automotive electronics and biopharma: again, no surprise. These areas are the future of global tech, so it makes sense to put money into them.
Analysts had expected Samsung’s capex to dip slightly next year, but the company has consistently expanded R&D spending. At the most, it’s keeping outlays steady.
Apple’s January announcement was framed as a response to US President Donald Trump’s tax bill, which reduced the levy on companies repatriating offshore cash holdings. A dig into the numbers shows that just $30bn of the total is earmarked for capital expenditures; the rest goes on a one-time tax payment and purchases of components from suppliers.
Of that $30bn, one third will help with data centres that Apple may well have needed anyway. The iPhone maker’s global capex is expected to total $72bn over the next five years. Given that almost three quarters of its employees are in the US, this might suggest that it’s spending proportionately less at home than elsewhere — and a lot less than the $350bn headline number.
These companies have the economic clout of nation states. They also have the shrewdness of politicians in framing their messages for maximum impact.