Key Highlights :
The IT service unit of the Samsung conglomerate, Samsung SDS, had more than 80 percent of its annual revenue last year coming from intra-group transactions, raising concerns over the firm's future growth prospects. Data released by the Fair Trade Commission show that the company earned 4.2 trillion won ($3.2 billion) from transactions with other Samsung Group units, accounting for 81.5 percent of the company’s entire annual revenue and up 3.3 percentage points compared to 2021.
The heavy dependence on Samsung Electronics for profits is particularly evident, with over 2.5 trillion won or 39.8 percent of Samsung SDS' entire annual revenue last year coming from providing IT services to the world's largest memory chipmaker. This is even more troubling because Samsung Electronics is projected to incur massive losses in the following quarters due to a decline in global demand for memory chips.
In order to lower reliance on group affiliates, Samsung SDS needs to diversify its businesses and strengthen its business diversification. During the late 2010s, Samsung SDS managed to succeed in lowering the proportion of intra-group transactions after the ratio peaked at 87 percent of its annual revenue in 2017. However, the accelerated pace of digitalization during the past couple of years has raised corporate demand for IT solutions and system integration (SI) among Samsung subsidiaries, which in turn increased the proportions of intra-group transactions in Samsung SDS' earnings.
To ensure future growth prospects, Samsung SDS needs to continue its efforts to diversify its businesses and lower its reliance on group affiliates. This will help the company reduce its vulnerability to earnings fluctuations and ensure its future success.