Battery power

SEOUL — Long before the rise of smartphones, Samsung was known for supplying parts to companies such as Apple and Sony. Today Samsung plays an indispensable role in the global supply chain for phones, refrigerators and TVs thanks to its talent for producing components invisible to most consumers.

Tour guides at Samsung’s headquarters like to touch on this when speaking to visitors, usually giving mentions to the explosive growth of semiconductors like DRAM chips in the 1980s and early 1990s and NAND flash memory chips in the early 2000s.

Soon, another component will likely join this narrative — batteries.

New charge     

Samsung SDI was set up in the group originally to make cathode ray tubes for TVs. In the late 1990s, it shifted focus from the declining tube business to the research and development of lithium-ion batteries. Today, SDI’s batteries can be found in a wide variety of electronic devices.

By 2010, SDI had established itself as one of the world’s largest makers of rechargeable batteries. The portfolio of the company, which generated 5.02 trillion won ($4.67 billion) in revenue last year, includes household energy storage systems, photovoltaic solar panels and lithium-ion batteries for medical equipment, tablets, smartphones, lawn mowers and robotic vacuum cleaners.

Company profits slipped 2.6% last year to 130.6 billion won. Samsung aims to expand SDI’s annual revenues to 13 trillion won by 2015, even though they were down 13.1% last year on weakening momentum in the smartphone and tablet markets.

In pursuit of this growth goal, SDI is looking to batteries for electric cars, seeking to take advantage of government subsidies, rising automobile demand and environmental concerns. The company however shows no signs of returning to direct car production, a business it exited following the 1997 Asian currency crisis, the move fits the group’s focus on bringing technologies such as handset navigation and entertainment systems to automobiles.

Driving force

For the past three years, Lee Jae-yong, the heir apparent to the Samsung empire, has traveled the globe touting Samsung components to the chief executives of Renault, Nissan, BMW, Ford and General Motors. Lee, 45, is listed as an inventor on multiple fuel cell patents assigned to Samsung SDI in 2007 and 2008.

With an eye on China, the world’s largest car market, SDI signed a preliminary agreement in January to build a battery factory in Shanxi Province by 2015 and said it would form a joint venture with a Chinese partner by April. Investment in the plant and related businesses is expected to top $600 million over the next five years as China doles out subsidies to encourage the rollout of 5 million “new energy vehicles,” including electric cars and hybrids.

The question is whether technology has advanced enough to make electric car batteries a successful business proposition. While prices and battery sizes have been falling, electric car batteries can still cost more than $12,000 each, undermining the affordability of electric cars. While also improved, battery lives still can make the range of electric cars seem inadequate compared with gas-powered models. Existing subsidies in China have yet to spur much interest from consumers in electric cars.

SDI’s success with other batteries gives it competitive advantage with electric car batteries.  “Samsung has been testing these batteries in drastic conditions like in deserts and the cold,” said Jae H. Lee, an analyst for Daiwa Securities in Seoul.

Samsung has overcome technology doubts before. A decade ago, analysts were similarly dubious about its heavy investments in NAND flash memory and liquid crystal display systems as the group emerged from the heavy blow of the 1997 crisis. But the moves paid off handsomely, cushioning Samsung on its already coveted position as a components supplier.

Investor and public attention on Samsung’s success with displays and handsets has overshadowed its less glamorous achievements in batteries. “Samsung SDI is diligent like a farmer,” Lee Kun-hee, the Samsung group chief, was quoted as saying in the 2008 book “Sony vs. Samsung.”