Can Samsung's Lee Jae-yong steady the wobbling tech giant?

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Can Samsung's Lee Jae-yong steady the wobbling tech giant?

Published: 05 Feb. 2024, 18:30 Updated: 05 Feb. 2024, 20:05

JIN EUN-SOO
jin.eunsoo@joongang.co.kr

Samsung Electronics Executive Chairman Lee Jae-yong attends the trial on Monday at the Seoul District Court in southern Seoul. [NEWS1]

A new era can begin for Samsung as its top executive Lee Jae-yong saw the removal of a significant legal impediment on Monday, a hurdle that has constrained his business endeavors for nearly four years.

Samsung Electronics faces several challenges across its business portfolio. Its mobile business needs a major breakthrough as its global No. 1 smartphone vendor status was dethroned by Apple for the first time last year. Its chip business is placed in cutthroat competition with TSMC, Intel and SK hynix, upping the ante in the face of the AI era.

Merger and acquisition (M&A) deals and organizational restructuring is expected to pick up speed as Lee can now wholly focus on management.

"It's time to see what Lee Jae-yong is capable of as the leader of Samsung," said Hwang Yong-sik, a business administration professor at Sejong University.

"The legal risk has hindered Lee from dedicating himself to the business. But now with legal uncertainty largely pushed out of the picture, it's time to set the direction for Samsung and prove himself to the market and the public, away from the halo effect from his father Lee Kun-hee."

Samsung's M&A drive

New growth driver

Samsung Electronics suspended making major investment deals in 2016 after it acquired U.S. audio company Harman for 9 trillion won ($6.7 billion), meaning it wasn't able to eye a specific growth driver for its future.

Rivals like Apple and Intel have dipped their toes into emerging areas like robotics and XR (extended reality) glasses early on, but Samsung is yet to make an official debut there.

Its vice chairman Han Jong-hee announced early this year that a major M&A deal is coming with a focus on AI, digital health, fintech, robotics and vehicle components.

And Samsung has got the muscle to make an impact. Its cash holdings amounted to 75.1 trillion won as of the third quarter of last year.

Its existing businesses are not sailing well either.

Samsung Electronics which has been dominating the global smartphone market with a broad portfolio, is losing out to Apple at the premium end. Samsung sold 226.6 million units last year, IDC said, while Apple shipped 234.6 million units in 2023.

The company's cash-cow chip business continues to struggle.

Its contract chip manufacturing business has been far outpaced by Taiwan's TSMC and the gap is widening.

The gap between TSMC and Samsung Electronics' market share in contract chip manufacturing stood at 39 percentage points in the first quarter of 2022, according to Counterpoint Research, but widened to 46 percentage points in the third quarter of 2023.

In the memory chip segment where Samsung leads, the Korean chipmaker got an early start by mass producing 3-nanometer chips faster than TSMC in 2022, but the industry's big clients like Nvidia and Apple are rushing to the Taiwanese company, possibly due to quality issues.

Organization restructure

The latest acquittal of Lee could have him registered as a director of Samsung Electronics earlier than expected.

"Lee promised more transparent management and being a registered director is an essential course to take," said Kim Yong-jin, a business administration professor at Sogang University.

"He should be able to make responsible business decisions as a registered director."

The establishment of a control tower that could set a unified direction for Samsung companies is also on the horizon.

Samsung disbanded what it called the Future Strategy Office in 2017 when it was pointed out as the main culprit of the influence-peddling scandal.

"How Future Strategy Office worked was illegal but some sort of a new team that could act as a control tower seems to required," Professor Kim said.

Business organizations welcomed the ruling on Lee on Monday.

Kang Seok-koo, head of the research division at Korea Chamber of Commerce and Industry said the latest ruling will be of "large help to Korea's economy which has just shown signs of recovery and to Korean companies which are globally competing to take the leadership of the state-of-the-art industry."

Samsung companies' shares fluctuated Monday affected by the ruling.

Samsung C&T's share closed with a 0.47 percent gain while Samsung Electronics shares dropped by 1.2 percent Monday.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]