Samsung System Semiconductors Aiming for Global No.1 by 2030, Future Investments Uncertain

Vice Chairman Lee Jae-yong's Detention Clouds Samsung's Large-Scale Investment
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[Asia Economy Reporter Changhwan Lee] With the detention of Samsung Electronics Vice Chairman Lee Jae-yong, Samsung, Korea's leading company with annual sales exceeding 400 trillion won, will have to operate the group without a head. Samsung's management performance could be determined by how each affiliate maintains an emergency management system during the leadership vacuum. It is evaluated that Samsung's internal and external risks, such as delays in large-scale investment decisions, allowing foreign competitors to catch up, and a decline in brand image, will increase significantly.

Restructuring of Governance and Suspension of Large-scale Investments

According to the business community on the 19th, Samsung faces a crisis where major decisions such as personnel, governance restructuring, and large-scale investments may be halted due to Vice Chairman Lee's detention. Above all, Lee's promotion to chairman has been indefinitely postponed.

Samsung had planned to appoint Lee as chairman of Samsung Electronics, a position left vacant by the late Chairman Lee Kun-hee, around the regular shareholders' meeting scheduled for March. There was also speculation that Lee might return as a registered executive at this shareholders' meeting as part of responsible management. However, the court sentenced Lee to 2 years and 6 months in prison, nullifying these plans.

Delays are also expected in large-scale investment decisions. Samsung Electronics was expected to announce large-scale investments for this year at the investor relations (IR) meeting scheduled for the 28th. Following TSMC, a semiconductor foundry competitor, announcing its largest-ever annual investment plan of about 30 trillion won, there were expectations that Samsung Electronics would also announce large-scale foundry investments.

Vice Chairman Lee has been making large-scale investments to make foundry and system semiconductors the future core growth engines and to achieve global number one status. He was detained in February 2017 and, after being released on probation in early 2018, began actively pursuing large-scale investments.

In August 2018, he announced an investment plan of 180 trillion won in four major growth sectors: artificial intelligence (AI), 5G, bio, and semiconductor-centered automotive parts. In April 2019, he unveiled a 133 trillion won investment plan aiming to become the number one in system semiconductors by 2030.

Such large-scale investment plans require the decisive leadership of the head of the group, and with Lee's detention, it is expected that future investment announcements will face setbacks. The same applies to large mergers and acquisitions (M&A). Since acquiring the global automotive parts company Harman in 2017, Samsung has not conducted any significant M&A.

Kyung-sang, head of the Korea Chamber of Commerce and Industry, said, "In the current era of rapid industrial paradigm shifts, Samsung Electronics needs to make important decisions, but the leadership vacuum caused by Vice Chairman Lee raises concerns about setbacks in new business growth."

Samsung Electronics Vice Chairman Lee Jae-yong is attending the retrial sentencing hearing of the state affairs manipulation case held at the Seoul High Court in Seocho-gu, Seoul on the 18th. Photo by Hyunmin Kim kimhyun81@

Global Brand Value Decline Inevitable

Delays are also expected in the inheritance issues following Chairman Lee's passing. To prepare for inheritance taxes exceeding at least 10 trillion won, Lee's family has been exploring various funding options. Recently, external appraisals of artworks and real estate owned by the chairman have been conducted, and important decisions such as partial stock sales or increased dividends from affiliates are necessary to secure inheritance taxes. However, with Lee's detention, decision-making is expected to be hindered.

A decline in global brand value is also inevitable. Samsung Electronics ranked 5th globally and 1st among domestic companies in the ‘2020 Global Top 100 Brands’ evaluation announced by consulting firm Interbrand last year, with brand value rising annually. However, with the head of the group detained, this year the concern is more about a decline rather than an increase in brand value.

There is also a possibility that overseas speculative capital could seize this opportunity to launch attacks. The private equity fund Elliott has demanded damages from Samsung and the Korean government based on our judiciary's rulings. This verdict is likely to have an adverse impact on international litigation as well.

Considering Samsung's share in the Korean economy, it is evaluated that this will act as a negative factor for the entire Korean economy.

An official from the Federation of Korean Industries said, "Considering Samsung's share in the Korean economy and its status as a global company, the contraction of Samsung's business activities due to this ruling is feared to have a negative impact beyond the individual company, affecting the entire Korean economy. Prolonged leadership absence can delay entry into new businesses and swift decision-making, resulting in falling behind in global competition."

This content was produced with the assistance of AI translation services.