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Management crisis

Samsung shares struggle as big strategic decisions still await Lee

The company could face a crisis unless it diversifies its business portfolio through M&As and other investments

By Aug 11, 2021 (Gmt+09:00)

Samsung faces an uphill battle with rivals
Samsung faces an uphill battle with rivals

Shares of Samsung Electronics Co. have been trapped in a boxed range since the start of the year, dashing retail investors’ hope that the tech giant would easily top the psychologically important 100,000 won ($86.7) a share given the bullish industry outlook.

Samsung, the largest stock on South Korea’s main Kospi market, briefly staged a rebound above the 80,000 won earlier this month on expectations that the conglomerate’s leader Jay Y. Lee will be released from prison on parole after completing 60% of his jail term.

When the news finally hit the market, however, Samsung fell 1.6%, and on Wednesday, the stock declined further, trading 1.3% lower at 79,200 won in the midday session.

“The market initially welcomed his return. But what’s more important to investors is that what he can do to take Samsung to the next level,” said an industry official.

On Monday, the government approved the parole of Lee, who had been behind bars, serving 18 months of his 30-month prison term over bribery and embezzlement conviction. He will be out this Friday.

While announcing his release, Justice Minister Park Beom-kye said the government “took into consideration the prolonged pandemic situation and the changing global economic conditions.”

But Lee's parole, instead of a pardon, means he will be unable to return to Samsung management until the second half of 2027 given a law governing special economic crimes. Further, he will be placed on probation after being released, which will restrict his overseas business trips.

Asked by reporters on Tuesday about the possibility of Lee being given permission to return to work and lifting his travel ban, the justice minister said “it’s still too early to talk about that.”

Samsung's Jay Y. Lee is set to be released from prison, but not returning to management.
Samsung's Jay Y. Lee is set to be released from prison, but not returning to management.

VISION FOR GROWTH

Analysts said Samsung’s shares could remain depressed unless its leader presents to investors its vision for continued growth, including tangible M&A results.

While sitting on cash reserves of close to $100 billion, Samsung has been absent from the M&A market since its $8 billion deal in 2017 to acquire Harman, a US electronics systems maker for automobiles.

Industry watchers say Samsung won’t be able to make any significant strategic decisions without Lee at the helm of the conglomerate.

Among major decisions awaiting his return are the expansion of Samsung’s Austin foundry plant and the ramp-up of its Pyeongtaek factory.

Samsung analysts recently slashed their target price for the tech giant, citing its lack of new growth drivers and the company’s inability to execute meaningful M&A activities.

RIVALS ADVANCE

Lee’s parole comes at a time when Samsung, the world's largest maker of smartphones and memory chips, is fighting an uphill battle with global competitors.

In the foundry market, Samsung is struggling to narrow its gap with sector leader Taiwan Semiconductor Manufacturing Co. (TSMC), as Intel Corp. is following fast with its ambition to become the world’s top foundry player by 2025.

Apple Inc., a key rival of Samsung in the smartphone segment, is now betting on content platforms such as Apple Music and iCloud as well as moving to enter the electric vehicle market.

Samsung leader Jay Y. Lee inspects a Pyeongtaek chip plant
Samsung leader Jay Y. Lee inspects a Pyeongtaek chip plant

Even in the domestic market, Samsung is apparently lagging behind its competitors in delving into new growth industries.

Hyundai Motor Group, which owns the nation’s two largest automakers – Hyundai Motor Co. and Kia Corp. – is aggressive with its future mobility and robot projects

SK Group, specialized in energy and chemical businesses, is striving to turn into a greener company by shedding off its refinery business and shifting its business focus to batteries and auto parts.

Meanwhile, Samsung’s two mainstay businesses, semiconductors and smartphones, account for 70% of the company’s revenue and 80% of its operating profit.

Samsung could face a crisis unless it further diversifies its business portfolio through M&As and other investments, analysts said.

Write to Hyung-Suk Song at click@hankyung.com

In-Soo Nam edited this article.
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