Four key tasks Samsung chief needs to address after parole

Lee Jae-young urged to focus on bolstering smartphone and chip biz, playing role in Moderna vaccine supply

By Baek Byung-yeul, Kim Bo-eun

Anticipation is high for Samsung Electronics' next moves, as its de facto leader Lee Jae-yong will be released on parole Friday.

Many critical decisions involving major investments in the foundry business and M&As for future growth had to be put on hold while Lee was behind bars for his involvement in a bribery scandal with impeached former President Park Geun-hye.

While the tycoon faces some restrictions such as on regaining his title as vice chairman, these could be eased, with a presidential pardon for Lee not entirely ruled out yet.

But with its leader out of prison, Samsung should be able to address pending tasks. This was the major reason the government decided to allow Lee's release on parole, Justice Minister Park Beom-kye said ― to enable Korea's largest conglomerate to take key steps amid economic uncertainties posed by the COVID-19 pandemic. Samsung's market capitalization accounts for 30 percent of Korea's market cap, and the conglomerate pays 20 percent of the total amount of corporate tax collected and employs 300,000 workers here.

Lee's release sparked accusations of “preferential treatment.” This places greater pressure on Lee to prove his release is indeed necessary.

The Samsung chief is urged to focus on four tasks ― addressing the Moderna COVID-19 vaccine supply shortage Korea is currently suffering, carrying out investments to strengthen Samsung Group's future competitiveness, implementing a new strategy for its sluggish smartphone business and taking strategic moves to beef up its contract-based chip-making business.

Moderna issue

Topping the list is ensuring a stable supply of Moderna's COVID-19 vaccine here, for which Samsung Biologics is a manufacturer under contract. Korea is witnessing a supply shortage of the Moderna vaccine as the U.S. biotech company is expected to delay its planned shipment for this month.

As Samsung Biologics, a drug-manufacturing affiliate of the group, has begun manufacturing Moderna's vaccines at its plant here starting from the third quarter, calls from political circles are growing that Lee should play an “influential” role in ensuring that vaccines produced here could be distributed to the Korean people.

“We cannot protest the unilateral control of vaccine supply by a multinational pharmaceutical company, and this is extremely frustrating for our people,” Song Young-gil, leader of the liberal ruling Democratic Party of Korea, told reporters at the National Assembly, Monday. The ruling party leader said Lee will be able to play a role in addressing the vaccine supply shortage issue. “We need active consultation between Moderna and Samsung Biologics so that Moderna's vaccines produced in Korea can be used here.”

Pending investment decisions

With Lee being released from prison, Samsung is also expected to speed up investments and fix its future strategies to make the group's businesses more sustainable for the post-pandemic era.

Though Samsung Electronics has long maintained a leading position in the memory chip business, investors are asking the tech titan to exhibit an upgraded blueprint that would give the business an edge over its competitors.

During Lee's imprisonment, Samsung Electronics remained mum over its record cash hoard of 209 trillion ($181.9 billion), but now the company is “very near” to making key decisions regarding investments for semiconductor manufacturing facilities in the U.S. and heightening its business competitiveness by acquiring companies in new growth sectors, possibly in artificial intelligence, 5G or auto parts. Its last large-scale M&A deal was the $8 billion acquisition of U.S. connected car systems provider Harman in 2016. This was before Lee became embroiled in his legal battles and ensuing conviction and incarceration.

Samsung's EV battery manufacturing unit also faces a major decision on whether to invest in the U.S. at a time when its competitors are building manufacturing plants there and have joined hands with U.S.-based carmakers to secure long-term clients.

Mobile business revamp strategy

Samsung's smartphone business is also feeling crisis as it accounts for the largest portion of the conglomerate's earnings. It still reigns as the world's No. 1 overall smartphone vendor but the market has reached maturity, and uncertainty prevails as Chinese players step up their game and raise a strong challenge to Korea's most recognizable brand.

Samsung's management began looking into the mobile division in April, to identify problems and devise solutions. Samsung's “buying power” from parts suppliers and original development manufacturers (ODM) that design, manufacture and supply products to the company is seen to have weakened due to its pressure to cut costs.

Samsung's only visible smartphone strategy is to popularize premium models, centering on foldable phones. Samsung is set to unveil new models for its Galaxy Z Fold and Galaxy Z Flip at its Unpacked event scheduled for Aug. 11. Prices of the models are expected to be slashed, as a means to expand the user base of the high-end devices. But it is unclear whether this will help Samsung attract more foldable phone users, given prices are projected to still fall in the lower- to mid-$1,000 range.

The strong performance of new Chinese players such as Xiaomi is threatening Samsung's position as the top smartphone manufacturer in terms of shipments. Xiaomi overtook Samsung in global smartphone sales in June. In addition to Xiaomi outperfroming Samsung in terms of shipments, Samsung is also losing market share to its Chinese competitors.

Apple, which ranks second among smartphone businesses globally in terms of market share, has a strong brand presence, with a loyal fan base craving its sophisticated designs. Samsung, meanwhile, is caught between Apple and the Chinese players that are now offering a solid lineup of smartphones, from budget to premium foldable phones, at more affordable prices.

Foundry business momentum

The tech giant also faces competition in the foundry business with formidable players such as Taiwan's TSMC, which is pouring $128 billion into facility investments through 2024. Intel in May unveiled plans to invest $20 billion into setting up two foundries in Arizona, after CEO Pat Gelsinger took the helm of the firm. Intel also appears to be considering possible acquisitions of existing foundry businesses.

Samsung has yet to reach an official decision on where to build an additional foundry plant in the U.S., into which it would invest 19 trillion won. According to Samsung sources, the U.S. state of Texas is the leading choice for the site for expansion of its new foundry line.

“Samsung owner chiefs are seen as having built the conglomerate's competitiveness up until now. Experts in management can only be focused on short-term performance and this shows why the presence of an owner chief is so important ― because the leader focuses on long-term competitiveness,” Sejong University professor Kim Dae-jong said.