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| Samsung Electronics flagship Galaxy S22 / Courtesy of Samsung Electronics |
By Kim Hyun-bin
Samsung Electronics sales stands to face a great loss in sales as strengthening U.S. sanctions could block exports of its smartphones to Russia, according to company officials and industry analysts Tuesday. If the Biden administration decides to regulate smartphone technologies like those used in semiconductors and aerospace parts, the Korean company will face an uncertain business future in Russia, where more than 30 million phones were sold in 2021.
Such business risks have emerged since the Moon Jae-in administration was late to enter the U.S.-led sanctions against Russia, and Korean firms are expected to pay a hefty price for the delay. Due to the measures, there are concerns that not only semiconductors, which are Korea's largest export item, but also smartphones may not be able to cross Russian borders without prior approval from the U.S. government.
Korea is the only U.S. ally subject to the Foreign Direct Product Rule (FDPR) regulation due to the Korean government's late response to U.S. calls for Russia sanctions. The European Union, Japan, the U.K., Canada and New Zealand, which announced sanctions against Russia together with the U.S. at the beginning of the crisis, did not fall under the FDPR regulation. Korea is subject to the regulation along with China and India.
According to the FDPR, countries that have used U.S. technology and software in 57 items and technologies, including semiconductors, information and communications, sensors, lasers and aerospace, can only export those products to Russia after obtaining permission from the U.S. Department of Commerce.
It has not been decided whether or not to regulate smartphones. However, industry officials believe that since the latest smartphones are equipped with semiconductors and cutting-edge mobile applications there is a possibility they could be considered as strategic items.
If restricted, it will become difficult for Samsung Electronics to access the Russian smartphone market. Samsung phones accounted for a major portion of the total smartphone sales in the Russian market last year.
According to industry officials, Samsung Electronics is preparing for the worst-case scenario in which smartphones, its main export product, cannot enter Russia. The country's leading conglomerate has been collecting information about the possibility of additional economic sanctions to be imposed on Russia.
"We are waiting for the U.S. Department of Commerce to make an announcement on the detailed items to be restricted. We are monitoring the situation closely now," a Samsung Electronics official said.
Samsung Electronics introduced a new series of smartphones including its flagship Galaxy S22 to major Russian markets in early February, and it would come as a devastating blow if the U.S. Department of Commerce bans exports of the devices that utilize U.S. technologies.
On Feb. 24 (local time), U.S. President Joe Biden condemned the Russian invasion of Ukraine and announced sanctions against Russia, including export controls and blockades of large banks. The export controls include the FDPR.
Samsung Electronics has already experienced the bitterness of the FDPR. In 2020, then U.S. President Donald Trump exercised FDPR on exports of Korean semiconductors, targeting Huawei in China. This resulted in Huawei dropping off the list of Samsung Electronics' top 5 customers.
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