Samsung Is Down, But It’s Far From Out

January 4, 2017, 2:57 PM UTC

Eighteen months ago I traveled to Seoul, South Korea to report an article about Samsung’s heir apparent, Jay Y. Lee, son of the tech giant’s ailing leader. In reality, the third-generation scion already had taken over from his father and in his behind-the-scenes way had been steering the giant corporate ship for some time.

I quickly learned that the Korean people have a love-hate relationship with the country’s biggest company. They are proud of their conglomerates, known as chaebols, because they have become globetrotting companies that reflect well on Korea’s place in the world economy. However, many teem with resentment toward giants like Samsung, which benefit from favorable treatment by the government and tend to stifle innovation among small fry.

Now the conglomerates and the political class that has nurtured them are mired in crisis. At the surface, the turmoil is over influence-peddling allegations involving the country’s president, one of her friends, and the conglomerates. (The New York Times published this excellent overview of the situation.) Read between the lines, and it’s possible to see how this scandal could shake the conglomerates to their core. As for Samsung’s putative leader, Jay Y. Lee met with the president around the time my article came out, which also coincided with Samsung narrowly defeating the U.S. hedge fund Elliott Management in a proxy battle that would have weakened the Lee’s family control of its company.

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Samsung has taken its knocks lately. Even before this current mess struck, Elliott had renewed its battle and the company faced the debacle of its phones exploding. Embarrassingly, airline passengers are reminded of Samsung’s shame every time they board a plane.

Still, partly because of Samsung’s convoluted governance, it is able to be patient. It is sinking billions into a new business line called “biosimilar” drugs. Sales of its memory chips and organic light-emitting diode screens for smartphones are surging, and could fuel its best quarterly profit in three years. There is even enthusiasm for a new phone, the Galaxy S8, expected later in 2017. At the Consumer Electronics Show in Las Vegas this week I expect to see, as usual, row after row of razor-thin-screened Samsung televisions.

It takes more than product fiascos and political scandals to kill a patient conglomerate.


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