Samsung reports record sales amid questions about future

flood of obituaries for Samsung Electronics Chairman Lee Kun-Hee since his death over weekend have mostly shared his most defining quote: “Change everything except for your wife and children.” Lee’s rant against what he saw as complacency during a senior manment meeting in 1993 reflects demanding leadership that helped company grow from an obscure maker of cheap televisions into a techlogy giant.

Questions loom over what's next as Samsung, South Korea's largest company by far, begins an era led by Lee’s son and corporate heir, Lee Jae-yong. younger Lee has been calling shots since his far suffered a heart attack in 2014. He w faces immense pressure to navigate Samsung's transition beyond its core hardware business into increasingly diverse techlogies and services.

At same time, Lee faces distraction of a prolonged court battle over his indictment on charges of financial crimes related to a massive corruption scandal. He also needs to raise cash to pay astromical inheritance taxes to cement his control over business empire left by his far. At least financially, Samsung appears to be in great shape.

company said Thursday its operating profit for last quarter reached a two-year high of 12.35 trillion won ($10.89 billion), a 59% jump from a year earlier, thanks to strong sales of computer memory chips, smartphones and appliances. Revenue rose 8% to 66.96 trillion won ($59 billion), an all-time quarterly high.

“Even as COVID-19 pandemic continues around world, reopening of key ecomies led to a significant increase in consumer demand,” Samsung said in a statement.

Samsung said it expects its profit to fall in current quarter as demand for computer chips slows and competition in smartphones and consumer electronics heats up. Still, its dual strength in parts and finished products means it benefitted hugely from two major 2020 realities — coronavirus pandemic and prolonged trade war between United States and China.

Samsung's semiconductor business rebounded sharply after a sluggish 2019, driven by robust demand for PCs and servers as virus outbreaks forced millions of people to stay and work at home. Meanwhile, Trump administration’s sanctions against China's Huawei Techlogies have dented one of Samsung’s biggest rivals in smartphones, smartphone chips and telecommunications equipment. Washington has also cracked down on some Chinese semiconductor makers over accusations of industrial espion, thinning Samsung’s competition in market for DRAM chips.

“Things really couldn’t have turned out any better,” for Samsung, said Young Woo Kim, a managing director at SK Securities.

“While Huawei’s diminished in global smartphone market will be eventually filled up by companies like Oppo, Vivo and Xiaomi, y will be buying Samsung’s application processors (for ir devices),” he said.

most crucial long-term question for Samsung is if it will evolve beyond being just a giant in memory chips, smartphones and display screens. Unlike Apple, which reaps lucrative returns from its ecosystem of software and services that run on its devices, Samsung has yet to forge an effective business model for garing and using customer data to create services. This is partly because Samsung lacks its own software for its smartphones, which are powered by Google’s Android.

In semiconductors, Samsung says it aims to expand beyond its dominance in memory chips, which are used for storing information. It plans to invest more than $100 billion over next decade in higher-margin logic chips, designed to perform a broader range of functions.

market for advanced chips is expected to explode in coming years, driven by developments related to fifth generation (5G) wireless services, artificial intelligence, networked computing and self-driving cars, analysts say. It's unclear wher Samsung “will end up as one of main actors or get sidelined into a supporting role” as industry is reshaped by emerging techlogies, said C.W. Chang, an analyst at mura.

“Samsung will have to be very ambitious to succeed, like in old days when it vowed to beat kia in mobile phones although it didn’t even have a market presence n,” he said.

Samsung’s strength is its vast scale and manufacturing muscle, but its future increasingly depends on forming global partnerships to break into new techlogies and markets, especially in services, said Kim of SK Securities. Since taking over for his far, Lee has pushed “open invation” goals to encour collaboration with international companies and research groups and gain new techlogies through mergers and acquisitions. So far he has little to show from that, Kim said.

elder Lee had a reputation for making bold, strategic decisions while wielding absolute power and control in boardroom. Samsung’s future global partners would want company to remain fast and aggressive on long-term investments as y bet on new opportunities, Kim said.

Extending Lee family’s control over Samsung and its affiliates would be costly. inheritance tax alone will be about 10.9 trillion won ($9.6 billion), according to a calculation by Choi Nam-kon of Yuanta Securities. Raising cash for tax payment could take years and may end in a shake-up across group.

Including late Lee Kun-Hee’s 4.18% stake, family combined holds a 5.79% of Samsung Electronics. company's shareholding system is complex and some Samsung affiliates collectively hold larger stakes, but Lee family holds stakes in those companies too, allowing m to control group.

Lee Jae-yong's legal trouble stems from allegations he offered millions of dollars’ worth in bribes to former President Park Geun-hye and one of her longtime confidantes to obtain support for a 2015 merger between two Samsung affiliates to increase his control of Samsung Electronics. merger went ahead despite opposition from shareholders who said deal unfairly benefited Lee family.

Lee was freed in February 2018 after Seoul High Court overturned key convictions, reducing and suspending his sentence. Supreme Court later sent case back to High Court, saying amount of bribes Lee allegedly offered was undervalued. Last month, prosecutors indicted Lee on charges of stock price manipulation, accounting fraud and or crimes related to 2015 merger. Lee’s lawyers have denied wrongdoing, saying it was part of “rmal business activity.”

South Korea punishments for corruption and financial crimes by top executives are often lenient, with judges often citing concerns for country’s ecomy. But Samsung’s business likely would run smoothly even if Lee is imprisoned again, said Park Sangin, a professor at Seoul National University. re were obvious signs of trouble during 11 months Lee spent in jail. “re have never been manment problems for (South Korean conglomerates) when ir leaders were imprisoned,” as y could still relay ir manment decisions from a cell, Park said. 

(Im Credits: AP)