Samsung Verdict Jolts South Korea

Article By : Rick Merritt, EE Times

A five-year sentence for Samsung Group's boss will shake up Korea's conglomerates but is not expected to impact surging electronics businesses.

SAN JOSE, Calif. – A South Korean court sentenced the head of Samsung Group, Jay Y. Lee, to five years in prison. The decision is seen as a watershed for the country’s techno-political climate long dominated by large conglomerates, but it is not expected to immediately impact its surging and vast electronics businesses.

The sentence was the mandatory minimum for Lee, who was convicted along with four other Samsung executives of charges including bribery of the former South Korea president Park Geun-hye, according to a Korean newspaper report. It marks the first time a Samsung leader has been jailed, although Lee’s father and grandfather both faced court actions during their tenures running the group, it said.

Samsung’s attorneys called the verdicts unacceptable and are expected to appeal the decisions.

In recent years, public opinion has shifted away from the chaebols, loosely translated as “wealth clans,” said a Reuters report. Once seen as heroes rebuilding the country’s post-war economy, “they have more recently been criticized for holding back the economy and stifling small businesses and start-ups,” it said.

In an opinion article, one Bloomberg reporter said the sentence should be treated as a pivot point for South Korean business.

“Only by locking Lee up…and keeping him there for his full sentence, will the government and courts send a convincing message that corporate malfeasance will no longer be tolerated…Whenever he emerges from his cell, Samsung’s shareholders and managers shouldn't welcome him back into the corporate fold. That would strengthen the message that criminal behavior will no longer be tolerated in Korea’s business community,” he said.

The six-month trial has already shaken Samsung Group. It dismantled a strategy group which oversaw the group’s many divisions. Samsung executives Choi Gee-sung and Chang Choong-ki, who headed that strategy group, were each sentenced to four-year prison terms, the Korean newspaper reported.

The surging systems and semiconductor businesses of Samsung Electronics are not expected to be directly or immediately affected by the sentences.

Lee was not involved in the day-to-day management of those businesses. “He was more of a guiding hand for the empire," said Geoffrey Cain, author of an upcoming book on Samsung, quoted in a BBC report. Cain said the verdict is “just the start” of reforms promised by South Korea’s new president of the chaebols that make up more than half the country’s economy.

Riding rising memory chip prices, Samsung Electronics Co. Ltd. unseated Intel Corp. in the second quarter to become the world's leading semiconductor vendor for the first time. The chip division posted sales for the quarter of about $15.78 billion compared to $14.8 billion for Intel.

At that time, Bill McClean, president of IC Insights, said in an email exchange with EE Times that Samsung is likely to grow chip sales faster than Intel on average. It may well have a handle on the No. 1 spot for at least the foreseeable future, he said.

In May, one analyst said he expects Samsung’s newly independent foundry business will take share from TSMC, possibly winning business from Nvidia and MediaTek.

In April, the foundry group revealed a road map down to a 4nm process as well as leadership in FD-SOI, seen as an emerging process for more mainstream designs. It also announced plans to put extreme ultraviolet lithography into production in 2018 at the 7nm node, potential months ahead of rivals.

In smartphones, Samsung was listed by Strategy Analytics as the leading brand with 22 percent market share in the second quarter. It shipped more smartphones than Apple and Huawei combined in the period, according to the market watcher.

The results speak well of how Samsung managers were able to recover from the debacle with battery failures on its Galaxy Note 7 in 2016. With its steady growth and a North America headquarters opened in Silicon Valley in late 2015, the company is seen as a top place to work by engineers.

The Bloomberg opinion piece noted Samsung’s stock price has surged 24 percent since Lee’s arrest in February. “The talented and experienced professional executives at its biggest corporations no longer require family patriarchs at the helm to achieve growth and profits,” it said.

— Rick Merritt, Silicon Valley Bureau Chief, EE Times

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