INSIGHT:Is Samsung Really Struggling?

Last week we revealed how Jae-Yong Lee, executive chairman of Samsung stood in a South Korean Court claiming he was needed because Samsung was facing a very difficult time. This is a Company that is actually bigger than many Governments and is currently investing between now and 2027, $550 billion in new manufacturing and next generation product capabilities.

Recently Intelligent Investor reported that the business is currently investing $330 billion alone in a new processor plant, and to put that into prospective one only has to look at the entire market capitalisation of BHP which is currently $202bn.

ChannelNews took a deep dive into the South Korean business who recently laid off staff in Australia; after reporting a fall in both profits and revenue similar to the steep falls reported by archrival LG Electronics whose market capitalisation is only A$17.4 billion which is a pittance compared to Samsung’s $412.87 billion capitalisation.

Current Chairman Jae-Yong Lee who was last week pleading not to be sent back to jail, has already done time in prison after he was convicted in 2021 for trying to bribe Geun-hye Park, President of South Korea, who got 25 years for her part in the same investigation.

For most companies, this would have been devastating, a scandal of the highest order with the share price of the business which is currently down 29% rising 29% while he was serving his initial sentence.

For Samsung, it barely registered with the Chairman stepping out of prison to instantly get back down to business running Samsung from outside a prison cell, and that included meetings with US President Joe Biden that resulted in a US$6.6 billion-dollar subsidy from the US Government to Samsung who is currently investing heavily in the USA.

Analysts at Intelligent Investor recently told clients that Samsung who began as a dried fish and noodle trading company in 1938 is “Not a normal Company”.

The business started using leftover Japanese industrial equipment to become the centre piece of the Korean economy.

Jae-Yong Lee’s father Lee Kun-hee and Hong Ra-hee his mother became known as ‘chaebols’ because of their tireless work in turning the business into a conglomerate spanning more than appliances and TV’s.

Today the business is into healthcare, biotech, advertising, shipbuilding, and even (branded) sports teams as well as banking, insurance, construction, and resorts.

The Crown jewel is Samsung Electronics who deliver sales equivalent to 11% of South Korea’s GDP.

A key partner of CE and appliance retailers in Australia, retailers, resellers and key partners are, only exposed to a small part of their business, and because of the size of the Australia market, the region is not seen as a major contributor, other than in the smartphone market for the simple reason Australians are among the highest acquirers of premium smart phones where Apple and Samsung dominate.

Whichever way you look at Samsung’s global revenues, they are either the world’s number one or number two company by revenue, or volume, in multiple categories and that’s before you take into consideration their technological edge such as their leadership in the AI space found in their mobile phones and tablets today, with TV’s and appliances set to be added to that list at CES 2025 where a new range of TV’s and appliances with advanced AI are set to be revealed.

What’s surprised me is Samsung’s reluctance to launch a range of PCs in Australia to support their tablets and smartphones despite their success overseas.

They are already the world’s number one computer memory producer, number two computer logic producer with their slim powerful PC’s range flying off shelves in the USA.

A review of the business by categories reveals that Samsung’s revenues exceed 100% when tallied by division because its business which manufacturers components such as OLED Display screen and processors for the likes of Apple who just happen to be not only their archrival but their biggest customer.

While Samsung provides everything from computer chip fabrication to memory and displays to Apple for their iPhones, Mac PC’s notebooks, iPads Should Apple wish to break up with Samsung, it has limited alternatives especially as the incoming Trump administration wants to slap a 25% tariff on anything coming out of China.

In logic fabrication, Apple’s only other options are TSMC or the troubled Intel.

In the all-important memory market, Samsung leads with around 40% market share.

In screens, Samsung has similar dominance according to analysts.

investment Financial Services has pointed out to their investors that Samsung’s average forward PER has been 15.5 for some time, but is now trading at 9.2, Vs 31 for Apple, 18 for TMC, and just 4.0 for archrival Hynix, another South Korean chaebol and the second-largest memory producer.

One of Samsung’s past problems has been meeting demand, despite having leading memory products, the South Korean Company struggled to keep up with demand with their factories needing to be expanded and upgraded.

Key competitor SK Hynix captured market share as a result of this.

Samsung Galaxy Fold6 & Flip6

Questions are also being asked about the S25 which is expected to be launched on January 22nd, 2024, and the future of the Samsung Exynos house brand processor which have been a victim of production delays and yield issues.

he products also underperform against Apple, Qualcomm, and Mediatek alternatives.

ChannelNews understands that Samsung has cut a deal with Qualcomm for their latest process that will be used to power the new top end Samsung Galaxy S25 Ultra.

Let’s cut to the key facts, there is no death spiral happening at Samsung, this is a Company that can quickly reengineer themselves and that started last week with multiple new appointments of senior executives to head up key divisions at the conglomerate.

Expression of anger at poor performance is a key part of Samsung’s D&A.

In 1995, Kun-hee Lee- former Samsung chairman, son of founding chairman, and father of current chairman – was so furious with the inadequacy of Samsung products that he had 150,000 phones gathered at the factory and burnt in a bonfire as senior executives and key employees looked on.

A role at Samsung is widely considered the most elite career path in South Korea, open to only two tenths of one percent of the population, these executives many who have ended up in Australia have lost staff who are not prepared to put up with the Korean 6 or 7 days a week work ethics that many Australians are not prepared to put up with.

Despite family control and nepotism, Samsung’s management is consistently rated highly.

This year, in the face of strategic and execution missteps and strikes by workers demanding less hours and more pay, the company implemented a 64-hour workweek.

The vice chairman also issued a public apology for the mishandling of key divisions memory and mobile where the Exynos processor spruiked by Samsung is now seen as an obsolete processor.While the stumbles aren’t good news, they appear immaterial to long-term prospects.

The complexity of semiconductors, the evolution of mobile phones and the expansion of AI means companies need to invest and Samsung is throwing billions at their future and that of the entire industry.

Retailers need Samsung, Manufacturers such as Apple need Samsung and the investment of a mere $500 billion + over the next few years is tipped to produce some cutting-edge capabilities.

To put this expenditure into prospective, Australia’s national debt is forecast to increase from 32.0% of GDP ($881.9 billion) in 2024‑25 to 35.7% of GDP ($1,136.3 billion) in 2027‑28 due in part to heavy borrowing by the current Labor Government.