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Samsung, the South Korean electronics giant, was established as a grocery trading store in 1938. The company is now among the biggest ‘chaebols’ in the country and contributes nearly 20% to the national GDP. Samsung has a vast network of companies, several of which are listed entities, but the most prolific is Samsung Electronics, which brings in about 70% of the group’s revenue.
In recent years chaebols (family-owned conglomerates that have a wide influence) have come under public scrutiny due to their murky dealings. Back in 2017, the vice chairman of Samsung Electronics Jae-Yong Lee was convicted of giving kickbacks to then-President Geun-Hye Park.
Lee has been the de-facto head of Samsung since his father and group chairman Kun-hee Lee was hospitalized in 2014, and then later died in 2020. Fast-forward to 2022, Lee junior has been pardoned by the current President Suk-yeol Yoon, citing Samsung’s contribution to the South Korean economy, and has now been appointed the chairman of Samsung Electronics.
The business model of Samsung Electronics
A leader in consumer and industry electronics, Samsung Electronics manufactures and sells LCD and LED panels, mobile phones, televisions, memory chips, laptops, telecom equipment and electronic storage devices. The company is the top manufacturer of mobile phones and memory chips around the globe.
Samsung started its electronics business in the 1960s and had separate divisions for several electronic items, such as Samsung Corning, Samsung Semiconductor & Telecommunications. The first product to come out of the Samsung factory was a black-and-white television. In the 1970s the company began exporting home electronic products.
Shortly after, electronics became the centre of Samsung’s business, which was now selling TVs, VCRs, computers, and tape recorders. Samsung Electronics became the top producer of memory chips in 1992, and later in the decade developed the LCD screen.
The current smartphone technology of Samsung started in 2008, and by 2012 the company was the largest mobile phone manufacturer in the world.
Headquartered in the South Korean capital of Seoul, Samsung Electronics has over 230 global bases across 74 countries and employs over 266,000 employees around the world. The company has 39 R&D centres, 54 sales offices, 32 production sites and seven design centres.
Earlier this year at the Consumer Electronics Show (CES 2022), Samsung Electronics unveiled its new slogan – ‘Together for tomorrow’. The company has two divisions which house a cluster of the electronics business. The Device eXperience division includes displays, appliances, mobile phones and accessories, networking, and health and medical equipment business. The Device Solutions Division includes Samsung’s memory business, processor unit, and foundry business.
The company also has other areas it operates in, such as AI, 5G & 6G, automotive electronics and robotics. Samsung also runs innovation labs and a set of STEM programmes (science, technology, engineering and mathematics) for students.
As one of the world’s largest electronics manufacturers, Samsung aims to achieve net-zero emissions for all its divisions by 2050 and is increasingly using recycled materials for its devices.
Samsung Electronics’ target audience is quite wide considering a large number of its product offerings. Products manufactured by Samsung are well-liked due to their durability, quality, reliability, and stable software. The company is also known to innovate and be the first to the market with new features.
In Korean, the word Samsung means three stars, which the founder Lee Byung-chull envisioned as being powerful and everlasting as the stars in the sky. The company can keep walking the tightrope as 90% of the manufacturing is done in its own factories.
At present, Samsung’s biggest competitors are Apple, LG Electronics, Sony and Huawei (networking devices).
Results and stock movements
Listed in Seoul on the Korea Exchange, Samsung Electronics (005930.KS) has a market capitalization of over 413 tn won (~$304 bn). The company’s stock has declined over 14% in the past 12 months, impacted by a downturn in the global demand for tech products.
The stock has a PE ratio of 9.83 and a forward PE ratio of 14.81. Samsung Electronics has a price-to-book ratio of 1.10.
For the third quarter that ended September 30, 2022, the company reported record revenue of 76.78 tn won (~$56 bn) but the operating profit declined by 23% over the previous quarter. The company is facing difficulties in its memory businesses and sales of central processing units are falling as a global economic slowdown has impacted consumer demand for electronic items.
“In 2023, demand is expected to recover to some extent, but macroeconomic uncertainties are likely to persist,” Samsung said in a statement.
While Samsung is still a leader in DRAM, it is not even in the top 3 SOC (system-on-chip) for mobiles. The foundry business is facing stiff competition from TSMC.
What’s next for Samsung Electronics?
Samsung has lost a major chunk of its market share in the semiconductor business to TSMC. This has become a cause for concern as it would affect group profitability in the long term. TSMC is likely to take the lead in semiconductor technology, whereas Samsung seems to be a close second.
The company is looking to start mass manufacturing 2-nm chips by 2025, and 1.4 nm by 2027.
What is more, Samsung has operated without a leader at the helm for the past couple of years, and the CEOs have relied on short-term expansion than long-term goals to keep the business running. Market participants now expect the reinstated chairman Jae-Yong Lee to bring in a change like his father did in the early 1990s and catalyse growth for the company.
“Lee has been very concerned with the recent share price decline at Samsung Electronics which is down 37% from its highs in January 2021. Lee has ordered the task force to implement strategies that could turn around the share price decline,” writes analyst Douglas Kim who publishes on Smartkarma. “These strategies include share buyback, share cancellation, higher dividends, special dividends, and other M&A, restructuring opportunities.”
