Concerns Over Leadership Vacuum... Samsung Stalls Again Despite Holding 110 Trillion Won in Ammunition

Record High Cash Assets in Q1
Possible Delays in M&A and Large-Scale Investments Due to Leadership Vacancy
Concerns Grow Over National Economy Impact Amid COVID-19 Turmoil

Lee Jae-yong, Vice Chairman of Samsung Electronics [Photo by Yonhap News]

[Asia Economy Reporter Changhwan Lee] As the prosecution has requested an arrest warrant for Samsung Electronics Vice Chairman Lee Jae-yong, Samsung's management clock is once again at risk of stopping. There are concerns that Samsung may face setbacks in mergers and acquisitions (M&A) and large-scale investments aimed at creating future growth engines due to the absence of its head.

According to Samsung Electronics on the 5th, the company's cash and cash equivalents, including short-term financial products, reached a record high of 110 trillion won as of the first quarter of this year. Total assets also hit a record high of 357 trillion won.

The increase in Samsung Electronics' assets is interpreted as a result of record operating profits during the semiconductor boom in 2017 and 2018, and the absence of large-scale M&A cases since the acquisition of the U.S. automotive electronics company Harman in 2016.

The halt in large-scale M&A by Samsung Electronics since 2017 is analyzed to be due to the difficulty in making large investment decisions amid the absence of the head after Vice Chairman Lee was detained in connection with the 'state affairs manipulation' case.

However, after Vice Chairman Lee was released in early 2018 and actively engaged in management activities, there have been recent industry expectations that Samsung Electronics is again seeking M&A targets.

In particular, global companies related to system semiconductors, automotive electronics, 5G, and bio, which Vice Chairman Lee identified as future growth engines, have been considered M&A targets.

A representative company frequently mentioned in M&A rumors is the Netherlands-based NXP Semiconductors, the global No. 1 in automotive semiconductors. Samsung Electronics has been steadily maintaining a cooperative relationship with this company to expand its automotive electronics business. There are also talks that U.S. solid-state drive (SSD) controller company Silicon Motion and global foundry company GlobalFoundries are potential M&A targets.

However, with Vice Chairman Lee facing the risk of detention, the possibility of large-scale M&A is expected to decrease again. Since such deals involve investments of at least several trillion won, the decision of the head is crucial rather than professional managers who bear the burden of failure, and if Vice Chairman Lee is detained, it may be difficult to make such management judgments.

Large-scale investments are also likely to be delayed. After his release in February 2018, Vice Chairman Lee announced a large-scale investment plan of 180 trillion won, including allocating 25 trillion won to four major growth businesses?artificial intelligence (AI), 5G, bio, and semiconductor-centered automotive components?within six months in August.

In April last year, he declared the long-term plan 'Semiconductor 2030' vision, aiming to become No. 1 in system semiconductors by investing 133 trillion won by 2030. This was a matter where Vice Chairman Lee personally made the final decision on hundreds of trillions of won in investments.

The business community is concerned that if Vice Chairman Lee is detained, it could pose another risk to the already struggling Korean economy due to the novel coronavirus (COVID-19). In fact, Samsung Electronics' sales account for more than 10% of domestic manufacturing, indicating its significant influence.

A business community official said, "The management environment is more uncertain than ever recently, and the detention of Vice Chairman Lee could lead to a very uncertain future for Samsung. Not only M&A but also large-scale investments could become uncertain."