Samsung Electronics paused all merger and acquisition (M&A) activities and major investments in recent months as its chief Jay Y. Lee was in the middle of a trial on corruption, bribery, embezzlement, and perjury which yesterday saw the Korean prosecutors demand a 12-year prison sentence for him. The Seoul Central District Court is expected to rule on the case on August 25 and could significantly affect the fate of the South Korean original equipment manufacturer (OEM) that’s has been without a leader since February when Mr. Lee was originally detained by the authorities.
Some industry watchers are speculating that a long-term prison sentence for Samsung Group Vice Chairman and heir apparent could put an end to Samsung’s dominance in the industry that was largely enabled by the company’s bold investments approved by its top leadership in the last decade. Ten years ago, Samsung Electronics was in the red and managed to bounce back by implementing a so-called “super-gap strategy,” investing $20 billion in display panels and semiconductors for two years and ultimately returning to profit after driving some of its competitors out of business. A similar approach was implemented in 2012 in order to further extend Samsung’s lead in the semiconductor industry and capitalize on the fact that the Tokyo, Japan-based Elpida was close to bankruptcy. Samsung then invested over $13 billion into displays and semiconductors, with the latter segment allowing it to post record profits in recent quarters by becoming the world’s largest chipmaker in Q2 2017.
Such major and risky investments are what allowed Samsung to bounce back from the 2008 financial crisis but aren’t possible under the current circumstances, with Samsung Group Chairman Lee Kun-hee reportedly being in a comatose state since 2014 and his son and Vice Chairman facing a long prison sentence, some analysts believe, stating how the company currently has no one left to approve significant investments. The Seoul-based consumer electronics manufacturer has yet to signal that it’s thinking about replacing Mr. Lee in any capacity as the company is apparently still hoping that he will avoid prison time and return to lead the chaebol in the immediate future. It’s currently unclear how close is the competent court to ruling against Mr. Lee in the aforementioned case that the defendant claims was completely fabricated by the prosecutors.