Samsung’s’Lost 10 Years’ Realization… Lee Jae-yong’s trial takes at least 3 years

Samsung Electronics Vice Chairman Lee Jae-yong’s’in-door trial’ has resumed on the merger of Samsung C&T and Samsung Biologics’ allegations of fraudulent accounting. As Vice-Chairman Lee was sentenced to two years and six months in prison for the Gukjeong Nongdan case and imprisoned in January, Samsung’s judicial risk is expected to continue as a long-term court battle over a management succession-related trial is expected.

Part 25 of the Seoul Central District Court Criminal Agreement (Director Jeong-Je Park, Sarang Park, and Seong-Soo Kwon) was held for a formal trial of Lee and 10 Samsung officials who were handed over to trial on charges of violating the Capital Markets and Financial Investment Act on the afternoon of the 11th. The opinions were heard from the prosecution and Vice Chairman Lee. It was the second trial preparation date since October 22 last year. It was initially scheduled to be held in January this year, but it was postponed once due to the aftermath of Corona 19. Vice-chairman Lee and others did not appear in court on this day. The accused is not obligated to appear on the day of preparation for the trial.

At the trial that day, the prosecution gave a presentation to explain the gist of the prosecution for more than an hour. The prosecution said, “It is an illegal merger and accounting fraud case by Vice Chairman Lee and those involved in the Future Strategy Office for Lee’s management succession.” The prosecution decided that the merger between Samsung C&T and Cheil Industries in 2015 inflated the value of Cheil Industries, which Vice Chairman Lee owns, and that Samsung C&T’s value was deliberately lowered.

Vice-Chairman Lee’s defense team refuted, saying, “It was a normal merger process.” The lawyers said, “The merger was necessary for business and was determined in terms of responding to changes in the regulatory environment, improving governance, and stabilizing management rights.” In addition, Samsung C&T’s stock price continued to decline at the time, and Cheil Industries continued to rise. “If the merger took place at a different time, the merger ratio could have become more disadvantageous to Samsung C&T”

This trial is much more complicated than the Gukjeong Nongdan, and the case is vast, with only 190,000 pages of evidence recorded. The legal community observes that it will take at least three years to reach a ruling. That’s why Samsung and the business community are concerned that the’lost 10 years’ is becoming a reality.

The bigger problem is that Samsung is unable to promptly respond to the rapidly changing domestic and overseas business conditions after Corona 19, due to the’absence of the total number’. In particular, large-scale investments or M&A (M&A) decisions to survive the increasingly fierce foundry (consignment production) competition with Taiwan’s TSMC may be slow.

Experts are predicting an ultra-booming semiconductor this year (supercycle). Market research firm Omdia predicts that the DRAM market, a representative memory semiconductor, will grow from 66.3 billion dollars (about 74 trillion won) last year to 104.4 billion dollars (about 118 trillion won) next year. Gartner and the World Semiconductor Trade Statistics Organization (WSTS) predicted that this year’s global semiconductor market sales would reach $477.5 billion (about 540 trillion won), an increase of 8.7% from last year.

Accordingly, major semiconductor companies are rapidly increasing their investment. According to Yuanta Securities, five companies, including Intel, Samsung Electronics, TSMC, SK Hynix, and Micron, are investing an all-time high of $ 95.2 billion (about 106 trillion won) in facility investment this year. It increased by about 30% from last year (US$ 74.3 billion, about 83 trillion won).

Samsung Electronics announced that it will invest 133 trillion won and proposed achieving the world’s No. 1 system semiconductor in 2030. At the same time, they began to strengthen the foundry division on a large scale. According to the market research firm Trend Force, last year’s global foundry market share was 54% for TSMC and 17% for Samsung Electronics. However, the estimated market share for the first quarter of this year was 56% for TSMC and 18% for Samsung Electronics.

“In the case of TSMC, the production capacity is 1.1 million units per month, and at the level of 430,000 units for Samsung Electronics,” said No Geun-chang, head of Hyundai Motor Securities Research Center. “If the goal is to achieve the world’s No. 1, we need to increase facility investment by at least 2.5 times.”

Its rival TSMC has announced plans to invest up to 28 billion dollars (about 31 trillion won) in facilities this year. In particular, the US, Taiwan, and Japan have recently signed a’semiconductor alliance’. The design is in the US, materials and equipment are in Japan, and the manufacturing is in Taiwan, which could further narrow Samsung Electronics’ position.

Contrary to TSMC’s aggressive move, Samsung Electronics is striving to invest in US semiconductor factories worth 17 billion dollars (about 19 trillion won). Although Austin, Texas is the dominant, it has not been able to make a decision among candidates such as Phoenix, Arizona and Genesi County, New York.

Large-scale M&A is more difficult. Samsung Electronics has a liquidity of 121 trillion won that can be converted into cash right away. With the recent prolonged shortage of automotive semiconductors, the industry expects Samsung Electronics to take over related semiconductor companies. However, there is no case of Samsung Electronics conducting a large-scale M&A during the period of Vice Chairman Lee’s prison management.

Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association, said, “The semiconductor industry can develop only when fierce competition and strong cooperation between countries are achieved at the same time, but Samsung Electronics, which is in the absence of the total number, is a kind of’bullying’, so I am concerned.”

Ahn said, “As Japan, which was a semiconductor powerhouse in the 1990s and 2000s, slowed down in its investment decisions, it was pushed back by Samsung Electronics, which made investments aggressively and boldly at the time. If you miss out repeatedly, you can follow Japan’s precedent,” he warned.

Reporter Park Hyung-soo [email protected]