Lee jailing puts Samsung back in emergency mode

SEOUL — Samsung Electronics and its affiliates returned to an emergency posture on Tuesday, a day after an appellate court sentenced the conglomerate’s leader Lee Jae-yong to two years and six months in jail.

Multiple sources at the country’s largest business group spoke of a somber mood, with many expressing regrets about the court’s decision and worries about the tech giant’s mid-term strategies.

“Aside from day-to-day operations, the leader’s vacancy literally means an emergency at Samsung,” said a company official.

Since Lee, whose official title is Samsung Electronics vice chairman, has already served one year in prison prior to the verdict, his absence from the helm of Samsung will last one and a half years at most.

Although the Samsung affiliates are controlled and operated by the heads of each business unit, the departure of the heir could halt major investment decisions, causing many to worry that Samsung may fall behind its global rivals in the fast-changing tech industry.

The three biggest chunks of Samsung’s business — semiconductors, IT and mobile communications and home appliances – will be led by CEOs Kim Ki-nam, Koh Dong-jin and Kim Hyun-suk as usual, but it is less likely that the top executives will enforce expansion plans for their business with Lee absent.

Soon, the three CEOs are expected to hold a meeting to discuss contingency plans.

The business support task force, established by Lee after the disbandment of Samsung’s corporate strategic office in 2017, will play a central role in coordinating the Samsung affiliates in Lee’s absence. President Chung Hyun-ho, a close aide to Lee, is heading the team.

While in prison, the Samsung heir will likely be briefed on major business affairs by executives occasionally, as was the case during his first time in jail in 2017.

But the current COVID-19 pandemic situation could change things, as visits by civilians to jails are strictly restricted. The number of visitors is limited to a maximum of two and the time is restricted to 10 minutes under the level 2.5 social distancing measures.

“It would be impossible to discuss and make important business decisions during the allowed 10 minutes,” said another Samsung official. “Lee could use videoconferencing, which has recently been allowed by the correctional authority, but conditions wouldn’t be as good as before.”

Among others, Lee’s top priority in business was to be aggressive in the system-on-chip and foundry markets this year.

One of the most urgent issues regarding the foundry business is to secure cutting-edge extreme ultraviolet lithography equipment from the world’s single largest provider ASML to gain a competitive edge in production of chips with 5-nanometer process and smaller technology.

On the day of Lee’s verdict, some Taiwanese media outlets reported that the country’s TSMC, the world’s biggest foundry business, had reached 100 percent in operation rate of its manufacturing facilities.

TSMC has announced that it will make capital expenditures of $25 billion to $28 billion this year as demand for foundry chips surge amid the growing contactless industry.

This is far larger than Samsung’s 12 trillion won investment expected to be made in the non-memory business.

Recently, Intel, one of the biggest foundry customers both for Samsung and TSMC, chose the Taiwanese company for mass production of its i3 CPUs on its 5-nm process node this year, and more on 3-nm node next year.

“How could Samsung beat TSMC without the leader,” asked one senior official at Samsung.

As part of Samsung’s foundry expansion plan, Lee flew to the Netherlands to meet with ASML’s top brass in October, despite the pandemic risks.

It was Lee’s decision to pour a total of 133 trillion won to make Samsung the No.1 in the logic chip market by 2030, which was announced in front of President Moon Jae-in in 2019.