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Samsung, Seeking to Move Past Scandals, Forecasts Record Profit Samsung, Seeking to Move Past Scandals, Forecasts Record Profit
(about 9 hours later)
Samsung Electronics, the South Korean technology giant, has spent nearly the past year mired in an array of crises — from its exploding smartphones to its heir apparent on trial for corruption. As Samsung Group tries to move past a series of scandals, the giant Korean conglomerate is finding a point of pride in its profit.
It took a step on Friday to move past those scandals by forecasting record profit for its second quarter. The earnings guidance marked a welcome piece of good news for a company that has largely made headlines recently for the failure of its Galaxy Note 7 smartphone and the trial of Lee Jae-yong, the conglomerate’s de facto leader. One of the conglomerate’s companies, Samsung Electronics, said on Friday that it expected to post record earnings in the second quarter, driven by a booming semiconductor business and positive reviews of its latest mobile phone. The earnings are expected to hit $12 billion, which would surpass analysts’ estimates for Apple’s profit for the same period.
Profit surged to 14 trillion won, or about $12 billion, in the second quarter of this year, a 72 percent increase compared to the period a year ago, the company said in its preliminary earnings statement. Sales rose 18 percent to 60 trillion won, it said. The strong financial numbers provide some relief for a conglomerate and a country that have spent much of the past year lurching from crisis to crisis. A South Korean success story long known for its industrial might, Samsung has lately been associated with its exploding smartphone and the corruption trial of its heir apparent.
The growth in profit was driven by the success of the company’s semiconductor business, analysts at Bernstein Research said. The company said this week that it would invest a further $18.6 billion into its semiconductor operations in South Korea. To critics, the scandals have been offered as proof of the inherent problems with Korea Inc., an insular system dominated by family-run empires known as chaebol.
Earnings were also bolstered by a strong reception for Samsung’s latest Galaxy S8 phone, and by the company’s display division, which produces the organic light-emitting diodes, or OLEDs, which are used in increasing numbers of displays. Samsung is the largest of South Korea’s chaebol, with interests in gadgets, appliances, shipbuilding and construction. On its own, Samsung Electronics accounts for a fifth of the country’s exports.
The latest earnings figures signal that Samsung may have moved past the damage to its reputation caused by the Galaxy Note 7 recall. But the size and influence of chaebol have prompted scrutiny by authorities and a public backlash over white-collar crime and corruption.
A flaw in the smartphone battery cells had caused them to catch fire and even explode, leading to a humiliating worldwide recall and raising concern about the strength of Samsung’s supply chain — the company owns the facilities that produce parts for its smartphones to keep tabs on production. At Samsung, a rigid, top-down culture has been blamed for stifling innovation and allowing problems to fester. The ongoing trial of Samsung’s de facto leader, Lee Jae-yong, is considered a major test of whether South Korean authorities have finally become willing to tackle the cozy relationships between the government and the corporate world.
The issues with the Galaxy Note 7 wiped out Samsung’s third-quarter profit last year. While the political cloud remains, Samsung appears to be recovering from its product mistakes.
The company still faces questions, however, about its corporate culture as it battles a corruption scandal that has already taken down the former South Korean president, Park Geun-hye. On Friday, Samsung Electronics said in a preliminary earnings statement that profit had surged to 14 trillion won, or about $12 billion, in the second quarter of this year, a 72 percent increase over the same period a year ago. Sales rose 18 percent to 60 trillion won. The official earnings are expected to be released on July 27.
Now, Mr. Lee, a vice chairman of Samsung, stands accused of bribing Ms. Park for government approval of the merger of two Samsung affiliates in 2015. That merger helped Mr. Lee, who goes by the name Jay Y. Lee in the West, retain control of the wider company. The growth in profit was driven largely by the success of the company’s semiconductor business. With the latest figures, Samsung has overtaken Intel to become the world’s biggest chip maker by sales, according to C.W. Chung, an analyst at Nomura Securities who is based in Seoul.
Samsung has acknowledged it made the payments, but denies that the funds were in exchange for Ms. Park’s approval. Samsung has been a dominant force in memory chips and displays for smartphones. The company said this week that it would invest a further $18.6 billion in its semiconductor operations in South Korea.
The earnings were also bolstered by a strong reception for Samsung’s latest phone, the Galaxy S8, signaling that the company may have stemmed the fallout from the recall of the Galaxy Note 7.
A flaw in the battery cells had caused them to catch fire and even explode, leading to a worldwide recall and raising concern about the strength of Samsung’s supply chain. The company owns many of the factories that produce parts for its smartphones, to keep tabs on production.
The problems with the Galaxy Note 7 wiped out Samsung’s third-quarter profit last year, although chip sales the following quarter brought its 2016 operating profit to $25.2 billion.
“The question is how they controlled the mistake,” said Mr. Chung, the Nomura analyst. “Samsung did that well, and recalled all the smartphones.”
“Samsung regained their reputation with the S8,” he added, predicting that if an upcoming model was also a success, “people will forget that Samsung made a mistake.”
The S8, which was released in April, has been met with broadly positive reviews, with experts noting in particular the quality of its display and its camera. The smartphone also represented the debut of Samsung’s voice-activated assistant, Bixby, its rival to Apple’s Siri and Amazon’s Alexa.
Although Samsung is winning back customers, the technical failure exposed deeper cultural shortcomings. Former employees, suppliers and analysts have said that Samsung management discourages employees from speaking up and identifying problems.
It is a perception reinforced by the corruption scandal and political turmoil that continue to engulf Samsung — disruptions that may prove harder to quell.
Mr. Lee, a vice chairman at the conglomerate, has been accused of bribing the former South Korean president Park Geun-hye for government approval of the merger of two Samsung affiliates in 2015. That merger helped Mr. Lee, who goes by the name Jay Y. Lee in the West, retain control of the wider conglomerate.
The scandal surrounding Ms. Park was one of the biggest in South Korea’s history. She was accused of conspiring with Choi Soon-sil, a longtime friend and confidante, to accept bribes and extort major companies.
The country was roiled by months of protests, eventually leading to Ms. Park’s impeachment in December. She was removed from office in March and arrested on corruption charges.
Samsung has acknowledged that it made payments to the president but denies that it paid the money in exchange for Ms. Park’s approval.
The close ties between companies and government officials have prompted a broad public outcry.
Mr. Lee’s father, Lee Kun-hee, was himself convicted of bribery and tax evasion twice, but he never spent any time in prison. The elder Mr. Lee, who had a heart attack in 2014, was pardoned each time by the president, eventually returning to the helm of the company he helped transform into a technology behemoth.
His experience is not out of the ordinary. At the time of Lee Jae-yong’s indictment in February, six of South Korea’s 10 biggest chaebol were led by men once convicted of white-collar crimes.
In his first court appearance in connection with the case in April, Mr. Lee rejected charges of bribery. His lawyers said Samsung had offered money to help the daughter of Ms. Choi because it feared a backlash from the longtime friend of the president.