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Samsung officially names third-generation heir Lee Jae-yong chairman

SEOUL >> Samsung Electronics has officially named third-generation heir Lee Jae-yong as chief executive, two months after pardoning his conviction for bribing a former president in a corruption scandal that toppled a previous South Korean government.

Lee’s promotion is partly symbolic, as he has led the Samsung Group in his capacity as vice chairman of the electronics company since 2014, when his late father, former chairman Lee Kun-hee, suffered a heart attack. Lee’s legal troubles were widely seen as a factor preventing Samsung Electronics from quickly promoting him to chairman following the death of his father in 2020.

The 54-year-old is now navigating one of his toughest stretches as the head of one of the world’s largest makers of computer memory chips and smartphones. The economic chaos unleashed by Russia’s war in Ukraine and rising interest rates imposed by central banks to counter soaring prices have slowed consumer spending on tech devices and dampened chip shipments, hurting the company’s bottom line.

Samsung and other semiconductor makers are also grappling with new US restrictions on exports of advanced semiconductors and chip-making equipment to China, part of an effort to prevent American technology from advancing China’s military capabilities.

Samsung’s announcement that Lee is its new chairman came shortly after the company reported a 31% drop in earnings for the three months ended September, its first year-on-year decline in quarterly profit in nearly three years.

In approving Lee’s promotion, Samsung’s board cited the “current uncertain global business environment and the urgent need for greater accountability and business stability” that its leadership would provide. During a meeting with Samsung’s top executives on Tuesday, Lee said the company is at a “defining moment” that requires quick and bold moves.

Samsung’s operating profit for the most recent quarter slipped to $7.7 billion from $11 billion a year earlier, the first annual decline in quarterly profit since the fourth quarter of 2019.

The company said geopolitical uncertainties are likely to dampen demand for at least the first half of 2023. Demand could recover later next year, driven by a need for chips needed for new data centers and computing products.

Samsung’s earnings report came a day after smaller chipmaker rival SK Hynix announced a 60% fall in operating profit for the most recent quarter and said it would cut its capital expenditure by more than 50% next year, citing an “unprecedented deterioration “ of market conditions.

Han Jin-man, executive vice president of Samsung’s memory business, said during a conference call that the company has no plans for short-term production cuts and remains focused on the longer-term recovery of the market.

Chipmakers like Samsung and SK Hynix are also navigating a deepening technological standoff between the US and China, which some experts say could force companies to significantly alter or scale back their Chinese operations over the next few years.

SK Hynix announced this month that the US Department of Commerce has granted the company a year-long exemption from new US export controls restricting the transfer of advanced semiconductor technology and chip-making tooling to China, allowing it to halt production of memory chips at its Chinese facilities can be sustained without interruption.

However, SK Hynix chief marketing officer Kevin Noh on Wednesday raised concerns that the company could be forced to sell its manufacturing facilities in China if the United States decides not to extend the company’s exemption and cracks down on technology exports to tighten China. While Samsung hasn’t publicly confirmed whether it received a similar exemption from US requirements, a Biden administration official told the Associated Press earlier this month that it had.

The official, who was not authorized to comment and spoke on condition of anonymity, said Samsung received a license for the equipment needed to maintain existing facilities in China, but not to export chips, that are forbidden. According to reports, about 40% of Samsung’s NAND flash chips are manufactured at the factory in China’s Xi’an city, accounting for about 10% of the world’s capacity.

Lee had been out of prison for a year on probation when President Yoon Suk Yeol pardoned him on corruption convictions in August, an act of clemency that underscored the tech company’s enormous influence in the country.

Lee was convicted in 2017 for bribing former President Park Geun-hye and her close confidante to gain government support for a merger between two Samsung subsidiaries that cemented Lee’s control of the corporate empire. Park and the confidante were also convicted in the scandal, and angry South Koreans protested massively for months, demanding an end to the shady links between business and politics. The demonstrations eventually led to Park’s impeachment.

He still faces a separate trial for stock price manipulation and auditing violations related to the 2015 merger.

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