Business

Samsung bounces back from recall fiasco, boss' arrest

SEOUL: South Korean conglomerate Samsung Electronics has recovered from a humiliating recall fiasco and the arrest of its de facto leader with remarkable speed, analysts said, after the tech giant stunned investors with record-breaking profits.

But the world's top smartphone maker, one of the family-run conglomerates that dominate the South Korean economy, will be confronted by tougher challenges as Chinese rivals take aim at its semiconductor business and questions emerge over the company's leadership.

Samsung surprised observers last week when it posted a forecast-beating 14.1 trillion won (S$17 billion) in operating profits in the second quarter - a 73 per cent jump from the previous year .

Samsung said sales of its new Galaxy S8 smartphone and demand for its memory chips were behind the jump in the April-June period, and predicted another blockbuster report for the current quarter to September.

It has been fighting to overcome the recall last year of its Galaxy Note 7 over exploding batteries, which cost it billions of dollars and dealt a severe blow to its reputation.

Jackdaw Research chief analyst Jan Dawson noted the 28 per cent increase in sales in Samsung's mobile division, contrasting it to the 15 per cent drop the firm saw during the third quarter of last year when the recall crisis was at its peak.

The biggest driver of the rapid recovery was Samsung's semiconductor business, which raked in 8.03 trillion won in operating profit in the second quarter, up 204 per cent from the previous year.

It provides the chips to companies including Apple.

Mr Geoffrey Cain, author of an upcoming book on the Samsung empire, said the company was riding the wave of huge investments in strategic industries like chipsets and organic light-emitting diode panels it made years ago.

Rising global demand for semiconductors has pushed prices high to Samsung's benefit, said Mr Chung Sun Sup, an expert who runs website Chaebol.com, which tracks the corporate assets and practices of South Korean conglomerates.

"The company will enjoy the global semiconductor boom over the next few years," he said.

But the bigger challenge for Samsung is what happens after the harvest, as the firm faces questions over its "untested" leader and the growing threat from Chinese rivals.

The firm's de facto leader Lee Jae Yong is in custody after a February indictment over a nationwide bribery scandal that toppled then-president Park Geun Hye. He had effectively been at the helm of the group since his father had a heart attack in 2014.

Analysts warned that Samsung's success riding on its semiconductor business will face increasing headwinds as it comes up against rapidly emerging Chinese rivals spending billions of dollars to dominate the global chip market.

"The Chinese chipset makers are studying, mimicking and playing catch-up in the realm of semiconductors," Mr Cain said. - AFP

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