Samsung entangled in legal risks amid calls for drastic reform

As Samsung Electronics is grappling with multiple challenges including poor earnings and technological setbacks, the conglomerate's chaebol chief has publicly acknowledged the struggles for the first time.

With chairman Lee Jae-yong pledging to tackle the difficulties, the tech giant is expected to introduce some drastic changes, including a major personnel reshuffle anticipated this week.

In the final hearing of a retrial on allegations including stock manipulation related to a controversial 2015 merger, Lee pledged to do everything he can for the company to overcome its current challenges.

“I am well aware of the mounting concerns surrounding Samsung’s future. Some worry it is facing a fundamental crisis and fear it might be different from the challenges we have faced before. Others offer encouragement, saying Samsung will overcome the difficulties," Lee said, addressing the judges.

"Hearing these concerns and words of support, I am reminded once again of the immense expectations people have for Samsung."

The country's largest conglomerate has been struggling to regain its earnings while staying competitive in an increasingly intense chip market. It has also been dealing with conflicts involving labor unions.

Acknowledging the crisis, the Samsung chief appealed to the court for an opportunity to lead its recovery.

"The challenges we face today are tougher than ever, but we will persevere, overcome them and move forward," Lee said.

"I will do everything I can for Samsung to continue earning the public's love and trust. I sincerely ask for the opportunity to fully focus on fulfilling my responsibilities."

With its leader entangled in court trials for nearly a decade, the company has been seen delaying making bold investments and necessary decisions.

Lee has been attending court hearings since 2016 when he was indicted on multiple charges including bribery and tax evasion, linked to the corruption scandal involving then-President Park Geun-hye.

For this case related to the high-profile merger of two Samsung affiliates Samsung C&T and Cheil Industries, Lee has been accused of rigging the company valuation and falsifying accounting records to strengthen his control over the business empire at a lower cost.

The lower court acquitted Lee of all of the 19 charges the prosecution proposed in February. The prosecutors, however, appealed and requested the same punishment of five years in prison and a fine of 500 million won ($356,000) for Lee during the retrial on Monday.

For the merger case alone, Lee has attended about 100 court hearings since October 2020.

Calls for restructuring have been growing in and out side of the tech giant. In the personnel reshuffle anticipated this week, the company is expected to replace top executives in its chip business, which is struggling from disappointing earnings.

After posting impressive operating profits of 51 trillion won in 2021 and 43 trillion won in 2022, the company’s earnings plunged to 6.5 trillion won last year. The plunge was largely due to the poor performance of its chip division, which was severely impacted by a market downturn.

Even though the chip market has been recovering, the outlook for this year remains bleak as the company continues to lag behind its smaller rival SK hynix in the lucrative and rapidly growing AI chip market.

The tech giant is also struggling with its stagnant stock price, which peaked at 100,000 won a few years ago and has since dropped by nearly half.

The company reportedly has already notified some executives of their retirement.

"In the annual reshuffle, the company is expected to stick to meritocratic principles. It is what they need right now," an industry official said.