Samsung Electronics Pressured to Split after Galaxy Note 7 Failure

By Raizel Albano
Samsung Founder and Chairman Lee Kun-hee (foreground) with son Lee Jae-yong.
Samsung Founder and Chairman Lee Kun-hee (foreground) with son Lee Jae-yong.  Koogle TV.

Following the billions of losses from the Galaxy Note 7 for South Korea technology giant Samsung Electronics Co. Ltd., the company is now being pressured to split into two camps.

Samsung Electronics is a family-owned company started by Lee Kun-hee in 1969. Today, it is run by the founder himself, Lee Kun-hee, as Chairman of the Board; his son Lee Jae-yong as Vice Chairman; and Kwon Oh-hyun as Vice Chairman and CEO. From a struggling company built prior to the Korean War, it is now the top company in South Korea and one of the most popular companies in the world with an average annual net profit of $20.6bn.

With Samsung Electronics badly hit by the Galaxy Note 7 failure causing a $3.1bn loss for the company, the company is now under pressure by Elliott Management, a US hedge fund management group, to have them manage Samsung's holdings on their behalf.

Since October of this year, Paul Singer, founder of Elliott Management, has been publicly expressing his suggestions on how Samsung could fare better. He suggests that it would be better for Samsung to split its operations group and holding group so the family-run company can focus more on growing in the market.

Samsung is currently 14th in the global list of top earning companies. Although it has an average annual income of $20.6bn, its gross revenue exceeds Apple at $178.6bn. This can be misleading as Apple, on the other hand, has $156.5bn of gross revenue but with a profit of more than double that of Samsung's.

Singer says, "We (Elliott Management) believe that an appropriate resolution to the current uncertainty surrounding a possible restructuring of Samsung Electronics and its affiliates is needed."

Samsung Electronics Vice Chairman Lee Jae-yong says the company has been discussing on the possibility of splitting the company into three: a holding firm, a producing unit, and an operating unit. As of now, he cannot give further public comments while discussions are on-going.

Samsung Electronics is a subsidiary of Samsung Group, the umbrella company for all Samsung-related businesses and acquisitions. Lee Kun-hee is also the Chairman of the Board, with his son Lee Jae-yong as Vice Chairman. Some of Samsung Group's notable subsidiaries aside from Samsung Electronics are Samsung Heavy Industries (the world's 2nd largest shipbuilding company), Samsung Engineering (the world's 13th largest construction company), Samsung Life Insurance (the world's 14th largest insurance company), Cheil Worldwide (the world's 15th largest advertising agency), Samsung Everland (South Korea's oldest theme park and managed by Lee Kun-hee's eldest daughter, Lee Boo-jin), and Shinsegae Group (South Korea's largest retail company and managed by Lee Kun-hee's younger daughter, Lee Myung-hee).

As is popular in Korea, multinational conglomerates are run and managed by family members. This phenomenon is called chaebol in the Korean context.

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