[비즈한국] Lee Jae-myung, the presidential candidate for the Democratic Party of Korea, is showing a friendly attitude toward the business sector day after day. Candidate Lee met with Lee Jae-yong, Chairman of Samsung Electronics005930, last March. Candidate Lee holds the top spot in various opinion polls, and Chairman Lee carries the symbolism of leading the nation's top-ranked conglomerate. It is inevitable that the political and business circles are focusing their attention on their meeting. Candidate Lee has recently been putting forward pledges favorable to Samsung Electronics, such as promising to introduce a special act for the semiconductor industry. Considering that the status of Samsung Electronics' semiconductor business is not what it used to be, the election of Candidate Lee could be helpful to Samsung Electronics.
Candidate Lee Jae-myung was once an advocate for the dismantling of conglomerates (chaebols). Ahead of the Democratic Party's presidential primary in March 2017, he said, "Dismantling imperial management by chaebols, protecting small and medium-sized enterprises, restoring a fair economic order, strengthening labor rights, increasing taxes on large corporations and high-income earners, and expanding welfare are the true paths to revitalizing the South Korean economy and achieving economic growth."
Candidate Lee Jae-myung's recent moves are different from the past. On April 28, Candidate Lee visited the SK Hynix000660 Icheon Campus to attend a meeting on AI (artificial intelligence) memory semiconductors. This was his first public activity since being selected as the final presidential candidate for the Democratic Party of Korea for the 21st presidential election. On that day, the candidate promised to pass a special act for the semiconductor industry. He stated, "I will strengthen semiconductor companies by applying a production tax credit of up to 10% on semiconductors produced and sold domestically."
In the domestic semiconductor industry, Samsung Electronics has held the top spot, and SK Hynix has held the second. Recently, the gap between Samsung Electronics and SK Hynix has been narrowing. Samsung Electronics' revenue from its DS (semiconductor) division last year was 111 trillion won, while SK Hynix's revenue was 66 trillion won. SK Hynix's revenue was at the level of half of Samsung's. However, in the first quarter of this year, Samsung Electronics' DS division revenue reached 25 trillion won, while SK Hynix's revenue exceeded 17 trillion won. SK Hynix's revenue has risen to the level of 70% of Samsung's.
This is thanks to the strong performance of SK Hynix's high-bandwidth memory (HBM) products. In the financial sector, it is expected that SK Hynix will continue to see good results in the second quarter of this year. Kim Kwang-jin, an analyst at Hanwha Investment & Securities, explained regarding SK Hynix, "As the transition to HBM3E 12-layer products accelerates, the shipment proportion will expand significantly to over 50%," adding, "For 12-layer products, there is a price premium of over 10% per unit capacity compared to 8-layer products, making them relatively more advantageous in terms of product competitiveness."
On the other hand, Samsung Electronics is evaluated as having uncertainties. Song Myung-sup, an analyst at iM Securities, stated, "Samsung Electronics is currently undergoing certification for HBM3E 12-layer products with Nvidia, and it is still difficult to know whether it will be able to pass the final package certification after passing the individual chip certification," adding, "If it fails, Samsung Electronics' HBM sales this year could significantly fall short of initial expectations."
If Samsung Electronics' performance worsens, public opinion regarding Chairman Lee Jae-yong will inevitably decline. Chairman Lee himself has mentioned that the Samsung Group is in crisis. During training for Samsung Group executives in March, he delivered the message: "Samsung is facing a matter of survival, a question of life and death," and "Management must reflect thoroughly and act boldly with a resolve to live by dying." In this situation, the introduction of a special act for the semiconductor industry could be helpful to Chairman Lee Jae-yong. From Chairman Lee's perspective, the election of Candidate Lee Jae-myung is not necessarily bad news.
The fact that Candidate Lee Jae-myung is increasing his outreach to the business sector, unlike in the past, is also good news for Samsung Electronics. Candidate Lee met with Chairman Lee Jae-yong in March. The Democratic Party of Korea stated that they did not discuss the semiconductor special act that day. Nevertheless, the business world is attaching significance to the meeting between the two. The prevailing interpretation in the business sector is that it signifies Candidate Lee will no longer push for his past agenda of dismantling chaebols.
The election of Candidate Lee Jae-myung could also be helpful to Samsung C&T028260, not just Samsung Electronics. This is because Candidate Lee has announced pledges to lower barriers to entry for redevelopment and reconstruction, such as increasing floor area ratios and easing contribution burdens. Samsung C&T has recently been showing presence in the reconstruction market. Samsung C&T was selected as the contractor for public redevelopment in the Jangwi 8 zone on April 21, and subsequently as the contractor for the remodeling of Gwangnaru Hyundai Apartment on April 27. Lee Seo-hyun, President of Samsung C&T and younger sister of Chairman Lee Jae-yong, is currently working at the company.
However, the election of Candidate Lee Jae-myung is not entirely advantageous to Chairman Lee Jae-yong. Candidate Lee is pushing for an amendment to the Commercial Act. The main content of the proposed amendment is to expand the fiduciary duty of directors to include shareholders, not just the company.
Figures associated with Candidate Lee Jae-myung's camp are also active regarding the Commercial Act amendment. On April 29, Democratic Party lawmakers Kang Hoon-sik and Park Ju-min held a press conference and stated, "We can no longer stand by and watch these distorted realities, such as the merger of Samsung C&T and Cheil Industries that was disadvantageous to shareholders, and the capital increases by Korea Zinc010130 and Hanwha Aerospace012450 that serve only the controlling shareholders," adding, "We will take responsibility and move forward on the path to making corporate governance transparent and establishing justice and trust in the capital market through the revision of the Commercial Act."
The business sector is opposed to the Commercial Act amendment. Lee Chan-hee, Chairman of the Samsung Compliance Committee, said on April 22, "I do not believe that any improvement in laws or systems should become a venue for political victory or defeat," adding, "In a difficult economic situation, it is more important to find solutions on how to overcome the global crisis with the people at the center." While this is Chairman Lee's personal statement and not the official position of Samsung Electronics, the fact that a major figure from Samsung made such a remark indicates the internal atmosphere within Samsung.
It is reported that both expectations and concerns regarding Candidate Lee Jae-myung coexist within Samsung Electronics. While Candidate Lee is making friendly gestures toward Samsung Electronics, it cannot be guaranteed that this friendly relationship will continue, given the atmosphere within the Democratic Party of Korea. The Seoul High Court acquitted Chairman Lee Jae-yong in February after he was indicted on charges including violating the Capital Markets Act. In response, some Democratic Party lawmakers publicly requested the prosecution to appeal. Eventually, the prosecution did appeal, and Chairman Lee Jae-yong's trial moved to the Supreme Court.
The next presidential election is scheduled to be held on June 3. If the election of Candidate Lee Jae-myung becomes reality, the attention of political and business circles will be focused on the subsequent relationship established with Chairman Lee Jae-yong. There is a variable. On May 1, the Supreme Court remanded the appellate court's ruling—which had acquitted Candidate Lee Jae-myung of charges of violating the Public Official Election Act—back to the lower court with a guilty intent. If a final ruling is made before the presidential election, the candidate will be unable to run in the election. However, the legal community believes that it is realistically difficult for the final retrial proceedings to conclude before the election.