Samsung Seeks Closure on 2 Crises -- WSJ

By Timothy W. Martin and Eun-Young Jeong Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 21, 2017).

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SEOUL -- For Samsung Electronics Co., the launch this week of a new smartphone and a court ruling for its detained de facto leader may offer closure and clarity for a company rocked by two scandals over the past year.

Samsung will unveil the Galaxy Note 8 on Wednesday in New York, releasing what it hopes will be a bounceback version of a flagship device that the South Korean firm had to recall last year.

Then, on Friday, a South Korean court will rule on bribery allegations against Samsung heir Lee Jae-yong, who has stood trial since April. The pair of crises, nonetheless, hasn't hurt Samsung's bottom line: It posted record second-quarter net profits last month of 11.05 trillion South Korean won ($9.9 billion) to outearn Apple Inc. for the first time in recent years.

Fueled by rapid growth in internet-connected devices, Samsung's semiconductor unit has become the world's largest chip maker by revenue, grabbing a top spot that Intel Corp. had held for nearly a quarter-century.

The fate of Mr. Lee -- a verdict will determine whether he can return to work or not -- carries huge significance for the Samsung empire, which, like other South Korean conglomerates, looks to the controlling family to sign off on major strategic decisions.

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A prolonged absence by Mr. Lee, the Harvard-educated grandson of Samsung's founder, would create a leadership vacuum atop the conglomerate that spans smartphones, theme parks and biopharmaceuticals.

A Samsung spokesman declined to comment.

Mr. Lee, 49 years old, has been in jail since February over five charges centering around alleged bribes linked to South Korea's former president Park Geun-hye. Prosecutors say Mr. Lee did so to gain greater control over Samsung, including seeking government backing for a controversial merger of two Samsung affiliates that would give him a greater ownership control over the conglomerate. The prosecutors' case stems from $37 million Samsung agreed to pay to entities linked to a close friend of Ms. Park.

Mr. Lee has denied all charges against him.

Prosecutors have recommended a 12-year sentence for Mr. Lee, the Samsung Electronics vice chairman who has effectively led the conglomerate after his father became incapacitated due to a heart attack in 2014.

Earlier this month, a key lieutenant testified Mr. Lee wasn't involved in the payments' decision making. Still, experts say it would be difficult for Mr. Lee not to shoulder responsibility over the payments. If convicted, Mr. Lee is likely to face at least a five-year sentence, according to legal experts. Under South Korean law, any sentence longer than three years cannot be suspended. The ruling can be appealed, ultimately to the Supreme Court.

Mr. Lee's trial will set a new milestone for how the country's business entities interact with the government, said Park Ju-gun, head of CEO Score, a corporate analysis firm. It also will confirm the current administration's stance on questionable succession practices among conglomerate family owners, amid public anger over the historically close ties between government officials and top corporate executives.

Samsung, the world's largest smartphone maker, saw its brand get bruised after last year's Galaxy Note 7 debacle, a recall that cost it more than $6.5 billion and led to a widespread ban on the devices being carried onto aircraft due to fears it was a fire safety hazard.

The Galaxy Note 8 offers Samsung its final chance to impress consumers ahead of the release of Apple's 10-year anniversary iPhone later this year. The Galaxy S8, Samsung's other flagship device that hit shelves in April, had 19.2 million shipments in the second quarter, outperforming its predecessor, the Galaxy S7, by 28% versus the same period a year earlier, according to market researcher Strategy Analytics.

"The S8 was the world's best-selling Android smartphone in the first half of 2017," said Neil Mawston, Strategy Analytics executive director. "The Note 8 is going to be like an S8 on steroids, accompanied by heavy marketing spend and deep retail distribution."

Write to Timothy W. Martin at timothy.martin@wsj.com and Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

August 21, 2017 02:47 ET (06:47 GMT)