this episode is brought to you by ground news hi welcome to another episode of Cold Fusion Samsung's management has stated that the company is in crisis but Samsung is more than just a company it's a dynasty where leadership is handed down through the generations Samsung basically runs Korea they alone account for 20% of South Korea's entire GDP few companies anywhere in the world have such a dominant impact on their home country's economy it's so influential that some jokingly refer to South Korea as the Republic of Samsung consumers in the US and other parts of the world may just view Samsung as a phone or electronics brand but in South Korea Samsung is on a whole different level the company is everywhere with its hand in nearly every industry you can think of they have 80 subsidiaries the flagship is Samsung Electronics but they dominate construction real estate food production Finance life insurance and healthare but they also build armored vehicles oil tankers have a clothing and entertainment branch and even run hospitals when I was in Korea last year I even saw Samsung branded cars it's hard to believe that such a company started by selling vegetables and dried noodles at the start of 2024 Samsung Electronics the Crown Jewel of the empire was valued at 400 billion then starting in July of 2024 a sudden Panic hit the company's stock and foreign investors frantically began selling off their Samsung shares they lost $122 billion in value in just a few months almost half the company's market cap was wiped out this kind of drastic drop is concerning for any company yet alone one that's tied so heavily to the GDP of an entire nation so what's behind the Panic while we all know that stock markets can be fickle these days and even a rumor can start a selling process there is more behind the scenes Samsung itself has reshuffled some of its management and forced a 6-day working week for executives to get their house in order and that brings about a major question here are there major problems with Samsung or is this just overblowing Market sentiment in today's episode we investigate what's going on with Samsung the management changes and what this all means for one of the world's most influential companies you are watching T Fusion [Music] TV before diving in we should remember that Samsung is run differently to companies in the west Samsung is what's called a Cho ball or family-owned conglomerate that has passed down through generations that's like if Zuckerberg was to hand over his Empire to one of his children the Samsung family are the most powerful in Korea in fact Mickey Lee the producer of the Korean movie parasite was a Samsung airs she was also instrumental in pushing Korean culture into the mainstream but back to Samsung being a Chao company means that a lot of control stays within the Lee family the company's Founders this concentration of power has created its own set of challenges over the years there have been a number of corruption scandals in legal battles that have tainted Samsung's image as Jeffrey Kane author of Samsung Rising puts it quote every leader of Samsung has been in and out of court so far they have been either accused or convicted or jailed for either tax evasion or bribery or embezzlement or perjury one of the largest scandals happened in 2017 the company's Heir Lee Jong became embroiled in bribery scandals Lee was charged with offering $38 million in bribes to four companies run by a friend of the president at the time interestingly one of the companies was in Germany and provided horse riding training to one of the daughters of the president's friends in return Lee was to get government help for a corporate merger that would give him more control within Samsung this Scandal shook both public and investor confidence but by 2022 he was out of jail and back as Samsung Electronics executive chairman so why was this well the Korean government basically stated that Samsung was too important for the government to mess with South Korea's most powerful business leader JY Lee emerged from a Detention Center just outside Soul a free man a judge ruling it was hard to see the reason appropriateness and necessity of arresting him at this time later that year Lee was convicted on a drug charge so the leadership of Samsung has a bit of a question mark on it but that's not all Samsung is also known for its rigid hierarchy when things are good this works well but insiders say it's a culture that stifles Innovation and makes it hard to adapt to rapidly changing Market demands a factor that would soon come into play when we talk about Samsung's $122 billion market value loss we're really talking about Samsung Electronics it's important to make that distinction because Samsung operates a massive conglomerate as discussed it has a range of Divisions under its belt at the core of Samsung Electronics businesses are two divisions one is the device experience division which includes smartphones TVs refrigerators and other Home Appliances the other one is the device Solutions division which Focus on semiconductors and display panels Samsung Electronics specifically its semiconductor and consumer electronics divisions play the biggest roles in the company's market performance so when Samsung Electronics fell 32% from its high this seemed to be more than just the CEO fluffing about so what gives well it comes down to three big factors number one missed opportunities in AI number two a chipm disadvantage and number three some chaotic leadership changes let's break these down beginning with missed opportunities in AI if you look online most media outlets Point to Samsung's inability to keep up with AI they tout this as a major factor behind the stock crash so is there any truth to this allegation well the short answer is yes when generative AI took off there was an AI Gold Rush basically everyone on the internet hates generative AI but the fact of the matter is it can make a lot of money for those companies who position themselves right right Microsoft Google and especially Nvidia went all in Nvidia who supplies the gpus that powered AI Ventures had their value Skyrocket past $1 trillion so where does Samsung fit into this picture unfortunately nowhere they've been on the sidelines as a major semiconductor player Samsung has lagged behind in its high bandwidth memory production high bandwidth memory or hbm are special chips that are used in high-end graphic systems like the Nvidia h100 very same graphic systems that power AI the latest generation of high bandwidth chip is called the hbm 3E offering transfer speeds in the range of terabytes per second in an extremely high-profile deal Samsung was supposed to make these special memory chips for NVIDIA chips crucial for nvidia's AI efforts but in one of the biggest blunders of the Year reports indicate that Samsung completely fell flat their chips couldn't reach the strict requirements for heat and power efficiency that Nvidia required and it was a tough blow falling short of a major client like this comes with consequences and for Samsung this was costly meanwhile competitors like SK HX have sweeped in to take advantage and now hold a strong lead in the high bandwidth memory market and now they're currently the exclusive supplier of these chips to Nvidia if you take a look at this graph for the high bandwidth memory Market just at a glance we can see that Samsung's flat white line is consistently at the very bottom trailing well behind its smaller competitors in the high bandwidth memory space Samsung knows they're falling short so they published a recent apology acknowledging M targets and struggles in high performance AI memory investors were further disappointed with Samsung's latest quarterly profit it was 900 million below expectations they still did make 6. 78 billion and that's nothing to sneeze at but Falling short by nearly a billion doesn't exactly make investors jump for joy Samsung was in panic mode and vice chairman juny hians recent statement blatantly admitted that their failure to meet Market expectations has fueled concerns over Samsung's technological competitiveness and future Direction this quote unquote crisis as Samsung management calls it even led the company to enforce a Six-Day work week for its Executives in an attempt to regain lost ground in short Samsung who manufactures chips were caught napping as AI chip Hardware took off and investors aren't happy beyond AI Samsung's chip business is also facing critical challenges in the smartphone chip space the exos chips are a thorn in the side of the flesh for Samsung for years exos processors have been criticized for issues like overheating poor battery efficiency and subpar performance when compared to Snapdragon Qualcomm chips in fact Samsung has lost so much faith in their exos chips that they often choose Snapdragon over exos when it comes to their own Flagship Galaxy series devices sold in crucial markets especially in North America the big comp competition for Samsung is of course tsmc the Taiwanese giant that's absolutely mastered chipm Samsung's semiconductor business is a massive operation with sales totaling almost $60 billion in 2024 alone but they've consistently found themselves one step behind tsmc their Taiwanese competition has an ability to produce chips with greater efficiency more power and fewer defects their pedigree has allowed them to secure bigname contracts with apple Nvidia and AMD in contrast Samsung has grappled with lower yields and production delays as time passes the Gap in technical ability between the two companies keeps growing in q1 2024 alone the top 10 semiconductor foundaries generated a collective 29. 2 billion in revenue and tsmc dominated the market with a staggering 61.
7% market share meanwhile Samsung had a meager 11% pretty concerning in comparison and if Samsung can't close this Gap soon they risk losing even more ground to tsmc and with it billions of in potential revenue and to make matters worse tsmc is no longer the only competitor Samsung is also facing heat from fast rising Chinese competitors Chinese firms are catching up quickly in sectors outside of the US sanctions these are Legacy chips used in Cars airplanes home appliances and consumer electronics by the third quarter of 2024 Samsung's performance was already taking aeit memory chip demand was coming in weaker than expected and all of this was the complete nightmare scenario that Samsung had been dreading as the challenges ped up on all sides behind the scenes Samsung has been scrambling to address its internal issues by reshuffling leadership in May 2024 they announced the removal of kiang Kian as chip head and brought on junyong Hong to head the core semiconductor business and steer the ship in a New Direction this decision came well before the stock sell-off by investors that started in July so it indicates that management knew that the company was struggling and needed to change but this reshuffle in leadership isn't just about some fresh perspective it's a response to mounting pressure to fix a long-standing history of internal mismanagement the company has been through multiple leadership revamps over the years with three new CEOs appointed in 2021 across its major divisions the frequency of leadership changes signals instability and it may suggest that there's a lack of a clear long-term strategy according to zet the recent Shuffle is just the latest attempt to revamp leadership but without clear results this internal chaos may only add to Samsung's perception of instability all of these issues AI stagnation chip struggles and corporate chaos over the years created a perfect storm that slashed Samsung stock into a bare market so what can Samsung do to turn things around for starters as already mentioned they brought in junyang hyan to lead the semiconductor division Jun previously headed Samsung's battery and Energy Solutions arm and played a big role in the memory business he now has the task of navigating the semiconductor crisis the hope is that his background will help stabilize this vital division especially as Global demand fluctuates they're also making some tough cost cutting decisions there's layoffs planned across southeast Asia and Australia that could impact 10% of jobs in the region it's a harsh move but they see it as necessary to stabilize the ship I would like to see their bonuses though well there1 15 ,000 staff overseas and that's more than half of Samsung's entire Workforce the markets though where job losses are occurring this time we're hearing are Australia New Zealand and also southeast Asia and about 10% of the market or the workforce in those markets could end up being affected though the numbers are likely to vary among each subsidiary as well Samsung's device Solutions division which handles memory and systems recently reported a 40% profit drop from the previous quarter in response Samsung plans to scale down its found operations by up to 50% by Year's End and this is to adapt to weaker demand from Key clients in the US and China meanwhile they're reshaping their investment strategy tripping non-core projects to focus on core areas like semiconductors and display technology they've also hinted that more actions could follow though the specifics are still under wraps now let's take a step back and assess whether the stock market collapse is overblown or is it just a panic yes they've lost 122 2 billion in market value and upper management is absolutely panicking but is it all doom and gloom Samsung's core strength lies in its diverse portfolio one sector can be negatively affected over time but other sectors can keep the ship afloat as a whole in this case the most affected business sector is Samsung electronics and looking at their recent earnings it's a mixed bag Revenue came in at 59. 3 billion up 7% from the previous quarter but operating profit fell 6. 9 billion due to one-off costs including incentives in the semiconductor Division and their earnings do have some other bright spots like their smartphone sales and display technology in short while Samsung Electronics has had its challenges particularly in memory chips and semiconductors it's not all bad news the stock selloff is more a vote of no confidence when it comes to the leadership and the direction of the company the stock market is looking to the Future not exactly what's going on right now so it's been a roller coaster for Samsung lately currently it may not be an extinction level event but losing $122 billion in such a short time is a huge blow and as mentioned if their leadership doesn't steer the ship right they might risk more Panic once again let's not forget that stock markets are fickle they're driven by many factors including global economic shifts sentiment shifts and even short-term events still the whole too big to fail mindset doesn't always hold up I'm not saying that Samsung is the Nock here of 2013 but clearly there's some work to do ultimately we have to wait and see what happened getting informed on the top news stories is more complicated than ever that's exactly where today's sponsor ground news comes in ground news is a website and app developed by a former NASA engineer she was on a mission to give readers an easy datadriven objective way to read the news using the story of space X's Starship completing at six the test flight as an example their biased distribution chart shows me the political leanings of the news outlets if we compare the news headlines about the event we can see that the left frames it as a technical failure while the right focuses on the growing relationship between Elon and Trump scrolling down I can compare every single article on the topic 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