Samsung is set to hold a conference call at 9.30 a.m. local time today to discuss the changes in detail.
The move comes after several shareholder groups, led by hedge fund Elliott Management Corp., called for Samsung Electronics Co. Ltd. to split itself in two and pay a one-time dividend of 30 trillion Korean won ($25.62 billion) to shareholders. The same fund wants Samsung to start paying out 75% of the company profits, after capital expenses, each year.
The last demand aims to put the company’s return to shareholders in line with companies such as Apple and Qualcomm, which each give 70% of their cash in returns to shareholders.
Samsung has been a safe bet for investors for a long time. This year, however, the company is writing off more than $5 billion, the cost of recalling one of its most successful smartphone products, the Galaxy Note 7. Samsung burned another $8 billion in an all-cash transaction to buy Connecticut based Harman International Industries, in order to get a leg up in the growing automotive technology market.
In addition to the huge cost of the recall, the Galaxy Note 7 battery caused significant damage to the reputation of the company, raising questions about the safety of new products, such as the upcoming Galaxy 8, scheduled to launch in February. That sent the company’s stock price down 15% in September, although it has since recovered.
Samsung also faces important challenges at home. Jay Y. Lee, vice chairman of Samsung Electronics Co., and the son and likely successor of Group Chairman Lee Kun-hee, is scheduled to give evidence to the Korean parliament in a corruption probe. He, and other leaders of the so-called chaebol conglomerates, will be questioned about tens of millions of dollars given to foundations controlled by Choi Soon-sil, a female friend of Korean president Park Geun-hye, who is at the center of the influence-peddling scandal.
Another important demand from shareholders is that the company start trading in other international exchanges, such as Nasdaq and Euronext. Currently, its stock is only available on the Seoul exchange.
If Samsung Electronics agrees to shareholder demands, and finally splits, how would it affect the supply chain? The split would separate the Samsung Electronics consumer division from the semiconductor division. The consumer division would become another customer of the semiconductor division, and probably its largest, and would have to negotiate pricing, allocation and logistics.
This new scenario would be excellent news for both Samsung investors, especially the ones betting on the semiconductor part, and for Samsung OEM customers, such as Apple. The large OEMs would be able to demand the same access and pricing as the consumer side of Samsung for components such as memory, imaging sensors, SOCs, etc.
This would be good news for the electronics supply chain in general, as Samsung would become more transparent in the way it does business.
Obviously, this is all speculation, and we’ll have to wait to know what route the company finally takes.