December 5, 2012 12:37 pm

Samsung – one direction

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Jay Lee has been elevated to the vice-chairmanship

Imagine a giant clanking robot whose parts move semi-independently and which blasts power rays at whatever stands in its way. Say hello to Samsung. Jay Lee, who has been elevated to the vice-chairmanship, is expected to take the mighty robot’s controls one day. In which direction will he point them?

The same direction as now, in all likelihood. Samsung has successfully used the profits from mature businesses (chips) to fund the next big thing (smartphones). It divides its array of businesses into consumer and components divisions but in reality it is an ecosystem of units that sell to, and fund, each other. Samsung’s power derives from its enormous capital spending. Three quarters of operating cash flows over the past decade have gone on capital expenditure, about double the proportion allocated by either Apple or Intel. This year Samsung will have spent Won25tn ($23bn) – almost enough to buy Hewlett-Packard. This spending has built the fifth biggest technology company in the world by market capitalisation (and a few robots, to boot). Yet it trades on 8 times this year’s earnings, two-thirds of Apple’s market rating. The top of its share register is dominated by local names, not the international funds which, in theory, should have crowded in. Some of that is down to Samsung’s complex web of companies; some is due to investors’ uncertainty about where to place it.

Mr Lee’s record to date includes managing relationships with clients and partners, including some of Samsung’s strained dealings with Apple. Assuming more managerial control of Samsung will take plenty of additional effort.

But Mr Lee should give some thought to investor relationships, too. Samsung has been a phenomenal business story. But it has not created an investment story to match. Does this robot come in peace, or not?

Email the Lex team in confidence at lex@ft.com

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