The Root of the Crisis at Samsung

It is smooth sailing at the KOSPI index, which has gone well over 1700. But something isn't right. Samsung, the "company that represents Korea," is nowhere to be seen. Gone is its reputation as the enterprise that pushes the market; instead, it remains stuck at 500,000 won a share. In September, when the KOSPI was 1300, Samsung Electronics was at 700,000 won a share.

We are told this situation is due to the falling exchange rate and the drop in the price of semiconductors. First quarter results were not good, and the prospects for the second quarter are not good, either. Samsung desperately hopes the price of semiconductors is going to rise. Performance might indeed improve if prices recover in the second half of the year. Not that that would mean things will go smoothly for Samsung Electronics, however, because its problems are just a single slice of the crisis faced by the whole Samsung group.

Growth at the Samsung group has essentially stopped for the past four or five years. Sales by its 14 listed companies, including Samsung Electronics, Samsung Corporation, and Samsung Heavy Industries, was 95 trillion won in 2002, then shrank to 92 trillion won last year. Operating profit decreased as well during that period, from over 9 trillion won to over 8 trillion won. It is a downhill turn in terms of both quality and quantity. The trend remains largely unchanged so far in 2007. What is wrong at Samsung, that things have taken such a turn?

Samsung says its core value is placing priority on its people. Chairman Lee Kun-hee says the way through the crisis will be to "make our people into geniuses." This key value has a hole growing in it.

A Samsung Electronics employee who resigned recently after graduating from a prestigious university and working there for eight years says he left because he "might have gone crazy" if he stayed. He says he could no longer take the pressure of seeing the desks of one fellow employee after another quietly removed for having...