Samsung Electronics' Reasonable Crisis Is Not Solved With Government Support, 'Ignoring Megatrend and Zero Will to Innovate'

■ Broadcast: YTN Radio FM 94.5 (09:00-10:00)
■ Host: Reporter Cho Tae-hyun
■ Air date: December 13, 2024 (Friday)
■ Dialogue: Park Joo-geun, CEO of Leaders Index, Park Joon-young, Director of Industrial Anthropology Research Institute

* The text below may differ from the actual broadcast content, so please check the broadcast for more accurate information.

◆ Reporter Cho Tae-hyun (hereinafter referred to as Cho Tae-hyun): This year marks the 50th anniversary of Samsung Electronics' semiconductor business. In half a century, semiconductors have emerged as a key industry that feeds our country, not only the economy but also the stock market. However, Samsung Electronics' semiconductor is said to have faced the biggest crisis in its foundation. There are many variables. Today, we will analyze in-depth with two experts to see if there is a way for Samsung Electronics to survive. First, Park Joo-geun, CEO of Leaders Index, came out. Please come in.

■ Park Joo-geun, CEO of Leaders Index (hereinafter, Park Joo-geun): Yes, hello.

◆ Cho Tae-hyun: And Park Joon-young, the head of the Industrial Anthropology Research Institute, who served as a researcher at Samsung Electronics and the head of the human resources department. Welcome, director.

◇ Park Joon-young, Director of Industrial Anthropology Research Institute (hereinafter referred to as Park Joon-young): Yes, hello.

◆ Cho Tae-hyun: We're going to talk about Samsung Electronics in depth today with the two of you. There is a story that companies are now delaying investment or not making decisions due to martial law issues, but what is the actual atmosphere like?

■ Park Chu-geun: Of course. The cycle of most Korean conglomerates is that they almost finalize their business plans next year between July and October. Let's greet executives with this finalized business plan. So executive personnel appointments are done sequentially from late October to December, and then in December, most of them have strategy meetings now. Samsung Electronics will also have a global strategy meeting this week and next week, and that's how it starts its action, and the exchange rate is usually the most important criterion during this business plan period. As far as I know, this year's exchange rate and next year's exchange rate are around 1350 won? I think most of them have made business plans with it in the mid-1300 won range. The exchange rate variable is too large in this situation

◆ Cho Tae-hyun: It's a situation where it's hard to say how to say that.

■ Park Joo-geun: If you look at it, it goes up by 100 won. Then it's a complete revamp of all U.S. investments. So, it's very uncertain to take a new action right away, so most companies are probably very quick to respond to emergency waiting, so how to respond to these situations.

◆ Cho Tae-hyun: But wouldn't there be a concern that if this investment continues to be delayed in the current situation, we'll miss the right time? How do you see him?

◇ Park Joon-young: First of all, the situation where there is no investment within this short period of time is already being invested, so it will be okay for now, but as our CEO said, the timing of practical plans for next year can be delayed. I think there will be a little more risk.

◆ Cho Tae-hyun: Okay. This delay in investment can be a mid- to long-term risk, so I think the political situation should be resolved quickly. A few years ago, a senior asked me. He said something very critical, saying, 'Hey, if Samsung goes bankrupt, will the country go bankrupt?' so he answered, 'It could be ruined. Samsung accounts for almost 30% of Korea's GDP. ’ I've answered this before. Today's special title is "Samsung Electronics is in a state of zero visibility", do you two agree?

■ Park Joo-geun: I agree with you

◆ Cho Tae-hyun: Do you agree?

◇ Park Joon-young: I think it can be seen as a crisis, if not clock zero.

◆ Cho Tae-hyun: It's hard to deny that it's a crisis, although it's not clock zero. You worked at Samsung Electronics. I heard that you were a researcher and even the head of the HR department, when did you join the company?

◇ Park Joon-young: It was in December 2005.

◆ Cho Tae-hyun: So you were at Samsung when you had your first quarterly deficit in 2008, right?

◇ Park Joon-young: The bonus should be 20 million won at that time, but I remember that time because it was 200,000 won.

◆ Cho Tae-hyun: The commercial district in the Gangnam area also had the aftermath of the collapse of the commercial district, have you ever experienced such a big crisis before?

◇ Park Joon-young: As our anchor just said, I think 2008 was the biggest crisis. It was a chicken game. As you know, there were 7 companies in memory semiconductors at that time, but then they were reduced to 3 companies. The price was cheaper than the original price, and let's see who wins even at a loss. Let's see who survives. But even though it was a crisis at the time, I believed that I could break through.

◆ Cho Tae-hyun: He actually broke through.

◇ Park Joon-young: That's what we did. The rest are so-called tech leadership crises as they are now. Then it seems strange because it's the first time I've ever been chased by the so-called No. 1 technology.

◆ Cho Tae-hyun: As you said just now, there was some kind of hope or vision to overcome that then. Can I see it as a sign that I can't see it well now? What do you think, CEO?

■ Park Joo-geun: At that time, I was a little lighter. When we talk about Samsung Electronics, if we talk about the past a little more, what Chairman Lee Byung-chul said in the early 1980s was... We talked about this at the FKI and the Keidanren meeting. When I looked up the data at the press conference, they said that even if all the groups in their 1st to 30s in Korea are combined, Japan's Mitsubishi Group is also not possible. It was the situation in Korea in the 1980s. However, I often went on business trips to Japan in 2003 and 2004, and that was when Samsung Electronics exceeded 10 trillion won in operating profit for the first time in 2004. At that time, I was in Tokyo, and there was a time when Samsung's myth was laid in a bookstore in downtown Tokyo by Mitsubishi and Sumitomo's friends. And I remember these guys giving me a thumbs up, saying that every time they saw me around the time they started, they were Sugo. That was the fastest time to grow, and during the subprime period earlier, it was briefly because of the subprime international economy, but Samsung was light at that time.

◆ Cho Tae-hyun: It wasn't this big company back then.

■ Park Joo-geun: But now it's a dinosaur. But the crisis in the state of becoming a dinosaur and the crisis when it's a little light are completely different games. So we have to look at Intel's collapse and use it as a lesson. It's not because I'm seeing Intel collapse, but because I'm worried that it's going to the same fate as Intel.

◆ Cho Tae-hyun: It's a situation where you can go the same way as Intel. Looking back, as you said, in 2008, it wasn't this big company, and after that, it grew tremendously and came to a situation where Japan gave up competition with Samsung, but looking at the current situation, it certainly seems dangerous. However, the political situation of impeachment is so confusing not only for Samsung but also for the Korean people. What was the situation like at the time when former President Roh Moo Hyun and former President Park Geun Hye were impeached?

◇ Park Joon-young: I can't tell you because I was a student during the Roh Moo Hyun presidency.

◆ Cho Tae-hyun: You seem to have a similar age to me.

◇ Park Joon-young: I think it was a graduation class. When Park Geun Hye's president was impeached, it was a little embarrassing to see how people felt. I think most people, not just Samsung, did that. Especially Samsung, I thought this uncertainty was a political change. Would it be difficult to call it a country like now? And our CEO said well, but our country is now different from our country at that time.

◆ Cho Tae-hyun: That's right.

◇ Park Joon-young: Some said that it has become an advanced country, but I think that's going back. This political crisis. I think we have no choice but to think fundamentally that this type of political crisis that President Trump talked about and Maurice Chang talked about would degrade not only the country but also the competitiveness of the company itself.

◆ Cho Tae-hyun: Well, in modern society, if the state is not sound, companies cannot go soundly.

■ Park Joo-geun: But the situation for Samsung is a little different from other groups. I even think Chairman Lee Jae-yong is a little unlucky in a way, but the impeachment last Roh Moo Hyun should have ended as an event, and the actual impeachment was the impeachment of the Park Geun Hye in 2016 and 2017 and some impeachment now, but Samsung was deeply involved in the impeachment of the Park Geun Hye last time.

◆ Cho Tae-hyun: That's right. I got a direct hit.

■ Park Joo-geun: And that happened to be the time when Chairman Lee Kun-hee collapsed and Chairman Lee Jae-yong brought management control. But unfortunately, the judicial risk is coming so far because it was directly hit at that time. It was ruled two weeks ago. As we know well two weeks ago, the prosecution has issued a five-year sentence in the second trial regarding the unfair merger between Cheil Industries and Samsung C&T. The trial is on February 3 next year.

◆ Cho Tae-hyun: JY's judicial risk is not over yet?

■ Park Joo-geun: But the unfortunate thing about this is that if the Yoon Suk Yeol regime had not been impeached and went on, it could have been viewed positively. Because I was acquitted in the first trial. So, in the second trial, the prosecution has now been sentenced to five years in prison in the appeal, but it is now in the process of impeachment, so it is very unclear what judgment the judiciary will make. So, when the impeachment was eliminated last week, other groups had management planning and management strategy meetings, but Samsung moved around the Ministry of Justice.

◆ Cho Tae-hyun: In the end, this judicial risk of the head of the company is also affecting the management judgment. Do you think these judicial risks will continue in the future? Until when should I go? When will this be resolved?

◇ Park Joon-young: First of all, to talk about our current management, we need to finish the legal process that the state talks about as you said. That's the situation. However, there is a clear reason why some can say that the position of the CEO or owner group leader and whether corporate management is related to performance or not. So I think we need to consider those things together. There are management teams, but when I saw it from my acquaintances, I think that they should be good at what they're doing and build up their skills. I think we can continue to do those things internally.

◆ Cho Tae-hyun: In the end, it's a matter of technology. However, in principle, the crisis of the head of the company and corporate management should be separated, but this is not the case in Korea. I hope you overcome it well. In the current situation, as Samsung Electronics said earlier, Maurice Chang of Taiwan TSMC picked up the cause of Samsung Electronics' crisis and threw a tantrum. What point did you make?

◇ Park Joon-young: Technical factors, strategic factors, and as our anchor said, the current political crisis is three things.

◆ Cho Tae-hyun: It's a total catastrophe. Do you agree with this point?

◇ Park Joon-young: When it comes to political instability, honestly, Taiwan is also unstable, so I don't know exactly. We're temporary, and there's a cross-strait conflict, so I don't know about that, and I think we can talk about technical and strategic factors as a Morris Creative strategy.

◆ Cho Tae-hyun: So what is this person's idea that he can say that much?

◇ Park Joon-young: Yes, the strategy is that he said he would lead the semiconductor industry through collaboration. Samsung had a one-way strategy that he said he could do everything on his own. That's what TSMC is doing right now. Next, there are two major technologies. So if you look at a lot of newspaper articles, don't you talk a lot about the power problem and yield problem of semiconductors? You can think of the power problem as a design problem. Design know-how, so there is a question of whether or not there is know-how in system semiconductors, and that is a question of R&D. Next, the yield issue is whether there is a problem with manufacturing productivity in the end. Honestly, if TSMC is 100, I think it will be around 85 to 90 in my opinion.

◆ Cho Tae-hyun: Is the gap that big? Then there's a big difference in terms of market share, right?

■ Park Chu-geun: It's getting bigger and bigger. So, to add a little more explanation to the question earlier, what kind of strategic absence Maurice Chang said is talking about is pointing out that Samsung Electronics and Intel have not read the big mega-trend of semiconductors. What that means is that they've chosen an open innovation strategy. We came here by choosing an open innovation strategy as a cooperative system with all companies in the value chain of semiconductors, and Intel and Samsung Electronics built a castle.

◆ Cho Tae-hyun: Yes.

■ Park Joo-geun: Funnily enough, there are only two comprehensive semiconductor companies in the world, Intel and Samsung Electronics. When it comes to comprehensive semiconductors, it has everything from design to foundry memory. Before that, it worked. Because the semiconductor market before 2019 was thoroughly supplier-oriented. It was an era when Samsung Electronics was able to always dominate the game with games of whether to release DDR3 or DDR4.

◆ Cho Tae-hyun: The whole world was paying attention.

■ Park Joo-geun: As we know well, the rules of the game have already started to break from what we call the Fourth Industrial Revolution. With the entry of the 4th IoT industry, the semiconductor market was changing to a cooperative system by design and entrusting the designed things to all IT companies, but Intel and Samsung Electronics insisted on their own method even in this changed market. The lack of strategy that Maurice Chang was talking about is talking about that. Why didn't you open innovation? I was talking about it when I continued to make huge profits from one way with only their technical things, and I think this is the technical part. There's something Maurice Chang picked up and said. He criticized the GAA method. So what it is is that as semiconductors develop into fine processes, they become finer. Then we call it the ground area. For semiconductors, you need to ground plus or minus to allow current to pass, but as the factory moves about 10 nanometers and 14 nanometers, the ground area narrows, so what Samsung hit first is called the pinpet process, so the original two-dimensional grounding was increased to three dimensions.

◆ Cho Tae-hyun: It's suddenly starting to get difficult.

■ Park Joo-geun: To put it simply, I've increased the grounding area. This is called pinpet, but I think Samsung Electronics saw the limitations of this pinpet process up to about 4 nanometers. So I thought it would be enough for 14 to 4 nanometers and 10 nanometers, but the ground area needs to be wider, but it becomes narrower. So, let's take it to the next level. Let's touch the four sides in four dimensions. That's the GAA method, and what Morris Chang is talking about is that TSMC maintained the pinpet process from the foundry to 3 nanometers. But at 2 nanometers, TSMC said it would stabilize the GAA process in 2025, but Samsung has been behind since last year. What we announced in 2022 is that we introduced GAA first because we were a little bit ahead of ourselves and wanted to do 3 nano first.

◆ Cho Tae-hyun: So you're going to go five not one step at a time?

■ Park Joo-geun: I mean I'm going to skip it first. But the problem is that from the end of last year to this year, the yield began not to come out very well in this process. That's why there's a problem with every process. So when I watched the press conference with that, Maurice Chang presented it himself. It is a matter of the GAA process. That's what I said. That's why it was a direct hit.

◆ Cho Tae-hyun: Do you actually have a lot of problems with that process?

◇ Park Joon-young: Yes, because it's hard to make. There's something like that, but I think Morris Chang's story also has a strategy. Because that person and themselves have to do it.

◆ Cho Tae-hyun: First of all, it's also necessary to undermine our competitors. I see. If so, Samsung Electronics' foundry is in a bad situation right now, and in addition to this, the market for general-purpose semiconductors, called legacy semiconductors, is not very good right now. Then you need to choose and focus somewhere. I think there are some comments like this. What do you think about that?

◇ Park Joon-young: We can talk more about it later, but legacy semiconductors and foundry are on the bad side. That's a bad situation in the market right now, and then HBM as you know. I think it's important to actually get skills and then get so-called certification. I have to make both of them from semiconductor pepp anyway, whether it's that memory or the foundry. I think both can be invested by having technology for it. But now, we have to raise the KEPA as much as possible and do both together, but I think there was a strategic judgment already.

◆ Cho Tae-hyun: Well, there are a lot of terms, and Pep is a factory. You can understand Kepa as the amount of production. It was a friendly explanation for our listeners, a friendly broadcasting economy. So, let's take a look at one more thing. As we move toward impeachment, the National Assembly is only open. All the interests are elsewhere, so I don't think we can discuss this important part of the K-Chips Act. What do you think of concerns that this could be put into practice at the semiconductor golden time?

◇ Park Joon-young: First of all, the semiconductor industry seems to have to take responsibility for something in the country like Sovereign AI.

◆ Cho Tae-hyun: The U.S. and Japan are also providing a lot of support.

◇ As you know, there are only five countries in the world that can make semiconductors. Taiwan and Korea are a little late, but China and the U.S. are difficult, but there are five countries in Japan. Five countries are using all policy and strategic means to save semiconductors. Whether it's a security issue or an economic issue, that's why it's ASAP. I hope we can do it quickly, but it's a pity that they are being delayed due to the current uncertainty.

◆ Cho Tae-hyun: That's too bad. Is there any alternative? Is there no alternative but to urge the National Assembly?

■ Park Joo-geun: Maybe after this political situation, I think the Chips Act will work because the Democratic Party is not currently opposed to it. When the martial law broke out last week, the fun thing about the U.S. market was that Nvidia fell. The stock price fell immediately because of concerns that we wouldn't be able to receive HBM. As you can see from it, these semiconductors and things are already directly related to national security, so regardless of the ruling and opposition parties, I think this will proceed if the political situation is revealed. Government support is also very important, but first, innovation within the company is important. No matter how many trillions of dollars you throw into the government, if there is no innovation within the company, it's like pouring water into the bottomless jar.

◆ Cho Tae-hyun: Japan is not doing very well right now either.

■ Park Joo-geun: Now, when discussing Samsung Electronics, I agree that national support should be provided. Before that, without internal innovation, state support is useless to me. In the end, if you look at the current Samsung Electronics and Samsung Group's recent personnel appointments, you have no choice but to ask whether there is a will for internal innovation.

◆ Cho Tae-hyun: Yes, we'll talk a little more about our greetings in Part 2. I'll look at one more and wrap up the first part. In the United States, we also need to receive semiconductor subsidies. But there is only a month left until the Trump administration is launched, will it be possible? What do you think?

◇ Park Joon-young: What's unique is that subsidies have been confirmed for all other companies and other countries, but only Samsung and Hynix have not been confirmed.

◆ Cho Tae-hyun: Is this also related to impeachment?

◇ Park Joon-young: I don't think so. In a nutshell, it would be difficult for me to say no so easily. Because giving the subsidy itself is a U.S. facility investment, so I think it's going to be very difficult to do that very easily.

◆ Cho Tae-hyun: I don't think it's easy to let go because it's related to your date. So far, we've talked with two experts in the crisis that Samsung Electronics faces. In the second part, we will look at the response strategy prepared by Samsung.

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