Samsung faces two potentially crucial moments this week – the launch of a new smartphone and a hearing that will determine whether its vice chairman will spend the next 12 years in jail.
On Wednesday, the company will debut the successor to the disastrous Galaxy Note 7 – the Galaxy Note 8. The latest addition to Samsung’s premium phone line will show whether the company has the ability to both overcome its past and secure its future.
The Note is not necessarily the ideal phone to carry this weight. The company had to recall the Galaxy Note 7 after major battery issues caused some of the phones to burst into flames. While Samsung has successfully launched two phones – the Galaxy S8 and S8+ – since the debacle, analysts say it still has been at a disadvantage in its race with Apple for the high end of the phone market.
“In the premium phone space, it’s a two-horse race between Samsung and Apple. In the last year, Samsung has only had half a horse in the race,” said Patrick Moorhead, principal analyst at Moor Insights, referring to the Galaxy Note 7.
With the Galaxy Note 8, Samsung is trying to revive its premium phone line, which, thanks to the recall, has not had a new model since 2015. The large-screened Note line has always appealed to Samsung’s most loyal fans and been a showcase for its most innovative features. Analysts expect that the new phone will have better cameras, an edge-to-edge screen and several new software features for power users – including those who take advantage of the Note’s signature stylus. The company has also instituted new safety protocols with the Galaxy Note 8 to avoid another disaster.
But after the Galaxy Note 8’s debut, Samsung’s attention will turn to another huge event: the sentencing hearing for its vice chairman and de facto head, Lee Jae-yong, on Friday.
Lee, the grandson of the company’s founder, was arrested in February in a corruption scandal that forced the ouster of President Park Geun-hye. Lee has denied all wrongdoing related to the charges, which include bribery, perjury and embezzlement tied to mergers that helped secure his succession at the company.
Prosecutors are seeking a 12-year jail sentence for Lee.
Samsung’s position as South Korea’s most prominent family-run conglomerate – and a corporation that, in total, makes up 15 percent of the country’s economy – has protected it from dire consequences in the past. But these charges come amid new calls for reform for South Korea’s megacompanies and their close relationships with the government.
Jailing Lee would be a significant break with history, said Usha Haley, a professor of international business at West Virginia University. Six of the 10 heads of South Korea’s family-run conglomerates (known as “chaebol”) have been convicted of white-collar crime before, she said, with few consequences.
Were Lee to be jailed, Haley said, it would be a “disaster” for Samsung, which relies heavily on its head for direction about how the conglomerate should proceed. Lee has been acting as head of the company since his father, Samsung’s chairman, suffered a heart attack in 2014.
“They do need some overriding vision, and that has to be communicated so that the elephant can dance,” she said.
Analysts have raised alarm that it took Samsung until May to reorganise its executive teams to deal with Lee’s arrest, particularly as it loses market share in the critical Chinese smartphone market.
A big international success with the Galaxy Note 8, analysts said, would assuage lingering worries about Samsung’s consistency and firm up the weaker points of its most prominent business.
The greatest risks for Samsung, however, are long-term rather than short-term, analysts said. The effects of not having a chairman may not hurt the company immediately. Despite the turmoil, Samsung’s sales and profits have been unusually strong even while Lee has been under arrest – partly because of the division that supplies components to other phone makers, including Apple. The scandal hasn’t hurt the firm’s image with most global consumers, who don’t know Lee, analysts said. Plus, Samsung’s success does not depend on a single product, as it owns firms that sell everything from televisions to life insurance. The company is designed to tick on, even without a megahit.
But financial success, though important, isn’t Samsung’s only aim. It has made clear that it wants to stand out to consumers as an innovative company. That drive to produce the “next best thing” has won Samsung devoted fans, but it also spurred the company to push the production of the Note 7 in the first place.
A successful Galaxy Note 8 launch could help Samsung regain its reputation for innovation and quality.
“This is about long-term brand respect – and keeping yourself up there with Apple, from a consumer point of view,” Moorhead said.