Chaebol tycoons brace for unprecedented biz environment in 2023

From left, Hyundai Motor Group Executive Chair Chung Euisun, Samsung Electronics Chairman Lee Jae-yong, LG Group Chairman Koo Kwang-mo, and SK Group Chairman Chey Taewon. / Graphic by Cho Sang-won

Samsung, SK, Hyundai Motor, LG to expand presence in US amid increasing protectionism

By Kim Hyun-bin

Major conglomerate chiefs face grave uncertainties in the new year as a global economic downturn, inflation and rising interest rates are expected to continue. Attention is on how the "chaebol," or large Korean conglomerates run and controlled by an individual or family, will adapt and grow in these challenging times, according to analysts and industry officials.

Samsung Electronics Chairman Lee Jae-yong and SK Group Chairman Chey Tae-won will be tasked with coping with the unprecedented slump in the memory semiconductor market as profitability is in a free fall.

The decline in the performance of Samsung Electronics and SK hynix is due to the price of DRAM memory chips, the main product of both companies, which has continued to decline due to the sagging economy and interest rate hikes. The decrease in demand for high-value-added products, such as DRAMs for servers, is also cited as a reason.

Global big tech companies' investments rose sharply during the COVID-19 pandemic, but froze abruptly starting in the second half of this year. Companies have started to reduce the production unprofitable products and cut next year's investment targets by more than half.

"Despite the peak year-end season, inventory passed on to 2023 is predicted to be higher than expected due to low demand for memory semiconductors compared to the average year," Baek Kil-hyun, an analyst at Yuanta Securities Korea, said. "Accordingly, we cannot rule out the possibility that higher-than-expected cuts in memory semiconductor production will be implemented in the first half of 2023."

Despite the challenges, Samsung Electronics is putting major efforts into expanding its foundry business by constructing a new plant in Taylor, Texas and introducing the "shell-first" method, one of Samsung Electronics' foundry business strategies to manufacture chips ahead of orders from customers to respond more quickly to future demand.

The strategy is part of Samsung Electronics Chairman Lee Jae-yong's drive to make the company a leader in the foundry market by 2030.

"We will become the world's No. 1 in the foundry business by 2030," Lee declared in April 2019.

SK On's battery plant in Georgia, U.S. / Courtesy of SK On

Battery advancement

The chairmen of Samsung Electronics and SK Group, and LG Group Chairman Koo Kwang-mo will also compete to gain an edge in the EV battery market through partnerships and plant expansions next year.

LG Energy Solution (LGES), Samsung SDI and SK On have been expanding investments in North America, inking more partnerships with local carmakers to increase their global market shares, and such moves are expected to continue in 2023 to better prepare for the full-scale implementation of the Inflation Reduction Act (IRA) in the U.S.

Analysts believe demand for electric vehicles is expected to surge drastically and more investments and expansions are needed to meet that need.

"After the passage of the IRA, domestic battery companies' investments in North America began to accelerate. Among the three domestic battery makers, LG Energy Solution announced plans to secure 230GWh in North America by 2025, and SK On announced plans to secure up to 150GWh through capital investments. However, a battery supply shortage is expected in 2024-2025 despite aggressive capacity expansions by domestic and foreign battery makers," Shin Seok-hwan, an analyst at Daishin Securities, said.

LGES formed a joint venture (JV) with General Motors to establish battery plants in Ohio and Tennessee whose combined output reaches 70 GWh. Samsung SDI plans to build a plant in Indiana with Stellantis with more investments expected in the country.

Hyundai Motor Group and SK On agreed to build an EV battery manufacturing facility near Atlanta in the U.S. state of Georgia. The project is expected to create over 3,500 jobs through approximately $4 billion to $5 billion in investments.

Samsung and LG have selected the EV business as a future income source and are also betting on related businesses. The chairmen of Samsung Electronics and LG Group are also seeking to expand and increase investments in the vehicle electronics business.

Samsung Electronics' headquarters in Seoul / Korea Times file

Chaebol to seek acquisition targets

Samsung Electronics is expected to be the most active in acquiring other businesses next year. The global investment industry is interested in what kind of businesses the chip giant will target after Lee became its chairman in October.

Samsung Electronics has not acquired a company since it bought Harman, which specializes in automotive electronics, for 9 trillion won in 2017. However, the acquisition of Arm, a British semiconductor design company, was discussed in 2022, and automotive semiconductor companies that can create synergies in the electric vehicle (EV) business are also mentioned as major acquisition candidates.

"It will be a good time for conglomerates that have enough cash in hand to pursue acquisitions, as the price tags of most companies are at a huge discount due to rising inflation and interest rates that caused their worth to plummet," an industry official said.

Samsung and LG have selected the EV business as a future source of revenue and are betting on related businesses. The heads of Samsung Electronics LG Group are also seeking to expand and increase investments in the vehicle electronics businesses.

Chey, the chairman of SK Group, is seen as being the most active among large Korean conglomerates in acquiring other businesses. This year, through subsidiaries SK hynix and SK Eco Plant, the conglomerate succeeded in acquiring Key Foundry, a semiconductor foundry company, and TES, a Singaporean electrical and electronic waste disposal company.

There are reports that SK Group is promoting the sale of its assets held by SK Southeast Asia Investment Corp., which was established as an overseas investment base. The transaction volume is expected to reach trillions of won. Analysts say the move is to focus on securing liquidity in preparation for business uncertainties next year. SK Group has over 4 trillion won in cash assets and the sale of SK Southeast Asia Investment's assets is expected to add trillions of more won, which could be used for additional corporate acquisitions in the future.

In addition, Chey, who concurrently serves as co-chairman of the Busan World Expo 2030 bid committee, is tasked with rallying Korean businesses to support the southern port city's bid to host the 2030 World Expo at the general meeting of the Bureau International des Expositions (BIE) in Paris, France, in November. The World Expo, which is held every five years, is one of the world's three major international events, along with the Olympics and World Cup. The venue for the 2030 World Expo will be decided by secret ballot at the BIE general meeting in November 2023.

Hyundai Motor Group Chairman Chung Euisun is drawing attention as the company is aiming to transform itself from a traditional internal combustion vehicle manufacturer into a mobility company. Chung is tasked with figuring out how to comply with the U.S. IRA and is expected to set up joint ventures with key battery makers in North America and expand new businesses, especially in the robotics and urban air mobility (UAM) sectors.