Samsung needs fast response to scandals

Samsung has been on a rollercoaster ride for the past year and it doesn’t look like it is going to ease up any time soon. The company’s reputation and bank balance were battered after the unprecedented global recall of the faulty Galaxy Note 7. In spring this year, it started to climb again on the back of the popularity of its flagship Galaxy S8 smartphone. But things for the Korean electronics giant remained tumultuous as its heir became embroiled in a corruption scandal that led to his arrest.

Onlookers could have been tricked last week into thinking Samsung was finally on its way out of the mire.

DJ Koh, the head of Samsung’s mobile division, took to the stage at a glitzy event in New York to unveil the high-end Galaxy Note 8. “Even when we disappointed you, you stuck with us,” said Koh, as he thanked those who had remained loyal to the brand.

Interest in the Note 8 was higher than ever and fans hailed the device as a strong return. Some speculated the company could have done enough to distract loyal Apple customers ahead of the iphone 8 launch next month. “These devices are certainly good enough to turn the heads of a few iphone owners who fancy trying a different device,” said Ben Wood from CCS Insight.

But on Friday billionaire Jay Y Lee, heir to the Samsung dynasty, was handed a five-year prison sentence for his role in the Korean corruption scandal. Samsung had failed to disentangle itself from the “trial of the century”, which led to the impeachment of former president Park Geun-hye. The charges included the accusation that he bribed Park with 41bn won (£29m) of donations and a £700,000 dressage horse. Lee was also found guilty of embezzlement, hiding assets overseas and perjury.

The conviction couldn’t have come at a worse time. It overshadows the company’s moment in the sun at the Galaxy Note 8 launch and comes just weeks before Apple is due to unveil its 10th anniversary iphone 8.

Samsung has made inroads on Apple’s global dominance in recent months and Samsung Electronics’ profits finally overtook those of the Californian company for the first time in July. The milestone came as a result of the Galaxy S8, millions of which sold in the first few months of the year.

While the positive reaction to the Note 8 will boost Samsung’s morale, the company can’t afford to rest on its laurels. As it tries to convince consumers that its Note brand and corporate leadership can be trusted, Samsung’s closest rivals Apple and Google are preparing to launch their new flagship devices. Apple’s stock has climbed almost 38pc amid excitement over the iphone 8. Google’s hardware success has been slower, but if the quality of its Pixel 2, slated for release in October, matches that of its 2016 handset, the search giant could steal Samsung’s spot as the premium Android brand.

Chinese manufacturers Huawei and Oppo are also making inroads on the dominant firms. Samsung’s market share dropped 3pc in the first quarter of 2017 to 20pc, according to Gartner figures released last week. Apple’s fell 1pc to 13.7pc, while Huawei climbed 0.7pc to 9pc. Oppo also gained.

Samsung admits that last year was “very tough” and it has work to do if it is going to finish 2017 in better shape. But the company can rise from the ashes of the Note 7 and recover from the Lee scandal. Its finances are in good shape despite the troubles, in part thanks to its booming chip business. The company posted record profits of 14 trillion won in July. Its share price may have fallen 1pc on the news of Lee’s conviction, but the drop followed a 1.7pc climb on Tuesday, leaving the company 0.9pc down at the end of the week.

The Lee corruption affair, like the Note 7 explosions, has harmed Samsung’s corporate reputation, and it will need to get its house in order fairly quickly. However, it is not the first South Korean company to have an executive convicted of corruption. While a prominent name at the firm, Lee was also more of a figurehead and the company will not suffer from the absence of him at the helm.

If the past year has taught us anything, it is that Samsung is able to rebound from unprecedented disasters with relative ease.

‘The positive Note 8 reaction will boost morale, but Samsung can’t rest on its laurels’