Samsung Tries to Navigate Through US-China Trade Crossfire
SEOUL—The U.S.-China trade fight has put South Korean electronics giant Samsung Electronics Co. in an uncomfortable spot.
The two countries are among Samsung’s biggest markets, together accounting for about 40% of its 2017 revenue. Samsung’s challenge is to manage its ties to the U.S. and China without getting caught in the trade crossfire, even as American tariffs threaten its sales of home appliances and device components.
Samsung sells TVs, smartphones and appliances to Americans, and its memory chips power millions of Chinese devices. It’s also a big foreign investor in both countries. In recent years, the company has pumped $10 billion into the U.S., including investments in factories that make appliances and semiconductors. In February 2017, President Trump tweeted, “We would love to have you!” before the company made an investment in South Carolina. In China, Samsung has earmarked $7 billion for memory-chip production in Xi’an along the old Silk Road.
But Samsung is being bruised by both sides. Its washing machines sold in the U.S., although a fraction of the firm’s overall business, have already been subjected to tariffs of up to 50%. It could also face other levies—or demand declines—for its semiconductors.
At its annual shareholder meeting in March, Samsung Electronics Chairman Kwon Oh-hyun said the company expects “uncertainties such as trade protectionism and geopolitical risks to persist throughout the year.”
The overall impact of any new U.S. tariffs on Samsung is hard to gauge because of its global supply chain. Its smartphones are mostly made in Vietnam and India. Its TVs are manufactured all around the world, allowing it to move production to a country not caught in the trade dispute if necessary, analysts say.
The global trade battle could trigger a $4 billion drop in yearly South Korean exports of semiconductors to China, according to Mun Byung-ki of the Korea International Trade Association. Samsung would be among the Korean companies most affected if products made in China for the U.S. market using its chips face tariffs. China accounted for about a sixth of Samsung’s annual 2017 revenue of 239.58 trillion South Korean won ($212.7 billion).
Such concerns about a slowdown in the semiconductor industry have clouded Samsung’s profit outlook, said HI Investment & Securities, a Seoul-based brokerage, which lowered the company’s stock-price target last month. The dimmer prospects were “inevitable given the concerns over the recent U.S.-China trade war,” HI Investment said.
Samsung’s relationship with China too is evolving because Beijing is trying to reduce the country’s dependence on foreign chips and promote homegrown alternatives for displays, memory chips and other parts.
The Chinese government has studied Samsung’s rise as a global firm. In June, Samsung was one of a handful of South Korean companies and ex-political leaders invited for an informal afternoon chat with Chinese Premier Li Keqiang, according to a person familiar with the exchange. Mr. Li, the person said, shared a Chinese proverb that reminded the South Koreans of the mutual benefits of their ties: “The pavilion closest to the water enjoys moonlight first.”
Also in June, Chinese regulators began investigating memory-chip makers including Samsung and visited its China offices.
Some analysts have said regulators could be looking into potential price-gouging involving memory chips. The Chinese government didn’t respond to a request for comment.
Although Samsung has remained outwardly neutral, it has been busy lobbying and strategizing in both countries, according to analysts, hoping to protect its turf even as the rising trade tensions and protectionist policies create potential business opportunities.
In the U.S., which accounted for more than a quarter of Samsung’s 2017 revenue, the company has stepped up its Washington lobbying efforts. Last year, it spent $3.4 million, more than double its year-earlier splurge, according to a U.S. Senate database. This year, it has already spent $2.2 million in the first six months. Trade has been a prominent lobbying topic for Samsung, according to government filings.
Samsung could also seize an opportunity to build its mobile network-equipment business in the U.S., just as the new fifth-generation cellular technology becomes ready for development. The doors swung open to Samsung and others after American lawmakers raised national security concerns about two Chinese companies, Huawei Technologies Co. and ZTE Corp. Samsung has been aggressively adding to its networks team in the U.S., hiring engineers, senior project managers and others from rival carriers, according to a person familiar with the matter.
Samsung does have some protection from a trade implosion, industry analysts say, as companies lean heavily on its electronic components and find it difficult to line up backup suppliers. It’s the world’s No. 1 TV maker, and more than one out of every five smartphones sold globally is a Samsung device.
“The world cannot live without them,” said Sanjeev Rana, a Seoul-based senior analyst at brokerage CLSA.
—Yun-hwan Chae and Xiao Xiao contributed to this article.
Write to Timothy W. Martin at timothy.martin@wsj.com