Samsung Electronics Braces for Software Leap
By Kim Yoo-chul
SUWON, Gyeonggi Province - Samsung Electronics, the world's biggest technology company, is ready to advanced to its next phase of growth.
But this time components, such as memory chips and liquid crystal displays (LCDs), or cutting-edge hardware, such as mobile phones which were for the company what the Walkman had been for Sony, won't be the key drivers of the changes.
As the competition in the electronics industry moves increasing toward software programs and content, Samsung Electronics is trying to transform itself to a more software-driven company.
It remains to be seen whether the transition would go smoothly, but the company's hiring of more software talent and creation of special task force teams show that the commitment is serious.
"Samsung Electronics is pressed to add an element of creativeness in its major consumer items such as smartphones and home appliances. Software-driven products are key for the future, as seen by the fact that iPhone has been eating up Samsung Electronics' handset shares in its own home market," said an industry official, who didn't want to be named.
He added that the average consumer is now preferring Apple's products over Korean products, as Apple itself has become a brand, unlike Samsung Electronics, which despite its massive sales, can't rely just on its name to sell a product.
"Apple is selling software from cloud computing solutions, its personal computers, mobile devices and also has its own Web browser. Samsung Electronics doesn't have this ecosystem," he said.
Although Samsung Electronics continues to lead in memory chips and LCDs, the highly volatile nature of these markets means that no lead is safe. Component prices could always down by the hint of an economic downturn, and take profit margins with it.
"Samsung Electronics' top-down decision making structure and heavy dependence on manufacturing has critics doubting our chances for a successful transition. However, we already have the ground works underway," a Samsung Electronics official said.
Comeback of Old Boss
It's debatable whether Samsung Electronics efforts for a software transition would be helped by the comeback of former Samsung Group chairman Lee Kun-hee, who recently returned as chairman of Samsung Electronics after a two-year hiatus forced by an ethics scandal.
However, Samsung Electronics officials claim that the company needs a clearer sense of direction, and Lee's assertiveness is the right brand of leadership to achieve that.
"Lee will allow us to be bold in making new investments and pushing out 'killer products,''' another Samsung Electronics employee said.
Although Lee isn't expected to dabble much with daily management or personnel decisions, he will have a role in rewriting the Samsung Electronics' long-term rebuilding plan, company officials said.
Lee, who took over as Samsung Group chairman in 1987 following the death of his father and group founder, Lee Byung-chull, is credited for his role in Samsung Electronics' growth among the world's corporate beasts.
"Faster decision making and bold investment was Lee's calling cards in the past, which helped the company edge Japan's Sony in televisions and narrow the gap with Nokia in mobile phones. The company has benefited from a centralized management structure and this is what we need again to push forward," said the Samsung Electronics official.
Rhee In-yong, a chief communication officer for Samsung Group, said the company is seriously considering installing a new version of the strategic planning office, which Lee had used as his central management tool in the past.
According to the company's data, Samsung Electronics spent 7.27 trillion won (about $6.4 billion) on research and development (R&D) last year, up from 4.79 trillion won in 2004. Company officials say the spending on R&D will only increase, with the renewed focus on software ability.
The company has also been developing its own mobile platform, dubbed as Bada, to create a developer’s network to support applications for its smartphones.
In a monthly message to employees, Samsung Electronics chief executive Choi Gee-sung pledged the need for an injection of creativity in the company's products and businesses.
Referring to the success of the company's LED-backlit LCD televisions and dual-view digital cameras, Choi said that company will continue to encourage and stimulate new ideas from employees and reflect them in products.
"We can't sustain our growth level just by an obsession with market share. We need to build platforms that could achieve cohesion between different products, like phones, televisions and computers," Choi said.
"The global electronics industry is in the middle of a paradigm shift. The services and products based on mobile Internet will be the key for success in the new game."
Achieving a better convergence between hardware and software would allow the company to triple its revenue to $400 billion by 2020, Choi said.
Despite the challenges, industry watchers are refusing to bet against Samsung Electronics, citing the company achieving economies of scales in finished products such as televisions and phones.
"This is Samsung Electronics' most distinctive advantage. Apple is investing the money it saved through outsourcing to R&D, but Samsung Electronics has room to jolt its innovation as well," said Lee Jeong, an analyst at Hana Daetoo Securities, mentioning Samsung Electronics’ recent efforts for three-dimensional (3D) televisions.
"The key factor is how its top decision makers will implement new strategies, while balancing them with the company's traditional strength in manufacturing. Samsung Electronics clearly needs more time and would have to be patient about the efforts for creating a mobile ecosystem."