Samsung Shifting Focus to Consumer Products
By Kim Yoo-chul
Staff Reporter
SUWON, Gyeonggi Province ― Samsung Electronics, the world's top vendor of computer memory chips and flat-screen panels, has been shifting its key business focus to consumer products such as TVs, notebooks, home appliances and handheld devices.
Samsung insiders and high-ranking industry sources told The Korea Times that the move may a signal that the electronics giant is shifting from its high dependence on traditional cash-cows ― memory chips and panels.
"Massive investment and faster decision-making were the top buzzwords for Samsung decades ago. In chips and flat-screens, Samsung has already realized economies of scale and secured larger and stable overseas clients to sell to. Now, Samsung needs more," a high-ranking Samsung insider said Monday.
The company is planning to invest some 3 trillion won in its chip plants in 2010 ― including a budget for maintenance ― less than expected considering the recovery in the global memory chip industry.
"Samsung is seeing consumer-based products as its next cash-cow. Its strengthened brand recognition in chips and panels will help this," another insider said.
Executives at Samsung's chip plants in Giheung and Hwaseong said the company's chip- strategy has been changed to maximize efficiencies in production, as the company has the edge in deciding supply and demand curves on the global market.
Kwon Oh-hyun, head of the chip business, said during a technology forum in Taiwan that the unit was focused on merging thinner chip technologies, rather than building new lines.
Also, flat-screen industry analysts say Samsung has placed a priority on maintaining solid partnerships with bigger clients such as Sony and other TV makers as heavy investment in the volatile business was somewhat risky due to its cyclical nature.
"That's why Samsung is still looking at marketability before a possible investment in 11th generation panels," an executive at its LCD business said.
When asked about the transformation efforts, spokesmen declined to comment. But sources who are familiar with the situation said the company was actively embracing "marketing-driven" strategies such as those used by Coca Cola and Nike of the United States.
"Manufacturing businesses are still Samsung's top ones. But the company is paying more attention to marketing by propelling consumer-focused products for future growth engines," one of the sources said.
Digital Devices, Home Appliances
Unlike its top positions in chips and panels, Samsung's digital devices have been stalled in terms of growth over the past few years.
Analysts say the recent buoyant moves in LCD TVs with light emitting-diode (LED) backlighting and mobile phones equipped with active-matrix organic LED or AM OLED panels will give more confidence to Samsung as it channels its energy into other smaller devices.
"The groundwork is under way. When Samsung Group's heir apparent Lee Jae-yong, who is now Samsung Electronics' senior vice president, takes the top position in a few years, then Lee, with the help of Choi Gee-sung, president of Samsung Electronics' consumer products division, will step up the transformation," a source said.
"Without proven track records in brand name, it might be impossible to see a jackpot in technology-, marketing- and research & development (R&D)-intensive consumer products," he added.
Late last month, Samsung said it was reviewing whether or not to absorb its camera affiliate, Samsung Digital Imaging (SDI).
In a regulatory filing, the company said the electronics unit and SDI are reviewing details of cooperation, including a merger in a bid to strengthen the business alliance.
SDI, with support from Samsung Electronics' top-decision makers, the affiliate has steadily been introducing new digital models.
Analysts say Samsung Electronics may also merge its LED chip- and AM OLED-making units to create synergy in making TVs and other handheld devices, though company spokesmen declined to comment.
"After Samsung's AM OLED panel unit and LED chip unit become stable, then the electronics unit will review the next step to meet the ongoing new strategies," an analyst at Prudential Investment said, asking not to be identified.
"The group is tasked with finding new growth engines. In terms of such calls, Samsung Mobile Display and Samsung LED will eventually be merged into Samsung Electronics."
Demand for AM OLED panels and LED TVs is rising, driven by aggressive marketing from Samsung. But the sectors still remain in "incubator mode."
In line with this picture, home appliance products and other digital devices such as notebooks and net-books are receiving an increased R&D budget, according to analysts.
Samsung aims to sell 5 million notebook PCs this year, up from 2 million in 2008, Uhm Kyu-ho, vice president of sales and marketing in the company's computer systems division, said.
"We also aim to get a 15-percent market share by the end of the year."
Of this year's 5-million target, Samsung hopes to sell 4 million net-books ― inexpensive machines with pared-down features that rely on the Internet for multiple tasks.
"The company is dispatching staff members to white goods- and notebook-making units, which is meaningful," another source said.
Some 80 percent of Samsung Electronics' total revenue still comes from chips and the LCD business. The company will release its third quarter earnings guidance sometime this week.
"As far as I know, Samsung will keep its leadership in chips and flat-screens by maintaining greater investment flexibility. But in the consumer products business, more investment will come. That's what Samsung hopes for," another high-ranking insider said.