Posted : 2014-07-06 16:58
Updated : 2014-07-06 21:14

Samsung Electronics seeks to set new rules

Models smile while using Samsung Electronics' Galaxy S5 smartphone that supports LTE-A wireless technology during a promotional event for the device held in Caribbean Bay, an indoor/outdoor water park located in Yongin and owned by Samsung Everland, Sunday. Samsung tries hard to sell more of its Galaxy smartphones and to expand its profile to territories that were previously untouched to beat market uncertainties.
/ Courtesy of Samsung Electronics

By Kim Yoo-chul

Samsung Electronics aims to become a "creative innovator" at a time when its key businesses are facing uncertainties.

Its top management believes that it's getting harder for Samsung to create profits as much as it did in the past as the firm faces fiercer competition from its rivals in smartphones.

Analysts say Samsung, the world's biggest smartphone vendor is reaching the same point its U.S. rival Apple did in 2013 when it hit the smartphone growth wall.

"Second quarter profits were below expectations," said Choi Gee-sung, head of Samsung Corporate Strategy Office, at a monthly meeting with executives of Samsung's technology affiliates on July 1.

"There is a need to check whether the Corporate Strategy Office is doing its role as a control tower. Let's make greater efforts."

Senior Samsung executives are sided with Choi as they didn't hesitate to admit that Samsung's key businesses are being challenged.

Now, Samsung workers are ordered to become ― "problem solvers," "rule breakers" and "infra builders" ― to overcome today's difficulties and develop new products and creative services.

In a latest message to employees, co-signed by co-Samsung Electronics CEOs _ vice chairman Kwon Oh-hyun, consumer electronics president Yoon Boo-keun and mobile chief Shin Jong-kyun, they pledged to find new business models in wearable devices and Internet of Things (IoT) territories.

"Recently, the growth rate of Samsung's smart TVs and smartphones is slowing down. We should make new business models in wearable devices, smart home and IoT solutions and find next cash-generators in medical equipment and business-to-business segments," said the message.

The senior corporate executives also asked employees to strengthen communication and change the way of thinking to maximize competitiveness in each businesses.

Samsung Electronics has expanded its market share with its Galaxy-brands and enjoyed phenomenal profits over the last few years.

After years of explosive growth, the global smartphone industry is apparently entering a more matured phase. Its profit margin is not as big as before.

Analysts expect the company's smartphone sales failed to meet market expectations in the three months to June.

The situation isn't looking good at Samsung's smartphone unit as the business division, which accounted for about 70 percent of annual revenue last year, is facing some challenges.

First, smartphone growth rate this year is expected to fall to below 20 percent this year from last year's 39 percent.

Second, that growth will mostly be coming from mid-tier and budget phones, which have lower margin than premium phones with a price range between $250 and $300 per unit.

Lastly, Chinese budget vendors are expanding their output for more market share, taking advantage of a rise in demand for budget phones.

To counter such challenges, Samsung said in its latest sustainability report that it is set to develop a "two-track" strategy to its product lines ― low-end for emerging economies and high-end in established markets.

Samsung Electronics will announce its preliminary earnings report for the second quarter of this year on July 8.

Korea Investment Securities and Samsung Securities expect the the tech heavyweight to report below 8 trillion won quarterly profit for the first time in about two years.

LIG Investment Securities recently cut its target price for Samsung Electronics stock to 1.6 million won from 1.75 million won, citing weaker earnings outlook.

"We aren't ruling out the possibility that Samsung Electronics could report an 'earnings shock' during the April-June period. This will be a disaster," it said in a report.

Setting new rules

That's why not only the market but Samsung itself is worrying about its future.

With the growth rate of premium mobile devices beginning to slow down, the company's senior executives urged employees to find new growth opportunities in new business areas that were untouched by the company.

Samsung is reaching out to non-consumer electronics businesses under such new initiatives by the top management.

It plans to radically increase its B2B operations to make the division take up more than a quarter of the company's projected $400 billion global revenue by 2020, according to the company.

As a strategy to cut its reliance on volatile smartphones and to soothe investors' worries over the growth sustainability, it is highlighting the ongoing bring-your-own-device (BYOD) trend as an important factor aiding its B2B growth.

In a related note, it's been promoting its Knox security software. Samsung said it has sold more than 25 million Knox-enabled devices since launching the service in 2013.

Despite the lack of clear user figures, Knox has enjoyed some success in government and public-sector areas.

"Samsung will be able to sustain growth. But it needs to accelerate efforts to move onto other businesses. Corporate success today won't guarantee another success tomorrow. If you miss the timing and you will lose everything. This is what's happening in the highly-competitive consumer electronics market," said an analyst from the Korea Investment Securities, asking not to be named.

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