Samsung heir tests investors' patience with cautious change

Nearly 19 months after becoming de facto leader of Samsung Group, Jay Y. Lee is running out of time to show he has a plan to fix crown jewel Samsung as it stumbles toward possibly its first annual fall in smartphone sales. The heir apparent to 73-year-old group patriarch Lee Kun-hee has yet to convince some investors that he can fix the tech giant’s mobile division, which is headed towards its second straight year of profit decline in 2015. Critics point to his move this week to shake up the mobile division’s management - by moving J.K. Shin into an oversight role and handing the reins for day-to-day operations to internal appointee Dongjin Koh - as incremental and uninspiring. “We have yet to get a clear blueprint on how Samsung Group will find new growth momentum, and that’s something they need to show us soon,” Alpha Asset Management fund manager C.J. Heo said. Researcher TrendForce predicts the world’s top smartphone maker’s global shipments to fall for the first time in 2015 and again in 2016, due to stiffening competition from rivals such as Apple Inc, Huawei Technologies Co Ltd and Xiaomi Inc. “At this point there isn’t much Samsung Group can point to as a future source of growth other than its biopharmaceuticals businesses,” KTB Asset Management fund manager Lee Jin-woo said. With his father hospitalized since May last year following a heart attack, 47-year-old Jay Y. Lee has been shepherding the group through a leadership transition and restructuring that has kept many investors broadly satisfied with his stewardship. Koh’s appointment was his biggest leadership shake-up to date, and while many investors said they were prepared to give Lee more time to make the far-reaching changes they see as inevitable, analysts said he missed a chance to make a clean break with the past and bring in new blood to revitalize the vast family-run business. “Samsung Electronics’ biggest task at hand is reviving the mobile division, but the company may have made the wrong move,” said Park Ju-gun, head of corporate analysis firm CEO Score, noting Koh’s engineering background did not help Samsung chart a new course from its existing hardware-centric strategy. “It appears that Jay Y. Lee opted for stability, which in other words means he has yet to come up with a solution.” To be sure, some investors believe Samsung Electronics’ challenges reflect the broader tech industry’s murky outlook for 2016 and that a radical change may have done more harm than good. “A major management overhaul could have triggered greater confusion at a time when market conditions are uncertain,” KTB’s Lee said. TOO LITTLE TOO LATE? Under the younger Lee’s watch, the group has exited several non-core businesses including chemicals and defense - divestments that investors say were swift and sensible. Still, a revival in the smartphone business is seen as a priority as it may take several years for the conglomerate to achieve the growth potential it sees in other businesses such as pharmaceuticals and electric vehicle components. Samsung Electronics’ January-September handset profits slid 37 percent from a year earlier despite revamped designs and price cuts for its premium products, and as the firm under Shin’s direction misjudged demand for a curved-screen version of the flagship Galaxy S6. The smartphone maker must act quickly to overcome its reliance on hardware design and develop compelling software and services, investors and analysts say, to set itself apart from rivals such as Huawei and Xiaomi. Though its new mobile payments service is gaining some traction, investors and analysts said Samsung Electronics must build a meaningful software ecosystem to secure its future, through mergers and acquisitions if necessary. “Samsung needs what would amount to the second New Management Plan,” Korea Advanced Institute of Science and Technology business Professor Chang Sea-jin said, referring to Lee Kun-hee’s 1993 initiative that is widely credited with making the South Korean conglomerate a global titan. “There are many things that Jay Y. Lee can do and contribute; endeavors for software … will move more quickly when the leader puts his weight behind them.” Reuters