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Mayhem at Samsung May Lead to big Changes in Mobile Division

10. News
It's being reported today that Samsung is considering a major leadership shake-up, according to people familiar with the matter, part of an attempt to revive its fortunes after a difficult year that has hurt its profitability, market share and stock price. In one scenario under discussion, co-chief executive and mobile head J.K. Shin who had presided over Samsung's rapid ascent, could be moved out. Earlier in the month we reported that Shin lost his $630K bonus due to lack of performance with their current line-up of Galaxy phones, tablets and watches. Samsung's massive profit downturn is rippling through the market and causing turmoil and infighting that began as early as July. Big changes are likely in the making and news of the shake-up is expected to happen in the coming weeks ahead. 


Samsung's missteps began this year when projections for the Galaxy S5 were overblown. Samsung produced 20% more devices than the Galaxy S4 thinking that their latest offering would only increase and in all, sold 40% fewer Galaxy S5 smartphones. That left a massive gap in inventory. The Wall Street Journal's report provides an overview of the internal battle and some of the players that may emerge as the new leaders at Samsung in the coming months ahead.


Mr. Shin who is co-CEO with a salary this year thus far at 11 million may be the one that could lose the most. Shin, 58, who largely focused on research and development since starting at Samsung in 1984, has overseen all aspects of the top-selling Galaxy products. He also led Samsung's push into the large-screen category known as phablets because they are between the size of a phone and tablet computer.


Now with Apple's new iPhone 6 Plus being the rage around the world, their one advantage is quickly slipping away. Apple is thrashing Samsung on its home turf with analysts wildly predicting that the iPhone 6 Plus could outsell the Galaxy Note 4 by 5 to 10 times in Q4.


When things go wrong, the analyst's knives come out to exact punishment for poor performance. Bloomberg records "Oh Sang Woo, an analyst at Leading Investment & Securities Co. in Seoul as stating that "Samsung needs to freshen itself up now, so any major top-level shuffle will revive the tension and change the complacent culture. Samsung was slow addressing the new market trend, which allowed smaller players like Xiaomi to kick in. It now needs strong leadership who can take decisive, but timely, action."


Another weighing in on the matter is Cyrus Mewawalla, a London-based analyst at CM Research Ltd who stated that "to revive Samsung's growth, the company's leadership needs to further integrate hardware and software, instead of just being a skilled manufacturer, to help set it apart from the dozens of other Android phonemakers. They must be led by a software man, not a hardware man. Any other strategy will simply delay Samsung's demise rather than fix its long-term problems. The difficulty here is that the entire leadership team needs a different mindset."


In a recent report of ours titled "Apple's iPhone 6 has put a bullet into Samsung's Mobile Head," we noted that Samsung's mobile profits had fallen 74% in the last quarter which has lead Samsung to apply pressure on their suppliers to drop costs by as much as 30%, reduce their smartphone models by up to 30% and more importantly, reallocate more than 500 of their top engineers from its mobile-phone division to their Internet of Things (IoT) initiative. This is being confirmed again in Korea today as well as in other world publications as noted below.



The JoongAng Daily in Korea reported on Saturday that Samsung Electronics is going to reduce the size of its IT and Mobile Communications (IM) Division in the wake of its poor business performance recorded in the third quarter. More specifically, the report noted that 'The company is planning to transfer at least 30 percent of the Mobile Communications employees in the IM Division to other business units, while simplifying the top management of the division that has no less than seven president-level executives."


Another Korean report notes that Samsung's "mobile solution center (MSC), one of three business sectors at the IM division, is expected to be hit the hardest, as it has been struggling with collapsing profits."


The Korean report went on to state that "The IM division is separated into the mobile business, network business and the mobile solution center. The MSC deals with contents platform business. At the start of the month, Samsung said it would stop providing its e-book service, 'Samsung Books,' which MSC has managed, on November 28."


Adding to this developing story is the Financial Times who states that leadership changes are likely to be announced as early as next week regarding Shin Jong-kyun, head of the mobile division. "Some industry watchers expect him to be replaced after the company reported its weakest quarterly earnings for three years in the third quarter."


They further reported that "The broader management shake-up will allow Mr. Lee, the son of Chairman Lee Kun-hee and the group's heir apparent, to call the shots, as his father remains hospitalised following a heart attack in May."


With tech analysts around the globe acknowledging and reporting on this massive shake-up in the works, it's clear that Samsung's mayhem has to be resolved soon before this negative ripple adds more fuel to this fire. It's already affecting mobile device sales because no one wants to buy a mobile device from a company who is negatively in the news on a daily basis. 


While this mayhem is in full bloom, Apple's wildly successful Phone 6 and 6 Plus has virtually sealed the current decline of Samsung's mobile division. It's put a bullet in that division's head as we noted last week.


Samsung was trying to build momentum against Apple with their new Galaxy Note Edge and yet consumers everywhere including Korea have eagerly chosen Apple's phablet. And with Xiaomi pulling the rug from under Samsung's feet in China with a better low-end line-up, the squeeze on Samsung is crushing.


The tech press around the globe now have their attention fixated on Samsung's next moves, as the crisis is now at a head. Yet simply changing figure heads isn't what most will be looking for as a longer term solution. Investors will want to know if Samsung will shift gears to focus on other projects such as with their new Internet of Things project or continue to push into new areas of smartphones to challenge Apple with at the high-end.


Last week we reported on Samsung throwing a Hail Marry pass at a Wall Street analyst meeting. And being that we cover Samsung patent filings extensively on Patently Mobile, we know that Samsung is deadly focused on taking smartphones to the next level and in areas that they have an advantage in with respect to advanced display technology. If he right moves are pushed to market in record time, they could pull off another smartphone surprise in their favor as they first did with their phablet.


While we certainly enjoy reporting about Samsung's every flaw and misstep, we also know that Samsung is a competitor to never count out dismissively. Are they planning to double down and make a comeback as they pointed to at last week's analyst meeting, or will their leadership finally pull the plug and deemphasize smartphones going forward and choose another battlefront? While only time will tell, I don't think that Samsung is ready just yet to roll over and play dead, for anyone.


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