When a company wants to reinvigorate a business, heads often roll.
A glance at the world’s top handset vendors-bedeviled by the market’s vagaries and slowing growth-reflects the pervasiveness of this perennial corporate option.
Nokia Corp. last week announced that Mark Louison would ascend to the newly created position of president of Nokia USA to lead its handset business in the United States, one of the few markets in which the Finnish giant struggles. Motorola Inc.’s former head of mobile devices, Ron Garriques, parted ways with the company in January after the company’s profits headed south. In late December, LG Electronics Co. shuffled more than 30 executives, including the CEO of telecom, in an effort to revive its own sagging market share and stagnant profits.
Thus it comes as little surprise that Samsung Electronics Co. Ltd. quietly appointed Geesung Choi as its new, leading telecom executive in late January. The game of executive musical chairs is gripping the industry.
Chief designer designation
At the International Consumer Electronics Show in Las Vegas in early January, Choi extolled the virtues of the South Korean industrial conglomerate’s television sets, a business he recently led in a successful surge against competitors. By the time the industry gathered at the 3GSM confab in Barcelona in February, Choi’s name appeared on press releases touting the vendor’s latest handsets.
Perhaps not surprisingly, the company made little or no news out of the transition, though it briefed analysts. From a U.S.-based media perspective, at least, Samsung appears to downplay the role of the individual executive and maintain a somewhat inscrutable face to the press. U.S.-based enquiries are routinely routed to the company’s headquarters in Seoul, which often responds to or deflects questions with little comment.
Samsung did confirm Choi’s ascendance to lead its telecommunications network business, which includes mobile handsets-the division that generates perhaps the most attention to its brand, if only because mobile handsets have become the leading consumer electronics product across the globe. Samsung has five main business divisions; the other four are digital media, LCDs, semiconductors and digital appliances.
According to the company, Choi-a 30-year Samsung veteran who joined the company after earning a degree in economics at Seoul National University-played a key role in developing Samsung’s visual display business between 1998 and 2003, when he was appointed president of digital media, which includes the company’s television business. His apparent success in leading Samsung’s ascendance in that business between 2003 and 2007 earned him the top spot for mobile phones, according to analyst Ben Wood of Collins Consulting Services. In his new role, Choi will also work as Samsung’s chief design officer-a designation that may bode well for the company’s fortunes.
Challenges ahead
Choi faces a number of challenges, some due to global market trends, some relevant to Samsung in particular, according to analysts.
Having made a remarkable ascent in the handset business in 2001-2004 to earn a No. 3 global ranking behind Nokia and Motorola while earning 20-percent and greater margins, Samsung’s market share and profits on handsets has stalled somewhat. Analyst Bill Hughes at In-Stat has referred to the company’s situation as “stuck in the middle”-Samsung has half the market share of Motorola ahead of it, but only a couple of share points more than rapidly ascending Sony Ericsson Mobile Communications, which has the No. 4 spot.
Where Samsung once was known for innovative designs, it is often referred to today by analysts as a “fast follower.” The description is not necessarily pejorative: Samsung is credited with de-clawing Motorola as a design leader by embracing the slim clamshell phone designs that, until recently, earned the American vendor rapidly growing market share and healthy profits.
Growth in the handset market is slowing from more than 20 percent year-on-year in 2006 to a projected 14 percent this year, according to CIBC World Markets. While growth remains focused on new subscribers in emerging markets-where vendors risk profit to rack up market share-two-thirds of annual unit shipments go to meet the demand for replacement handsets in mature markets. That can force companies such as Samsung-which has seen a slight erosion of its global market share over the past year to about 11 percent-to split their attention. At one end are innovative, premium handsets offering healthy margins and at the other end are low-cost, slim-margin offerings for the emerging markets. Meanwhile, global success requires keeping a balanced portfolio that serves the full spectrum of consumers.
“With Samsung continuing to avoid the low end-outside of when it is strategically appealing-it is difficult to project share gains,” CIBC analyst Ittai Kidron wrote recently in a note to investors. “Samsung’s handset portfolio is solid . but for the most part the company lacks a singularly compelling handset.”
This point is echoed by two other analysts.
“For Samsung, differentiation in their handsets will be important,” said Rob Bamforth, analyst at Quocirca. “They need to play in the prosumer and premium end of the portfolio in design and features. That’s a tall order, when there’s an Apple about.”
Roger Entner, analyst at Ovum, agreed.
“We haven’t seen an iconic phone out of Samsung that plays at the premium end of its portfolio,” Entner said. “They need a phone people will look at and say, ‘that’s a Samsung.'”
Choi’s ascendance and role in design may well be Samsung’s answer to those points, widely discussed in the handset industry over the past year. Finding manufacturing efficiencies through a limited number of platform designs and low-cost labor markets may also play a role in Choi’s outlook.
According to Wood, Choi is likely to follow Nokia’s example in developing a lean manufacturing process, which may include relocating its factories from Korea to China, Latin America and India.
Ultimately, analysts agree, Choi’s goal is get Samsung unstuck.
