Samsung Electronics signaled a sweeping overhaul of its TV business by abruptly replacing the head of its Visual Display (VD) division, the TV chief, in May instead of during the customary year-end reshuffle. Until now, the VD chief has been someone from a developer background well-versed in TV technology. But with Lee Won-jin, a marketing expert from Google, taking the helm, observers say Samsung Electronics' TV business is likely to be completely reorganized.
According to industry sources on the 4th, the biggest reason Samsung Electronics decided to replace President Yong Seok-woo is believed to be a strategic judgment by the Business Support Office, after the earnings announcements for the fourth quarter of last year and the first quarter of this year, that profitability cannot be improved under the existing approach. Appointing President Lee Won-jin, who is well-versed in marketing and services, as the new chief is interpreted as a resolve to fix the chronic problem in Samsung Electronics' TV business of high costs and low profits.
◇ Streamlining of the TV business was foretold… no means to counter China
Signals that Samsung Electronics would radically revamp its TV business were already detected in the management review carried out starting in the third quarter of last year. At the time, the Business Support TF (now the Business Support Office) submitted materials to each organization within the VD division outlining the business status and directions for improvement, and on that basis reviewed expense structures by business, business viability, competitive conditions, and more.
Samsung Electronics has held the No. 1 position in the global TV market for 20 consecutive years as of last year, but the problem is that it is not a "profitable No. 1." Since last year, the company's TV business has gone from barely turning a profit to racking up large losses. The TV business is estimated to have posted losses in the 600 billion won range in the fourth quarter of last year, and is said to have only barely avoided losses in the first quarter of this year.
The biggest problem is that there are few means to counter China's emerging powerhouses. By shipments in the first quarter of last year, the global TV market shares were Samsung Electronics 19.2%, TCL 13.7%, Hisense 11.9%, and LG Electronics 10.7%. In the premium TV market over the same period, the combined share of Hisense and TCL rose to 39%, while Samsung Electronics' share fell from 39% to 28%. This means even the premium-focused TV strategy has begun to falter.
A source well-versed in Samsung said, "The biggest issue for Samsung Electronics' TV business raised in last year's management review was the judgment that the expense structure is no longer sustainable," adding, "There is much to fix comprehensively, including profitability by product and lineup, marketing expenses, sales expenses, inventory and logistics burdens, and whether to keep low-profit product groups."
◇ Lee Won-jin's appointment is a paradigm shift for Samsung's TV business
From a leadership perspective as well, the move is being seen as a declaration of a break with Samsung TV's tradition. In the past, Samsung Electronics appointed leaders for its finished goods businesses who were executives well-versed in TV technology, but with this personnel move it revealed a direction completely different from before. President Lee Won-jin is regarded as a marketing and platform services expert who worked at Adobe Korea and Google before joining Samsung Electronics in 2014.
Past heads of Samsung Electronics' TV business have emphasized the picture quality, technological edge, and differentiation of Samsung TVs based on their expertise in TV technology. A domestic TV industry official said, "Appointing marketing expert Lee Won-jin as the new chief is, indirectly, an acknowledgment of the lack of hardware technologies that would allow Samsung to pull decisively ahead of Chinese appliance makers such as TCL and Hisense."
Inside Samsung, there is also analysis that key management, including Chairman Lee Jae-yong, highly valued President Lee Won-jin's expertise in platform-based content and services. If the existing stance of Samsung Electronics' TV business was to "sell more TVs," the explanation is that a paradigm shift is now underway to "pursue more profit through TVs."
Another key to this personnel move is that the management philosophy of Roh Tae-Moon, head of the DX institutional sector (president), has begun to strongly influence Samsung Electronics' finished goods businesses overall. Since becoming DX chief, President Roh, a mobile expert, has delegated authority to each division head rather than directly exerting influence over TVs and appliances. Appointing President Lee Won-jin, who after joining Samsung Electronics worked with Roh in the wireless division overseeing services, as head of the VD division is interpreted as a will to further strengthen service-centered competitiveness—such as artificial intelligence (AI) and user experience—seen as strengths of the existing mobile division.