Following the indictment of its reclusive chairman Lee Kun-hee, who was forced to resign in April following a major tax-evasion scandal, the Korean electronics giant reported its first ever quarterly loss at the end of the year.
Samsung posted an operating loss of 937 billion won (US$682 million) for the period between October to December 2008. A year ago during the same period, the electronics firm had reported a hefty profit of 1.78 trillion won ($1.29 billion).
The loss, which was far worse than the firm and analysts were expecting, is a reflection of a massive drop in demand for memory chips, display units such as LCDs and overall consumer electronics following the global economic downturn. The decline in fortunes follows a plunge in margins on plasma TVs and mobile phones. Samsung’s mobile division, which trails only Nokia among global handset makers, was the only consolation as the unit made gains and posted a slight two per cent growth in operating profit. However, even that marked a slowdown from the previous quarter, which saw seven per cent growth.
In mid-January, it announced a major restructuring by consolidating its business operations into two divisions to weather the downturn. Current CEO Lee Yoon-woo will take on the added responsibility of managing a ‘device solution division’ that combines the company’s semiconductor and LCD businesses. The other ‘digital media and communications division’ will pool together its televisions, mobile phones and other consumer goods including its printers, computers and home appliances businesses. The company has also announced a change in senior leadership, its second since the resignation of its former chief.
A sign that it is looking at its communications came with a global PR pitch, won by Edelman. As the industry’s margins are eroded, is Samsung’s brand strong enough to maintain a price premium?
Samsung posted an operating loss of 937 billion won (US$682 million) for the period between October to December 2008. A year ago during the same period, the electronics firm had reported a hefty profit of 1.78 trillion won ($1.29 billion).
The loss, which was far worse than the firm and analysts were expecting, is a reflection of a massive drop in demand for memory chips, display units such as LCDs and overall consumer electronics following the global economic downturn. The decline in fortunes follows a plunge in margins on plasma TVs and mobile phones. Samsung’s mobile division, which trails only Nokia among global handset makers, was the only consolation as the unit made gains and posted a slight two per cent growth in operating profit. However, even that marked a slowdown from the previous quarter, which saw seven per cent growth.
In mid-January, it announced a major restructuring by consolidating its business operations into two divisions to weather the downturn. Current CEO Lee Yoon-woo will take on the added responsibility of managing a ‘device solution division’ that combines the company’s semiconductor and LCD businesses. The other ‘digital media and communications division’ will pool together its televisions, mobile phones and other consumer goods including its printers, computers and home appliances businesses. The company has also announced a change in senior leadership, its second since the resignation of its former chief.
A sign that it is looking at its communications came with a global PR pitch, won by Edelman. As the industry’s margins are eroded, is Samsung’s brand strong enough to maintain a price premium?
| FACT BOX |
| - Samsung posted its first ever operating loss of 937 billion won (US$682 million) for the period between October to December 2008. - South Korea’s largest company will also be cutting back on investments. Having spent 11 trillion won in 2008, the company is now expected to spend three to four trillion won instead. - Along with a change in senior leadership, its second since the resignation of its former chairman for tax evasion, senior executives are to take a pay cut of 20 per cent. |
Philip Brett, chairman TBWATequila Singapore Regional MD, Tequila,Asia-Pacific
Who would want to be in electronics? This is a really tough sector where technical advantage lasts a nanosecond, with razor-thin margins to boot. With a few notable exceptions, the past decade has seen many big electronics businesses staring into the abyss, Sony and Philips to name but two.
All of these companies produce a multitude of products, from TVs to phones and fridges, on top of the industrial-scale products. Can one brand support this breadth of offering and cut through with the end consumer? Chances of success are limited if the brand values are lightweight. To me, Samsung is a logical choice, but not an exciting one; more bland than brand.
Samsung needs to give the consumer something to grip. A proposition and a story that makes them want the product above all others. Remove common sense from the equation. The electronics success stories of recent times have done just that, and it is hard to find a better example than Apple. It has diversified by broadening its product offering over the years but having a very clear set of values that the consumer can truly get hold of. The Samsung brand needs to find its soul and reach customers’ hearts, not their heads.
Charu Harish, regional communications planning director, Grey Group Asia-Pacific
The success of Samsung can be attributed to constant innovation backed by heavy investment and it’s imperative for Samsung to hold true to these core mantras. High performers across recessions are the ones that consistently innovate and invest to defend and grow margins.
Samsung needs to shift resources from the ‘bleeding’ sectors and focus on protecting the core; deliver ‘value’ to consumers down-trading from premium brands and provide more value to the consumers who have already chosen the brand, for retaining them is critical to winning the recession war.
It should identify new segments and changing consumer needs. Economic downturn is characterised by a drag on demand. Consumers adjust their brand choice and consumption behaviour. Samsung needs to identify micro-segments (like the aging population or the basic function seekers at the bottom of the pyramid) that have been neglected by marketers. Brands that engage consistently with consumers during recession obtain higher marketing ROI and emerge from the downturn with enhanced competitiveness. Samsung needs to identify opportunities in this downturn.
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