Samsung heir tests investors' patience with cautious change

JayY.Lee,thecompany'svicechairmanandtheonlysonofSamsungElectronicschairmanLeeKun-hee,makesapublicapologyoverthespreadoftheMiddleEastRespiratorySyndrome(MERS)atSamsungMedicalCenter,atthecompany'sheadquartersinSeoul,SouthKorea,June.Reuters/KimHong-Ji

Nearly19monthsafterbecomingdefactoleaderofSamsungGroup,JayY.LeeisrunningoutoftimetoshowhehasaplantofixcrownjewelSamsungElectronicsCoLtdasitstumblestowardpossiblyitsfirstannualfallinsmartphonesales.

Theheirapparentto73-year-oldgrouppatriarchLeeKun-heehasyettoconvincesomeinvestorsthathecanfixthetechgiant'smobiledivision,whichisheadedtowardsitssecondstraightyearofprofitdeclinein2015.

Criticspointtohismovethisweektoshakeupthemobiledivision'smanagement-bymovingJ.K.Shinintoanoversightroleandhandingthereinsforday-to-dayoperationstointernalappointeeDongjinKoh-asincrementalanduninspiring.

"WehaveyettogetaclearblueprintonhowSamsungGroupwillfindnewgrowthmomentum,andthat'ssomethingtheyneedtoshowussoon,"AlphaAssetManagementfundmanagerC.J.Heosaid.

ResearcherTrendForcepredictstheworld'stopsmartphonemaker'sglobalshipmentstofallforthefirsttimein2015andagainin2016,duetostiffeningcompetitionfromrivalssuchasAppleInc,HuaweiTechnologiesCoLtdandXiaomiInc.

"Atthispointthereisn'tmuchSamsungGroupcanpointtoasafuturesourceofgrowthotherthanitsbiopharmaceuticalsbusinesses,"KTBAssetManagementfundmanagerLeeJin-woosaid.

WithhisfatherhospitalizedsinceMaylastyearfollowingaheartattack,47-year-oldJayY.Leehasbeenshepherdingthegroupthroughaleadershiptransitionandrestructuringthathaskeptmanyinvestorsbroadlysatisfiedwithhisstewardship.

Koh'sappointmentwashisbiggestleadershipshake-uptodate,andwhilemanyinvestorssaidtheywerepreparedtogiveLeemoretimetomakethefar-reachingchangestheyseeasinevitable,analystssaidhemissedachancetomakeacleanbreakwiththepastandbringinnewbloodtorevitalizethevastfamily-runbusiness.

"SamsungElectronics'biggesttaskathandisrevivingthemobiledivision,butthecompanymayhavemadethewrongmove,"saidParkJu-gun,headofcorporateanalysisfirmCEOScore,notingKoh'sengineeringbackgrounddidnothelpSamsungchartanewcoursefromitsexistinghardware-centricstrategy."ItappearsthatJayY.Leeoptedforstability,whichinotherwordsmeanshehasyettocomeupwithasolution."

Tobesure,someinvestorsbelieveSamsungElectronics'challengesreflectthebroadertechindustry'smurkyoutlookfor2016andthataradicalchangemayhavedonemoreharmthangood.

"Amajormanagementoverhaulcouldhavetriggeredgreaterconfusionatatimewhenmarketconditionsareuncertain,"KTB'sLeesaid.

TOOLITTLETOOLATE?

UndertheyoungerLee'swatch,thegrouphasexitedseveralnon-corebusinessesincludingchemicalsanddefense-divestmentsthatinvestorssaywereswiftandsensible.

Still,arevivalinthesmartphonebusinessisseenasapriorityasitmaytakeseveralyearsfortheconglomeratetoachievethegrowthpotentialitseesinotherbusinessessuchaspharmaceuticalsandelectricvehiclecomponents.SamsungElectronics'January-Septemberhandsetprofitsslid37percentfromayearearlierdespiterevampeddesignsandpricecutsforitspremiumproducts,andasthefirmunderShin'sdirectionmisjudgeddemandforacurved-screenversionoftheflagshipGalaxyS6.

Thesmartphonemakermustactquicklytoovercomeitsrelianceonhardwaredesignanddevelopcompellingsoftwareandservices,investorsandanalystssay,tosetitselfapartfromrivalssuchasHuaweiandXiaomi.

Thoughitsnewmobilepaymentsserviceisgainingsometraction,investorsandanalystssaidSamsungElectronicsmustbuildameaningfulsoftwareecosystemtosecureitsfuture,throughmergersandacquisitionsifnecessary.

"SamsungneedswhatwouldamounttothesecondNewManagementPlan,"KoreaAdvancedInstituteofScienceandTechnologybusinessProfessorChangSea-jinsaid,referringtoLeeKun-hee's1993initiativethatiswidelycreditedwithmakingtheSouthKoreanconglomerateaglobaltitan.

"TherearemanythingsthatJayY.Leecandoandcontribute;endeavorsforsoftware...willmovemorequicklywhentheleaderputshisweightbehindthem."