Samsung restructures to reduce reliance on electronics biz

Summary:South Korean tech giant moves to restructure through internal mergers and diversify its portfolio as it looks to reduce its reliance on the electronics business, which currently contributes over 75 percent of the group's profit and revenue.

Samsung is tweaking its business structure to explore other markets and reduce its reliance on the electronics business, which currently accounts for more than 75 percent of the group's overall profits and revenue. 

The South Korean tech giant is looking to restructure its subsidiaries through internal mergers and acquisitions (M&A) and diversify its business, amid increasing market uncertainty and competition, reported The Korea Times. Top on the to-do list is a desire to reduce its dependence on Samsung Electronics, its consumer electronics subsidiary which contributed more than 75 percent of the company's total profit and revenue in 2013. 

"Without another 'Samsung Electronics', the group may lose competitiveness sometime later," a Samsung spokesperson said in the report, adding that while the company isn't in any crisis, it has serious challenges. "Our chairman ordered top management at Samsung affiliates to develop business models to ensure profit sustainability. Samsung has been restructuring businesses to create the next Samsung Electronics by concentrating on some key businesses, including consumer electronics, chemicals, construction, heavy industries, and finance."

The company said last week that Samsung General Chemicals will merge with Samsung Petrochemical, as it looked to improve synergies by combining business unit within the same value chain. Both subsidiaries are not public-listed. They will form a new merged entity, Samsung General Chemicals, which is slated for launch in June.

The world'd largest manufacturer of TV displays and smartphone batteries, Samsung SDI, last week also unveiled plans to purchase another of the group's affiliate Cheil Industries, which manufactures electronic materials and chemicals. 

The company's financial cash cow, Samsung Electronics, last year clocked a 28 percent growth in net profit last year to 30.47 trillion won (US$28.92 billion). The business unit comprises its smartphone business, as well as memory chips and televisions.  

But while it registered strong growth, Samsung's other subsidiaries saw profits dip against competitors in their respective markets, including its petrochemical business unit which fared behind other players such as Hanwha, LG, Lotte, and SK.

Samsung Fine Chemicals' net profit dropped 95 percent last year to 3.3 billion won (US$313 million), while Samsung SDI saw its net profit dip 90 percent and Hotel Shilla saw a similar slide of 90 percent.  

"When you compare balance sheets of Samsung Electronics and other affiliates, you can easily see huge differences and reading behind the realignment," another Samsung official told The Korea Times.

Company executives pointed to its construction business as the next up for restructuring, which includes Samsung C&T, Samsug Engineering, Samsung Everland, and Samsung Heavy Industries.  

According to market analysts, the moves amid a managerial transition from Samsung Electronics Chairman Lee Kun-Hee to his children. Samsung's vice chairman Lee Jay-Yong will assume responsibilities for electronics and finance subsidiaries, while the chairman's oldest daughter Lee Boo-Jin and youngest Lee Seo-Hyun will take over hotel, heavy industries, and fashion and media businesses, respectively, said Lee Sang-hun, an analyst at Hi Investment.

Topics: Emerging Tech, Hardware, Korea, Samsung

About

Eileen Yu began covering the IT industry when Asynchronous Transfer Mode was still hip and e-commerce was the new buzzword. Currently a freelance blogger and content specialist based in Singapore, she has over 15 years of industry experience with various publications including ZDNet, IDG, and Singapore Press Holdings. Eileen majored i... Full Bio

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