Samsung Considering Management Shake-up

Samsung Electronics Co. is considering a major leadership shake-up, according to people familiar with the matter, part of an attempt to revive its fortunes after a difficult year that has hurt its profitability, market share and stock price.

In one scenario under discussion, co-chief executive and mobile head J.K. Shin–who had presided over Samsung’s rapid ascent as well as its recent tumble in smartphones–could be moved out of his role overseeing the mobile division, these people said. That could mean Mr. Shin, 58 years old, loses his co-CEO role, one of these people said.

Another co-CEO, B.K. Yoon, who oversees Samsung’s home-appliance and television business, could add control of the mobile division to his current duties in this scenario, these people said.

Broadening Mr. Yoon’s duties could allow Samsung to better streamline its management and help it respond more nimbly to rising competition, especially from Chinese smartphone makers.

If Mr. Yoon, 61, is given the nod to take over the mobile division, he could be well-positioned to help Samsung compete in the so-called connected home–a hot corner of tech that aims to link home appliances to the Internet. Mr. Yoon has been one of the main proponents of the company’s push in this direction, and signed off on Samsung’s acquisition earlier this year of U.S. connected-home startup SmartThings.

The decision isn’t final, these people say, and Mr. Yoon’s takeover of the mobile division, while expected by many within the company, isn’t a done deal.

Samsung has a third co-CEO, Kwon Oh-hyun, 62, who is in charge of components like semiconductors and display panels. Under one scenario being discussed, Mr. Kwon would stay in that job, according to one of the people familiar with the matter.

The internal restructuring, the details of which could still change amid an ongoing annual review, would be a sign of Samsung’s attempts to find its footing after a brutal year in which third-quarter profit fell 60% amid market-share declines in smartphones around the world.

The plans are part of Samsung’s annual year-end reshuffling that puts key decisions on hold for several weeks as executives within the company jockey for position. But the stakes are higher in the current shake-up as Samsung attempts to regroup and formulate a succession plan after Chairman Lee Kun-hee’s hospitalization in May, following a heart attack. Mr. Lee’s only son, Jay Y. Lee, currently a Samsung vice chairman, is widely expected to assume the chairman’s role, though the timing of his appointment is unclear.

A Samsung spokesman in Seoul declined to comment on possible management changes, and declined to make Messrs. Lee, Shin and Yoon available for comment.

Samsung has typically operated with one chief executive–most recently Mr. Kwon, the components chief. But in March 2013, Messrs. Shin and Yoon were promoted to the top job alongside Mr. Kwon, making for an unusual arrangement with three co-CEOs.

At the time, the company suggested that the move would make for cleaner lines of responsibility, giving each of the three divisional leaders more authority in dealing with partner companies.

It also allowed Samsung to put a firewall between Mr. Kwon’s components division–which sells semiconductors and display panels to smartphone makers including Apple Inc. and Taiwan’s HTC Corp.–and the divisions that compete with those companies in products like mobile phones.

Samsung has been feeling the heat from low-cost smartphone makers in China, India and other countries.

There also have been missteps at Samsung. The mobile division, under Mr. Shin, didn’t seriously question bullish projections for orders of its flagship smartphone, the Galaxy S5, which went on sale globally in April, according to a person familiar with the matter.

Samsung produced about 20% more devices than it did of the Galaxy S5’s predecessor, basing the numbers on a survey of its carrier partners around the world, who were asked to predict demand but who weren’t on the hook for any unsold devices, according to the person. That led to merchandise piling up in warehouses, forcing Samsung to increase marketing expenditures to unload the devices.

In all, Samsung sold about 40% fewer Galaxy S5 smartphones than expected, with about 12 million units sold to consumers in the first three months since April compared with about 16 million units for the preceding flagship phone, the Galaxy S4, according to people familiar with the matter. Only in one major market did Samsung sell more Galaxy S5 smartphones than it did the S4: the U.S., Samsung’s biggest market, one of these people said.

In China, Samsung’s second-largest market by revenue, Galaxy S5 sales were down by about 50% from those of its direct predecessor during the first six months that the device was on sale, according to one of the people.

In the U.S., Samsung is already consolidating its operations. Gregory Lee, the president of Samsung’s North America operations, has begun combining the separate U.S. mobile and consumer electronics subsidiaries and is cutting duplicate positions, according to a person familiar with the matter. The merger of the two units, which hasn’t been announced, will take effect early next year.

Mr. Lee has also brought the U.S. arm of Samsung’s software and services division, called Media Solutions Center, under his jurisdiction, and hired a new management team led by Disney recruit John Pleasants to help the company win back more control of the software and services that run on the devices that it sells.

Change is afoot in Europe, too. U.K. mobile chief Simon Stanford left this spring, following dismal sales results. His successor, Rob Orr, lasted in the job for less than two months, according to a person familiar with the matter. The mobile role remains open.

In a sign of belt-tightening, the company has even put an end to some fruit baskets that were kept in the European offices, this person said.

“The company is not coping with the performance of the business very well,” the person said. “Morale is beaten down.”

A spokesman for Samsung in Europe said: “The market is challenging but this is normal and healthy competition. We continue to lead many categories across consumer electronics.”

So far this year, Mr. Shin has earned $11 million in salary and bonuses, according to regulatory filings, compared with just $3.3 million for Mr. Yoon.

Mr. Yoon’s lower compensation reflects, in part, the outsize role that Mr. Shin’s mobile division plays at Samsung, accounting for about 43% of operating profit in the third quarter. Mr. Yoon’s division brought in just 1% of operating profit in that quarter.

Source: MarketWatch