Samsung prepares for post-smartphone age

Samsung Electronics is shifting its business focus from business growth to profits as it prepares for a transition to the post-smartphone age under the leadership of Vice Chairman Lee Jae-yong.

No company is facing challenges as high as Samsung, but under the new leader it has decided to make a major change to its old sales structure.

“Samsung Electronics has been doing very well focusing on devices such as TVs and smartphones, the right items that can fit with the company’s manufacturing strengths, but there is a point when returns will slow and there’s no visible way to change that,” a senior Samsung executive said, last week.

He said Samsung can technically afford to continue with the status quo. “But our conventional business models are increasingly being challenged. We need change.”

Given this, Samsung identified car-components as its next focus and is in talks with Fiat-Chrysler to acquire the automaker’s parts division ― Magneti Marelli ― for up to $3 billion.

A Samsung Electronics spokesman in Seoul declined to comment until an official announcement is made.

Market analysts view Samsung’s newer business strategy favorably as the car-component business is another “good fit” for the firm given its advantage in chips, displays and sensors.

The group has Samsung SDI for batteries, Samsung Electro-Mechanics for camera modules and Samsung Display for displays, as its technology affiliates, as well as Samsung Electronics.

“The acquisition of Magneti Marelli will be beneficial,” said Lee Seung-woo at IBK Investment, adding the purchase will help Samsung save time in expanding its presence in the car-components business in line with the ongoing moves by Apple and Google to invest more in driverless vehicle-related systems.

Samsung has so far been reluctant to strike big overseas deals as it’s not that confident it can to realize the so-called “chemical combination” with an acquired company given Samsung’s rigid corporate and mission-oriented culture.

Earlier, Samsung dropped its $4 billion bid to acquire U.S.-based flash memory designer SanDisk due to this.

“But this time will be different. This is a matter of survival,” said another Samsung official.

As he said, Vice Chairman Lee is leading the way to drop noncore business units and invest more in businesses with growth potential. Samsung has exited the defense and chemical businesses.

Of course, Samsung should address numerous issues before being recognized as a global supplier in car components, which are required to have stricter quality standards.

Samsung Electronics has weaker reference in the car components business as an underdog. “That’s why Samsung is impressed to see solid sales channels owned by Magneti Marelli in Europe,” he said.

It’s uncertain whether or not Samsung will close the deal as planned. However, Vice Chairman Lee has solid contacts with global carmakers.

Since 2010, the de-facto leader has been working as an external board committee member at Exor, Fiat-Chrysler’s holding company. Lee regularly exchanges views with top management at BMW, Toyota and Ford.

“Vice Chairman Lee attended Exor’s board meeting held in Torino, Italy, early May. He is known to have talked with top management of the Fiat group over several issues.”

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