A Response to Worsening Business Environment
Samsung Electronics' Device Experience (DX) Division, which includes the TV, smartphone and household appliance businesses, has shifted to emergence mode. The Korean IT giant will slash the number of overseas business trips and global marketing events and cut various expenses in half.
The company declared a transition to an emergency management system through a notice posted on its intranet on Dec. 7. The DX Division has immediately launched a cost-cutting campaign. It has decided to reduce operating expenses and related business trips for exhibitions or events held overseas, including CES 2023 in Las Vegas. It plans to cut travel expenses in half by replacing overseas business trips with video conferencing. It also suggested a guideline not to use data from market research agencies or consulting companies when drawing up management plans and devising strategies.
Samsung sees the current economic situation as an unprecedented crisis. “We are suffering a slump in sales of TVs and home appliances,” a company official said. “We can hardly expect a quick recovery in sales now.”
According to FnGuide, a financial information company, Samsung Electronics’ 2023 operating profit consensus is expected to stand at 33.38 trillion won, a decrease of about 29 percent from this year.
Samsung cited high interest rates, high exchange rates, supply chain disruptions, and the contraction of the consumer market as the reasons for the shift to emergency mode. As the business environment deteriorates day by day, even Samsung’s top executives, who have gone through all sorts of hardships and difficulties, are on high alert. They are worried that snowballing financial costs and inventory could damage the company's future investment engine unless special measures are taken.
The business environment surrounding Samsung Electronics is worsening day by day. Inflation and geopolitical crises have frozen the global market for its smartphones, TVs and home appliances. In the first three quarters of this year, the DX Division’s total operating profit came in at 11.9 trillion won, down 20.4 percent (2.84 trillion won) from 13.93 trillion won in the same period of 2021. Market research firms are predicting that the market in 2023 will be worse than this year.
Samsung's cumulative financial expenses in the same period came at 14,265.8 billion won, a 137.5 percent increase from 6,007.2 billion won in the same period of last year. The financial expenses include derivatives losses, foreign exchange losses, and interest expenses. Growing financial expenses snag a company’s cash generation.
It is also a concern that the economic situations of emerging countries, which are Samsung Electronics’ major markets, are on the skids in the aftermath of a strong U.S. dollar and high interest rates. As of the end of September, the DX Division’s inventory assets amounted to 27,097.4 trillion won, an increase of 12,831.6 trillion won in a one-year period.
Global supply chain instability is getting worse due to the effects of China’s anti- COVID-19 lockdown and the war in Ukraine. “The business environment is highly likely to become worse next year than this year,” said a high-ranking official of an economic organization. “Samsung’s emergency management may continue for a considerable period of time.”