Earnings Aftershock
The Samsung Group's move aimed at spurring management innovation to overcome limits to growth has put Samsung subsidiaries on edge. As business restructuring and reorganization is scheduled in August, subsidiaries are keeping their eyes and ears alert for possible targets and the extent of restructuring.
Some Samsung electronics business subsidiaries, which took a direct hit from the earnings shock of Samsung Electronics, are likely to be targeted. Samsung Electronics itself is preparing for a rearrangement of personnel in the main office next month. Samsung Display is likely to downsize the workforce through a voluntary retirement program, following Samsung SDI's example.
According to sources close to Samsung on July 30, Samsung Display is going to implement a major restructuring of the business in August. The company is reportedly reviewing a measure aimed at preemptively managing risk by instituting a voluntary retirement plan, since its Q2 earnings is likely to fall short of expectations in the second quarter of this year. In Q1, Samsung Display recorded 120.4 billion won (US$117.0 million) in operating profits. Observers say that the company's operating losses in Q2 are estimated to be bigger. The phenomenon is due to the fact that Samsung Electronics' worsening performance is affecting major suppliers like Samsung Electro-Mechanics, Samsung SDI, and Samsung Display. Moreover, Samsung Display relies heavily on Samsung Electronics for its sales. In fact, Samsung Electronics made up more than 60 percent of Samsung Display's sales as of Q1 2014. As a result, Samsung Display is more likely to undertake the most intensive corporate restructuring among Samsung subsidiaries related to Samsung Electronics.
Samsung SDI has already started to reduce its operations through a voluntary retirement program prior to the withdrawal of its PDP business scheduled in November. The program will last until the end of August.
Samsung Electronics also made a decision on who will be dispatched to local branches. Previously, the company announced that 150 to 200 people out of 1,000 working at its Seocho and Suwon offices will be reassigned to the information technology & mobile communications (IM) division, the consumer electronics (CE) division, and the device solutions (DS) division.
The rumor about changing presidents in August is widely circulating. Samsung usually announces new personnel appointments on the first or fifteenth day of each month, but division heads have been changed very often since May.
New large-scale staff appointments announced on May 1 were aimed mostly at the Future Strategy Office (FSO), the de facto control tower of Samsung Group. On July 1, a new head of the DS division was appointed. Due to a growing sense of crisis at Samsung Electronics suppliers, many in the industry think that some of the presidents and executives in each division will be reassigned in August.
The leading members of the group such as executives at the FSO are spending their summer vacation in their office to come up with a strategy to overcome the crisis. A Samsung associate said, “The earnings shock of Samsung Electronics is heavily affecting other Samsung subsidiaries.” The official added, “But it will be an opportunity to strengthen Samsung's DNA that overcomes crises and achieves innovations.”