Samsung's New Mobile Phone Chief Exemplifies Focus on Software

Why Did Samsung Replace Its Mobile Chief?
  • Koh Dong Jin helped develop Samsung Pay, Knox platforms
  • Change shows Lee Jae Yong putting own stamp on business

The new head of Samsung Electronics Co.’s phone business helped develop its mobile payment and security platforms, exemplifying Vice Chairman Lee Jae Yong’s focus on software innovations as a way to gain distance from rival devices.

QuickTake Samsung

Koh Dong Jin, who worked on Samsung Pay and Knox, takes over as president of mobile communications with Samsung heading toward its lowest profit in four years. He replaces Shin Jong Kyun, who remains a president and co-chief executive officer of the electronics business, Samsung Group said Tuesday as part of its annual management revamp.

The switch at the biggest business in the largest division of Samsung Group is the clearest sign yet that Lee is putting his own imprint on the conglomerate. Samsung no longer dominates global smartphone sales and needs a new hit, prompting Lee to approve an in-house incubator for engineers and the spending of billions of dollars on an ecosystem connecting home devices to the Internet.

Shakeup: Samsung Replaces Mobile-Unit Chief

“Based on Koh’s career background, it suggests Samsung will put more weight on its software focus instead of hardware,” said Greg Roh, an analyst at HMC Investment Securities Co. in Seoul. “The change shows that just the new cycle of hardware offerings won’t do much to revive growth. The new leader will try to boost software power and foster new innovations.”

Pay, Knox

Koh, 54, spent most of his Samsung career in research and development, overseeing the Technology Strategy team from 2007 to 2014. In addition to working on Samsung Pay and Knox, he is credited with fostering partnerships between the company and Qualcomm Inc., Google Inc., Microsoft Corp. and Wacom Co. He also oversaw the latest Galaxy S6 and Galaxy Note 5 devices.

Shin, 59, is known in the industry for his hardware expertise and became familiar to consumers when unveiling the Galaxy S4 during a 2013 show at Radio City Music Hall in New York. He oversaw Samsung’s rise to No. 1 in the global smartphone market yet presided over its recent troubles, as well.

When he took over the mobile division in 2011, Samsung was shipping 94.2 million smartphones a year. That soared to 318.2 million units last year, according to data compiled by Bloomberg.

Revenue for the telecommunications business doubled to 111.8 trillion won last year from 55.5 trillion won in 2011, while profit tripled to peak at 25 trillion won in 2013.

Chinese Vendors

Shin faced rising pressure to improve the business as the smartphone arena became increasingly crowded. Samsung’s phone shipments are headed for their second straight annual decline in the face of intensifying competition from Apple Inc. in the high-end segment and China’s Xiaomi Corp. and Huawei Technologies Co. in the budget business.

Earnings at the smartphone maker are expected to drop 8.2 percent this year to the lowest since 2011, according to analyst estimates, and the company has already lost its position as the top seller in China, the world’s biggest market. Shin will focus on “the long-term business strategy,” Samsung said.

Generational Change

“It was time for a change,” said Lee Do Hoon, an analyst at CIMB Group Holdings Bhd. in Seoul. “Lee Jae Yong tried to keep the fame of those who were chosen by his father, but he made a handover in power to younger generations. The mobile business grew complacent, especially in design and functionality.”

Shares of Samsung Electronics rose 2.9 percent to 1,321,000 won in Seoul. The stock is little changed this year after a 3.3 percent decline last year.

The management overhaul at Samsung’s affiliates coincides with a power transition to Lee family heirs. After Chairman Lee Kun Hee was hospitalized in May 2014 after suffering a heart attack, his only son stepped into the leadership role and steered the group of more than 60 companies without being named chairman, leading a spree of deals and announcing the largest buyback ever at its key electronics unit.

Record Buyback

The scion, known as Jay Y., wasn’t named chairman in Tuesday’s announcement. South Korean cultural norms dictate that the son doesn’t get the top title while his father is alive, even as most analysts expect the heir to eventually take control.

Lee, his two sisters and some relatives control Samsung Group through a web of cross shareholdings with less than 10 percent of total shares. The Lees are revamping businesses amid pressure from the South Korean government to simplify the chaebol’s organization.

Samsung Electronics announced in October it would spend $10 billion buying back and canceling shares, reflecting a need to win back investor confidence before the leadership transition.

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