Changes are in the wind at South Korea’s two major consumer electronics giants-LG Electronics Inc. and Samsung Electronics Co. Ltd.

The two family-run conglomerates or chaebols in South Korea separately are or could be in the midst of a shake-up in management. And the companies could be readying a new and major thrust in cell phones, LCD TVs and semiconductors.

Last month, Nam Yong, chief executive of LG Electronics, was ousted, amid lackluster performance within its LCD TV and smartphone units. He was replaced by LG executive Koo Bon-joon, the brother of LG Group Chairman Koo Bon-moo.  Since his appointment, Koo Bon-joon has already shaken up the company and vowed to accelerate product development.  He is also reportedly pushing for the company to buy a majority stake in memory maker Hynix Semiconductor Inc.

While LG Electronics has moved to reverse its misfortunes, there is much speculation surrounding rival Samsung.  Last week, Samsung  Chairman Lee Kun-hee raised eyebrows, when he said the company ''needs to get younger,’’ according to The Korea Herald. This prompted the belief that Lee Kun-hee ’s son, Lee Jae-yong, may assume a larger role in the company, implying that Samsung may implement an even more aggressive strategy than before.
 
Hyundai, LG and Samsung are among South Korea's largest chaebols or family-owned conglomerates. Starting in the 1960s and even before that, the chaebols helped fuel the miraculous economic growth in Korea. But for years, the family-run conglomerates have also been the subject of criticism.

Some charge the family-run companies control too much power and have benefited from too many special favors and questionable business deals from the government. Some of these conglomerates were exposed during the Asian Financial Crisis in the late-1990s, when many fell into huge debt or collapsed.
 
Many, including Hyundai, Samsung and others, have been the subject of ongoing scandals and corruption. In 2008, Samsung’s Lee Kun-hee resigned amid charges of tax evasion, but he has since returned to the company and re-assumed his star status in the country.  

And for the most part, Samsung is still the darling of South Korea. In contrast, rival LG Electronics has taken a back seat to Samsung and other foreign competitors, prompting a number of changes in the group. In recent times, LG Electronics fell behind in smartphones and LCD TVs. It also reportedly scrapped plans to sell a previously-announced tablet PC because the product was not competitive.

What's next at LG?
As a result, LG Electronics CEO Yong was replaced by Koo Bon-joon. ''It is rare for a CEO to be replaced before December within LG Group, and we interpret this as meaning LG Electronics is in a difficult situation and needs to find an urgent solution before things worsen further,’’ said Brian Sohn, an analyst with HSBC, in a recent report.

''Despite 4Q ‘10 earnings improvement, the market has been concerned over 1) CEO focusing too much on (return-on-invested capital) , which has reduced investment for the future; 2) executives from outside slowing the decision-making process; and 3) LG Electronics’ leadership weakening within LG Group, even though LG Electronics is the flagship company,’’ Sohn said.

The new CEO should correct the major issues at the company. ''We believe that (he) is the right person for the job of CEO as most of the company’s problems are related to lack of execution, which could be solved if there is strong leadership, which Koo has demonstrated in his role as CEO at LG International,’’ he said in the report.

''Investor confidence on LG Electronics is very low since the company has failed to execute for the last year, especially in the areas of smartphones and LCD TVs,’’ he said. ''We believe the new CEO could bring 1) a faster decision-making process enhancing execution, 2) improvement in supply chain management based on his  leadership in LG Group; and 3) acceleration of new businesses such as solar cells, LED lighting, and B2B-related business.''

Koo Bon-joon has already vowed to change LG Electronics’ culture, according to reports.  Earlier this month, LG Electronics got the ball rolling by announcing new executives to lead its home entertainment and mobile communications companies.

He tapped LG Executive Vice President Havis Kwon to lead the company’s home entertainment  company and current head of mobile R&D, Jong-seok Park, to head-up LG’s mobile communications (MC) company. Kwon has led home entertainment’s LCD TV division since 2007.

Skott Ahn, formerly president and CEO of LG’s MC company, will take over the role of chief technology officer (CTO). Woo Paik, the outgoing CTO, takes on a newly-created role at LG responsible for identifying and developing new businesses.

Still to be seen, however, is if LG Electronics will re-enter the semiconductor business. Koo Bon-joon was said to have been an executive at LG’s former chip unit, LG Semicon.    

In 1983, a Korean DRAM maker called Hyundai Electronics Industries Co. Ltd. was formed. The company was merged into LG Semiconductor Co. Ltd. or LG Semicon in 1999. In 2001, the combined entity was renamed Hynix Semiconductor.

Koo Bon-joon is reportedly interested in taking over Hynix. But burned by its past and unsuccessful exploits in ICs, LG’s board has balked.  Plus, LG’s board believes that it will assume too much debt—and will require too much capital-to buy Hynix.

Amid an upturn in business, Hynix remains in a holding pattern in regards to gaining a new majority shareholder. Creditors own a controlling 28 percent stake worth around $3 billion in Hynix.  A consortium of banks, former creditors and now owners of Hynix sold a 6.7 percent stake in Hynix for about $814 million in mid-March. This was part of a plan by the group led by Korea Exchange Bank (KEB) to unload a total of 13 percent of the company this year.

Prospects to unload those shares appear to be dim. Creditors can’t find a suitable buyer. LG recently rejected a plan to buy the shares. Reports have surfaced that LG may re-visit that plan.   

Samsung rules
Rival Samsung has been running circles around LG and other competitors, but the company is typically the subject of speculation and corporate intrigue.   

For some time, it has been widely believed that Lee Jae-yong is being groomed for the top spot at the consumer electronics giant.  ''According to industry sources, there is a high possibility that Lee Jae-yong will alter his ways of managing the business, from making cautious moves, to holding a bolder stance,’’ according to The Korea Herald.

He joined Samsung Electronics in 1991. In 2007, he was the chief customer officer. Then, he was promoted to executive vice president and chief operations officer last year.

What this could mean for the current president and CEO of Samsung Electronics, Choi Gee-sung, is unclear. Choi may move to vice chairman, according to the report.

It's hard to believe that Samsung could get any more aggressive; the company is dominating the memory and TV businesses, while it is also a major player in cell phones.

But if anything, Samsung’s chip unit remains too dependent on the memory business. It has attempted to expand into logic, foundry services and even power management—with mixed results. Perhaps Samsung is looking to take a page from Intel Corp., which is expanding into the software business by making various and recent acquisitions. Typically, Korean companies are strong in hardware, but weak in software.

Generaly, Samsung is exposed to the roller-coaster memory cycles.  It recently said that, despite rising sales, its third-quarter operating profit is likely to fall from Q2's record high.
 
''Samsung's negative (pre-announcement) highlighted weakness in pricing across its three major segments - LCD TV, DRAM, and NAND - as well as slowing end demand. Clearly, a negative for 4Q panel starts (we model minus 5 percent verses. consensus of flat), and portends continued weakness for DRAM pricing,’’ according to Barclays Capital.

Still, Samsung continues to spend and expand at a staggering rate. In May, Samsung  announced that it would double its capital spending to boost its capacity in semiconductor and flat-panel display manufacturing.

Samsung said it would spend 18 trillion won (about $15.7 billion) in 2010. At about the same time, Samsung said it planned to invest about 23.3 trillion won (about $20.6 billion) in five emerging businesses over the next decade, according to reports.

As it invests in solar cells, LEDs for lighting, rechargeable batteries for electric vehicles, biopharmaceuticals and medical devices, the company expects to create 45,000 jobs, the reports said. The investment should add about 50 trillion won (about $45 billion) in annual sales by 2020, the reports said.

In another segment, Samsung continues to expand into smartphones  and has entered into the tablet PC market. Samsung is also pushing on several fronts in TVs. First, the company is marketing standalone 3-D TVs.  Second, Samsung has turned up the volume on its separate effort to establish a Web-connected TV platform or so-called Smart TV, based on today’s TV technology. And it is looking at combining the two technologies into a hybrid 3-D and Smart TV platform.   

By: DocMemory
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