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Exploding phones? Samsung's heir apparent has bigger challenges

14 September 2016, 12:25Tim Culpan

As if he wasn't already one of the world's most powerful tech executives, Lee Jae Yong is set to become a whole lot more powerful.

While Jay Y.'s nomination to the board of Samsung Electronics comes amid the Note 7 battery crisis - inviting obvious and trite connections between the two - it's really no surprise that the scion of South Korea's largest business empire should be joining the directors' table.

If anything, we should be stunned that it took so long, given that his father Lee Kun Hee suffered a heart attack in 2014 and the only son has been shouldering more of the load since.

READ: Samsung 'fixes' Note 7 by limiting recharges to 60%

Should his appointment be approved by shareholders (which it will), Jay Y. won't join the board for at least another six weeks. By that time the Note 7 crisis will have mostly blown over and he'll be left to deal only with the financial and reputational fallout. Just look at Toyota if you have doubts about consumers' ability to forgive and forget.

Rather than exploding smartphones, Jay Y. will face an array of smouldering fires that he's going to have to put out once he actually detects them.

Let's start with the future of smartphones. Samsung is kicking it in global handset sales - current crisis notwithstanding - yet the market faces macro problems that even the Korean powerhouse can't avoid. For all the cliches about Apple-this, Apple-that, it's not Cupertino that Samsung's smartphone business needs to worry about. Instead it's the likes of Huawei, ZTE and Lenovo, which all have various levels of in-house technology that helps them compete against bottom feeders such as Xiaomi, Oppo and OnePlus. To date, Samsung is the master of this technology-plus-devices domain, but Jay Y. knows it won't last forever.

READ: 'Minor' battery flaw behind exploding Samsung Note 7

Then there are the chip and display divisions. For sure, Samsung is a world leader in both, and I've written before about how the cross-pollination between components and devices has helped both businesses. Yet don't imagine this will last forever.

More and more of Samsung's chip fabs are being devoted to creating products for clients that are also competitors; the same goes for displays. Apple is the most famous, yet Qualcomm also falls into the category. Apple has tackled this conflict head on by sending chips to TSMC, and will probably also turn to Intel more in future. At the same time, Apple has been hard at work in Taiwan developing fundamental display technology, including recent moves to start producing its own organic light-emitting diodes. Qualcomm has been trading TSMC and Samsung off against each other, and has other foundries it can tap.

History has shown that supplying your customers in one part of the business and competing with them in another isn't sustainable in the long term. At some point, Jay Y. is going to have to consider a split.

Finally, there's the whole universe of technology that's not hardware: cloud computing, internet of things, communications and social networking, fintech, healthtech, edtech. The list is long, yet for all its attempts, Samsung's depth in these fields remains shallow. M&A seems the obvious path, with the company itself outlining that as an area of focus for its new board member.

With a $197bn ship to steer and choppy waters ahead, Jay Y. surely knows that a few exploding phones won't amount to much of a navigation hazard.

- Bloomberg


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