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Samsung Electronics: Same CEO, New Leadership Team

Hoping to steer a way through the global downturn and shake off a damaging financial scandal, Samsung Electronics has appointed several younger executives to a new leadership team, heralding a shift in focus. In a Jan. 16 announcement, South Korea's biggest company said it will combine its handset, television, computer, and all other consumer businesses into one group. Choi Gee Sung, who had been running the company's mobile phone business, will head the newly formed Digital Media & Communications unit.

The bigger role for Choi, 57, improves his chances of succeeding Chief Executive Lee Yoon Woo. Lee, 63, replaced Yun Jong Yong last May but is seen as only a stopgap leader, mainly playing a coordinating role for Samsung's various groups. Though he remains CEO for now, his operational responsibilities will now be limited to the struggling electronics parts businesses, which are being combined into a single division.

The reorganization is the first major change at Samsung since it was tainted by a tax evasion scandal last year. The scandal, which led to a suspended three-year jail sentence for former Chairman Lee Kun Hee, also produced the resignation of former CEO Yun in May 2008 .

a switch to nonengineers

In addition to Choi's promotion, Samsung is advancing three executive vice-presidents, all in their early 50s, to head the LCDs division, its TV and visual diplay media division, and the auditing team. Samsung execs say the company will soon follow up with more organizational shuffling deeper within the company. Early next week Samsung will reassign lower-ranking executives. More divisional changes, such as streamlining manufacturing units, are expected to follow in the coming weeks. "There has been a sense of crisis in the company for more than a year," says one senior manager who asked not to be identified. "Radical change is in store."

Choi's rise underscores a break from Samsung's tradition of picking top managers with backgrounds in engineering. After joining Samsung's trading arm in 1977 arm, Choi had a stint as chief design officer and established Samsung's chip business in Europe in the 1980s. He's best known as a marketing expert, however, and is credited with having steered Samsung past Sony (SNE) to become the world's No. 1 TV brand in 2006. Choi took over the running of Samsung's mobile phone business in January 2007. By September 2008, the company's global market share stood at 17.1%—second only to Nokia and up from 14.4% in 2007.

Analysts say the rise of Choi and other nonengineers shows that Samsung, having established its technological credentials, wants to listen more carefully to customers when developing future products. "Samsung's benchmark is shifting from Japanese companies to innovators like Apple (AAPL)," says Kang Shin Woo, chief investment officer at fund manager Korea Investment Trust Management.

after seven years, a chip loss

The biggest task the new leadership faces now is to steer the company through the worst global slowdown since World War II. Samsung was the only maker of memory chips that remained profitable in the three months that ended in September 2008. For the October to December quarter, though, analysts expect Samsung's chip business to post the first loss in seven years, dragging down company earnings.

Executive Vice-President Chu Woo Sik said in December that Samsung is also "struggling very hard" in its LCD business, which is suffering amid an oversupply of flat-screen TVs and plunging prices. That leaves the company relying on sales of mobile phone handsets to make money. Once again, though, the outlook is bleak, with market researcher Strategy Analytics predicting a 1% decline in global handset sales in 2009. That should add up to Samsung posting its worst quarterly financial performance in a decade later this month. Still, industry watchers warn this is no time for Samsung to retreat. "It's critical for Samsung that the new leadership keep investing in new technologies and equipment fast enough [so they can increase market share] and benefit from the downturn," says Chang In Whan, chief executive at fund manager KTB Asset Management.

A new generation of leaders at Samsung also raises hopes among shareholder activists that it will embrace international business practices. After last year's tax scandal, Samsung disbanded its powerful Strategic Planning Office, which Korean prosecutors alleged arranged illegal business deals to benefit the Lee family at the expense of other shareholders. The prosecutors also said the Lees owned more than $4 billion worth of securities in accounts held in other people's names to avoid paying hefty taxes. "The younger leaders open the way for Samsung to improve transparency," says Kim Sun Woong, head of the Center for Good Corporate Governance, an independent think-tank.

Moon is BusinessWeek's Seoul bureau chief.

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