Korea Needs to Shake Its Dependence on Samsung

      January 08, 2014 13:50

      Samsung Electronics posted lower-than-expected earnings for the final three months of 2013. Fourth-quarter operating profit fell a whopping 18.3 percent compared to the previous quarter to W8.3 trillion (US$1=W1,068), while revenues fell 0.14 percent to W59 trillion.

      The world's No. 1 smartphone maker, which had set record earnings every quarter since the fourth quarter of 2011, has seen its impressive growth momentum stall.

      Samsung's lackluster earnings stemmed from limits in the sales growth of smartphones, its key product. The market for high-end smartphones in developed countries, including the U.S. and Europe, is almost saturated. On top of that, latecomers such as LG, Huawei and Sony have begun to develop smartphones that are as good in quality as Samsung's, threatening its dominance.

      Another problem is that Samsung has yet to come up with a promising future product once smartphones have lost their luster. Since 2010, Samsung has boosted investment in solar cells, car batteries, light-emitting diodes, medical equipment and biotechnology, but it has yet to see any signs of concrete progress. If the smartphone business, which accounts for 66 percent of its profits, starts to slow down, the electronics giant and even the entire conglomerate could end up taking a huge hit.

      Despite Samsung's disappointing results, the domestic stock market ended a tad higher on Tuesday. Even Samsung shares ended down only W3,000 from the previous day, because the company's lackluster earnings had been expected and had already been reflected in its share price.

      But the fact that Samsung's performance made huge headlines in the stock market over the past days demonstrates the structural weakness of the Korean economy. Samsung accounts for 35 percent of the total revenues and 63 percent of operating profits of all of Korea's 10 largest businesses. This has prompted experts to say that the Korean economy would actually have shrunk last year had it not been for Samsung's earnings contribution.

      The future of any country whose economy hinges on a few businesses is bleak. Nokia, which once accounted for 25 percent of Finland's exports, 35 percent of R&D investment and 23 percent of tax revenues, ended up being sold off to Microsoft after it was unable to compete against Apple and Samsung. And that led to plummeting economic growth and soaring unemployment in the Scandinavian country.

      Samsung's task is to prepare for its future after smartphones. But it is the government's responsibility to make economic contingency plans should Samsung end up facing the worst-case scenario. Samsung's troubles must not be allowed to trigger an economic crisis.

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