Samsung's Dwindling Business Spells Trouble for Korea

  • By Park Keon-hyung

    May 30, 2018 11:36

    Samsung's share of the global smartphone market stood at 32.3 percent in 2013. That year, Samsung generated more than 60 percent of its total operating profit of W36.79 trillion from smartphone sales (US$1=W1,080). But last year, Samsung's global smartphone market share fell more than 10 percentage points to 21.1 percent, while operating profit stood at only W11.8 trillion.

    Samsung saw its operating profit drop by more than half in the span of just four years. Its share of the Chinese smartphone market fell to 0.8 percent in the fourth quarter of last year and stood at a mere 1.3 percent in the first quarter of this year in spite of the release of the new flagship Galaxy S9.

    In India, Samsung also ceded the top spot to China's Xiaomi, and its share of the premium market in the U.S. has slid to 22 percent compared to 42 percent held by Apple.

    As Samsung's smartphone business wanes, affiliated parts makers are also taking a hit.

    The decline heralds a crisis for Korea's IT industry, which has been spearheading the country’s export growth so far. If semiconductor exports led by Samsung and SK Hynix are excluded, Korea's manufacturing sector is shrinking.

    In the first quarter of this year, Samsung and SK Hynix accounted for 50 percent of the total operating profits of all listed companies in Korea. If semiconductor exports slow down, Korea's overall manufacturing sector will receive a severe blow, according to analysts.

    Korea is being overtaken by China and the U.S. in other future-oriented businesses as well. Google, Facebook and Amazon already dominate the global AI, big data, cloud computing and self-driving car industries, and Amazon, Google and Microsoft control more than 90 percent of the global market for cloud services.

    Amazon earned US$17.5 billion in sales and $4.3 billion in operating profit from cloud services last year.

    Backed by government funding of 800 billion yuan, Chinese manufacturers are hot on the heels of their Korean rivals in the global display market. Online retailer Alibaba is investing $15 billion in developing facial recognition, big data and online banking technology.

    But Korean companies are trapped by red tape and unable to invest boldly in such areas. The state-run Korea Development Institute in a study published Monday found that Korean companies lag markedly behind their U.S., Japanese and even Chinese rivals when it comes to bio, IoT, drone and blockchain technologies.

    The KERI warned that Korea will be unable to narrow its gap with those rivals over the next five years. If Korea's level of technology in those areas is set at 100, China stands at 108, Japan at 117 and the U.S. at 130 according to KERI.

    Kim Chgang-kyung at Hanyang University said, "Neither the government nor the businesses themselves are thinking about what industries to focus on after smartphones. Korea's economic competitiveness will continue to wane as long as the government fails to reduce red tape."

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