UPDATED 22:17 EDT / OCTOBER 12 2017

INFRA

Despite record profit, Samsung Electronics CEO resigns, citing lack of new growth engines

Samsung Electronics Co. Ltd. caused a stir Friday morning in South Korea, announcing that Oh-Hyun Kwon, its chairman, chief executive officer and head of its semiconductor operation, will step down from his role at the company by March.

The surprise news comes as Samsung delivered a preliminary earnings forecast that suggests it will pull in its biggest operating profit ever in its third quarter on the back of skyrocketing memory chip prices.

Kwon’s resignation is a shock because he was tipped to take on a much more prominent role at the company following the scandal involving its Chairman and de facto leader Jay Y. Lee, who was arrested in February on bribery charges and has since been convicted and jailed for five years. Now, with Lee out the picture and Kwon handing in his notices, it’s unclear who will lead the company from here.

“I believe the time has come for the company to start anew with new sprit and young leadership to better respond to challenges,” Kwon (pictured) said in a statement to the press.

Kwon is chief executive, heading the device solutions division, its chip business, at Samsung Electronics, which also has two other CEOs, Jong-Kyun Shin for IT and mobile communications and Yoon Boo Keun for consumer electronics.

The announcement came just hours after the company said in newly published guidance that its third-quarter profit will be the highest ever, thanks in part to strong demand for its flash memory chips. Samsung predicted an operating profit of 14.5 trillion won ($12.8 billion), a massive 174 percent increase from the same period a year ago, when its sales were hit by its recall of the Galaxy Note 7 smartphone.

Samsung also said it expects to see record third-quarter revenue of 62 trillion won ($5.4 billion), which is up almost 30 percent from a year ago.

Samsung’s guidance did not elaborate on the performance of specific business units, but analysts say the firm’s revenue growth was likely driven by the strong performance of its flash memory chip business. Demand for DRAM chips has outpaced global supply for six straight quarters, according to DRAMeXchange, a division of data provider TrendForce that covers the market. So strong is this demand that Samsung, the world’s leading flash memory maker, has been able to secure both high prices and high volumes for its flash products, with some analysts estimating a profit margin of almost 50 percent.

Another reason for Samsung’s success this quarter is the rapid sales of its new Galaxy Note 8 smartphone, which is the successor to the disastrous Note 7 that was recalled after reports of exploding batteries. Samsung said that pre-orders for the phone were the highest ever for its Note series. Samsung has also reportedly benefited from rapidly accelerating sales of its organic light-emitting diode smartphone screens, driven mostly by demand from Apple Inc.

The stellar performance of Samsung’s memory chip business makes Kwon’s resignation all the more surprising. Reuters reported that 64-year old Kwon, widely known inside the company as “Mr. Chip,” is the primary person responsible for the unit’s growth, having led it since 2008. It’s said that Samsung’s memory business now generates the lion’s share of the company’s profits, dwarfing revenue even from its smartphone business.

However, Kwon surprised journalists by saying he didn’t think he had what it takes to propel Samsung through its next stage of growth. “We are fortunately making record earnings right now, but this is the fruit of past decisions and investments,” he said. “We are not able to even get close to finding new growth engines by reading future trends right now.”

Kwon’s last comments probably won’t inspire much confidence about Samsung’s potential going forward, but one analyst told SiliconANGLE that the electronics giant has consistently shown that it can overcome whatever obstacles are thrown in its path.

“It’s never a dull moment at Samsung, but the company doesn’t come to rest and is still executing,” said Holger Mueller, principal analyst and vice president of Constellation Research Inc. “[Samsung’s continued success] shows the resilience of the enterprise and at the same time the weakness of the competition. To a certain point Apple can regard itself lucky, as the market situation would probably look very different if not for the Note fiasco, and if the company had stable and proven management at the helm.”

The CEO said his resignation was not effective immediately, and that he would stay on as a member of the firm’s board of directors until his term ends in March.

Samsung’s stock price briefly hit a record of 2.74 million won per share on Thursday, before rolling back slightly to 2.7 million won. The company said it will announce its final third-quarter results later this month.

Image: ISSCC Videos/YouTube

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