Samsung's Leadership Crisis Deepens as CEO Announces Plan to Resign

By Timothy W. Martin Features Dow Jones Newswires

The head of Samsung Electronics Co.'s components business plans to resign, in a surprise move with the departing leader acknowledging the firm faces an "unprecedented crisis" and is struggling to find new growth prospects. The development came after the South Korean tech giant said it expected another quarter of record profit.

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Samsung Electronics Chief Executive Kwon Oh-hyun, 64 years old, announced his plan to resign in a statement Friday. He will do so after his successor is named, according to people familiar with the matter, with a decision likely by the end of the year, the people said.

His decision to step away threatens to amplify concerns over a leadership vacuum atop Samsung, which is already challenged by the absence of its de facto leader, Lee Jae-yong, who was convicted in August for bribing South Korea's former president. The appeal trial for Mr. Lee, who has denied wrongdoing, started this week.

Mr. Kwon, who joined Samsung in 1985 long before it became a chips heavyweight, will also relinquish his vice chairman post by March, the company said. He had informed confidantes he felt he had accomplished all he had hoped to achieve in his career, according to people familiar with the matter.

He had been a steadying force and served as Samsung's public face while Mr. Lee has been away. In a statement, Mr. Kwon said he believed the company "needs a new leader more than ever," including young leadership, and a fresh start "to better respond to challenges arising from the rapidly changing IT industry."

A generation ago, Samsung was best known as a low-cost maker of home appliances. But in recent decades, the South Korean firm powered into new areas such as memory chips and smartphones.

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The critical question--especially with Mr. Lee behind bars and Mr. Kwon's planned departure--is whether Samsung can identify what's next.

"We are hard pressed to find new growth areas right now from reading the future trends," Mr. Kwon said in his statement.

A key weakness, say industry analysts, is that the South Korean firm lags behind Silicon Valley in producing popular applications or software. Its new voice-activated digital assistant, called Bixby, was beset by numerous delays earlier this year. Tech rivals have also beat Samsung to market with home speakers and artificial-intelligence technology.

Even with its lucrative components business, sustaining success won't be easy. Samsung must fend off China's deep-pocketed push into memory chips, plus a potentially rejuvenated Toshiba Corp., which signed a contract last month to sell its memory-chip business to a group that includes Apple Inc. and Dell Technologies Inc.

Samsung's current advantage in flexible mobile displays, in which it holds a 97% market share, could be punctured once rivals gain the ability to mass produce the curved screens.

For now, Samsung, the world's largest maker of smartphones and memory chips, has delivered record earnings, allowing it to shake off Mr. Lee's legal battle and the fallout from last year's global recall of fire-prone Galaxy Note 7 devices.

On Friday, Samsung said it expected operating profit of 14.5 trillion South Korean won ($12.80 billion) for the three months ended Sept. 30, which would top the previous quarter's record of 14.1 trillion won. Samsung Electronics shares, which fell 1.5% Friday, are still up 50% this year.

The components unit, led by Mr. Kwon, is a big reason why. Samsung has pumped tens of billions of dollars into memory chips and displays, making the firm a go-to supplier--even to its fiercest rivals.

In response to the Galaxy Note 7 fiasco, Mr. Kwon spearheaded a decision for Samsung to dramatically reduce the number of new endeavors it pursues a year, from typically about 100 projects to just half a dozen or so, according to a person familiar with the matter.

Mr. Kwon is one of three CEOs at Samsung Electronics, which divides itself into three major units focusing on mobile devices, electronic components and consumer electronics. The No. 2 person in the components division is Kim Ki-nam, 59, a veteran Samsung executive.

After Mr. Lee's bribery conviction in August, Mr. Kwon penned an internal memo to employees, calling the current times an "unprecedented challenge" and encouraged employees to continue working hard as they wait for "the truth to come to light."

Samsung's leadership ranks are stocked with executives who have decades of experience, so the firm should be able to find his replacement internally, said Mark Newman, an analyst for Sanford C. Bernstein.

"They've got a deep bench," Mr. Newman said.

Write to Timothy W. Martin at timothy.martin@wsj.com

(END) Dow Jones Newswires

October 13, 2017 06:38 ET (10:38 GMT)