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By Kim Jin-chul, staff reporter

“The electronics business is undergoing dramatic changes, unlike anything it has experienced before, and currently faces a period of upheaval. It will collapse at once if we rest on our laurels and fail find a competitive edge for the future,” said Kwon Oh-hyun, chief executive officer of Samsung Electronics at the ceremony commemorating Samsung Electronics’ 43rd anniversary, which was held on Nov. 1 at the company’s headquarters in Seoul’s Seocho district.

Going so far as to even using the word, “collapse,” in his speech, Kwon hammered home the sense of “crisis.” This is not the first time the phrase “Samsung in crisis” has been used: when Samsung Electronics chairman Lee Kun-hee suddenly returned to management in March 2010, two years after his resignation due to the Samsung Slush funds scandal, his first rallying cry was ‘crisis’.

“We’re in crisis. Most of the businesses and products representing Samsung will be gone in 10 years,” Lee said.

It has been routine for top brass at Samsung to put the structure and staff under strict discipline by stressing that the company is in crisis. But the current atmosphere at Samsung is slightly different from the past. Holding the top spot in the global smartphone market, Samsung Electronics has enjoyed a string of record-breaking performances. As of the end of the third quarter this year, Samsung Electronics had 30.34 trillion won (about US$27.8 billion) in cash alone. The figures have passed the 30 trillion won mark for the first time after being stuck at around 20 trillion won since 2010.

At the peak of its success, why is Samsung management doing more to stress crisis? The main reason could be the global economy’s weak growth. Since overseas sakes account for 80 percent of the company’s overall earnings, falling demand in Europe and the US is a major concern for Samsung.

Samsung Electronics’ flagship smartphones are at the core of crisis. Half of third quarter sales came from the mobile business unit, and the operating profits of the IT Mobile Communication Division that includes the mobile business unit made up 70 percent of the overall profits. Samsung Display, Samsung SDI, Cheil Industries as well as Samsung Electronics reap significant profits from the sector of components and materials used for Samsung smartphones. This imbalanced structure means that if Samsung’s smartphone sector dwindles due to the economic recession, the entire Samsung Group behemoth is prone to stumble.

That the smartphone market has peaked is another reason for the crisis. Running on Google’s Android operating system, Samsung’s Galaxy series is not greatly distinguished from competing products, aside from slight variations in hardware and design. Its particular advantage, the massive screen of the Galaxy Note, is already being nullified by larger handsets from other companies such as Apple.

Wall Street Journal columnist Aaron Back pointed out in a column titled, “Samsung’s Success Is Its Biggest Weakness,” that “The success of the Galaxy line has been impressive, but with so much of its business now tied up in just a few products, any loss of momentum to competitors could have a major impact.” He also wrote, “But fashion is fleeting, especially for gadgets. A hot product today is no guarantee of future success. Just ask Samsung’s rival HTC - its phones sold like hot cakes last year but have since fallen out of favor.”

Samsung Electronics has moved into a phase where it desperately needs a new growth engine beyond smartphones and semiconductors. Vice chairman Kwon Oh-hyun said, “To acquire a new future growth engine, we must continue to develop new businesses and strengthen future competitiveness by aggressively pushing forward with strategies including open innovation”

The cash reserves of 30 trillion won, accumulated thanks to the success of the smartphone sector, for which facility investment expenditures are relatively low, is expected to be used to prepare for the long low-growth economy and new growth engines. Chairman Lee who left for Japan, Vietnam, and China early last month, has stayed on for a third week in Japan, contemplating countermeasures to respond to the crisis, according to an insider with the company.

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