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TECH
Samsung Sees Mild Recovery for Fourth Quarter but Warns of Tough 2016
In its search for new avenues of growth, the South Korean tech giant aims to learn from Silicon Valley

Updated Jan. 8, 2016 12:23 a.m. ET
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Samsung Electronics Co.’s estimates for its fourth-quarter performance reflected a mild recovery, but top executives indicated the company is weighing new approaches amid a cooling in global smartphone and semiconductor markets.


In an interview at the Consumer Electronics Show in Las Vegas, Co-Chief Executive B.K. Yoon said Samsung is looking to learn more from Silicon Valley, boosting acquisitions and having its top executives spend more time in the U.S.


“If we only work within ourselves, we can’t really keep up with the speed of change,” Mr. Yoon said Wednesday, pledging the company would seek to strike more deals and work more closely with startups. “With our own efforts, we cannot address everything.”


The South Korean technology giant said this week its operating profit for the quarter ended December likely grew 15% from a year earlier to 6.1 trillion Korean won ($5.1 billion). It estimated revenue was flat at 53 trillion won. Actual results are due at the end of January.


After a nearly two-year slump in earnings, Samsung showed signs of a recovery in the third quarter as the company pared the number of smartphone models it sold and as profit from chip sales hit a record high on robust demand and tight supply.

Even so, Samsung executives are aware of the fragility of the recovery—and of the company’s vulnerability to quickly shifting tides.


“The global economy will continue to see tepid growth while uncertainty will grow in emerging markets,” Kwon Oh-hyun, another Samsung co-chief executive, said in his New Year’s speech to a gathering of 500 employees this past week.


Mr. Kwon said competition will intensify this year for all of Samsung’s main products including smartphones, TVs and memory chips. Buoyant semiconductor prices have cushioned the earnings blow from weak mobile-phone sales.


Samsung’s smartphone business faces continued pressure from Chinese brands as they seek expansion even as the market’s growth slows. Research firm IDC estimated growth in global smartphone shipments slowed to 10% last year from nearly 28% in 2014. The Wall Street Journal reported recently that rival Apple Inc. has cut its order forecasts for iPhone components to suppliers in the past several months, citing people familiar with its supply chain.


“This year’s aim for Samsung will likely be about minimizing the damage from tough business conditions,” said Lee Seung-woo, an analyst with IBK Securities in Seoul.


Samsung’s Mr. Kwon said new business models are reshaping the technology industry around software and relevant platforms, putting less emphasis on hardware and posing a challenge to Samsung to beef up its software capabilities and pursue fresh growth.

Samsung’s booth at the 2016 CES trade show in Las Vegas. PHOTO: STEVE MARCUS/REUTERS
At the CES trade show in Las Vegas, Samsung executives touted services that would help it build what it described as an ecosystem of software and services, including a mobile-payment service, Samsung Pay, that it introduced last year, as well as new Internet-connected home appliances.


In a sign of increased emphasis on software, Samsung last month promoted Rhee In-jong, the fast-rising executive who spearheaded the launch of Samsung Pay, to head software development at its mobile unit.


Samsung’s top executives are increasingly talking about learning from Silicon Valley, an attempt to adapt to a fast-changing market by taking a page from nimbler upstarts like SmartThings, a U.S. business it acquired in 2014.


Starting late last year, Messrs. Yoon and Kwon and the company’s third co-CEO, J.K. Shin, have begun spending more time in Silicon Valley.


Mr. Yoon said he now spends about a fifth of his time in the company’s Mountain View, Calif. and Manhattan offices, adding that it has opened his eyes to the rapid changes in the industry.


“If you go to Silicon Valley, you realize change is taking place much faster than we imagine,” he said. As an example of the sort of collaboration Samsung seeks, Mr. Yoon pointed to a new connected refrigerator it unveiled at the trade show on Tuesday.


‘If we only work within ourselves, we can’t really keep up with the speed of change.’
—Samsung Co-Chief Executive B.K. Yoon
The “Family Hub” service, which allows consumers to play music, send messages and post photos from a panel on the kitchen fridge, was developed by a seven-person U.S. startup called Sticki, which Samsung nurtured in its San Francisco-based accelerator.


Mr. Yoon also praised Silicon Valley’s “tolerance of failure,” an attribute he said he hopes to foster at Samsung.


He acknowledged that changing the culture at a company as large as Samsung wouldn’t be easy, adding that only a fraction of the company’s employees would ever deal directly with SmartThings, which had 48 people when it was acquired last year. By contrast, Samsung employs 320,000 people in 84 countries.


The purchase of SmartThings, which manages a platform for connecting home appliances to one another, was a rare acquisition for deal-shy Samsung, which tends to develop hardware and software internally.


“We have lots of meetings at a management level, and we learn about how SmartThings works, and we want to have that culture trickle down at Samsung,” Mr. Yoon said.


Write to Jonathan Cheng at jonathan.cheng@wsj.com and Min-Jeong Lee at min-jeong.lee@wsj.com