Samsung Electronics Co. Ltd. and LG Electronics Inc, known for their snazzy consumer electronics, are struggling to make their low-tech home appliance divisions work.
The operations that make refrigerators, washing machines, air conditioners, and microwave ovens are suffering from competition, frail consumer spending at home and slow global demand.
This is the only area where success—and profit growth—has eluded both companies.Other businesses of making sleek, folding mobile phones featuring cameras and flat screens for televisions and computers have taken the market by storm.
In an attempt to mimic that performance, Samsung and LG have put their top managers in charge of fixing the divisions, which are focusing on premium, more lucrative products and are banking on a rebound in domestic spending.
Analysts agree a pick-up in demand is likely but would like to see results soon.
"Samsung should use its strong brand image in other successful businesses to rebuild its home appliance division," said Yu Chang-Eyun, technology analyst at BNP Paribas Peregrine. "The best of Samsung’s people are in more profitable businesses like memory chips, flat screens or handsets."
The home appliance business is more crucial for LG, which made white goods its mainstay in the late 1950s, than for Samsung, Asia’s most valuable electronics firm with a market value of U.S. $73 billion.
It accounts for just seven percent of Samsung’s revenues, or 860 billion won ($735 million) in the fourth quarter. LG, by contrast, derives more than a fifth of its sales from appliances, or 1.2 trillion won in the fourth quarter.
Samsung put Yun Jong-yong, a vice chairman and one of the company’s most powerful men, in control of the white goods business in January after reassigning the former president to the parent group’s cultural foundation.
LG Electronics appointed vice chairman Kim Ssang-su as the chief executive in September. He is credited as the brain behind LG’s rise to become South Korea’s biggest home appliance maker and the world’s fifth-largest mobile phone maker. Both men, known for innovative ideas, have risen to the top of South Korea’s corporate empires without the aid of blood ties to the companies’ founding families.
"We’ve put Yun to oversee the digital appliance division, hoping he can aggressively spearhead restructuring with his strong leadership," said Samsung spokesman James Chung.
The companies, which compete with General Electric Co, Whirlpool Corp and Electrolux AB in appliances, now are focusing on "premium" products that target wealthy customers and yield high margins.
Despite strong brands in emerging markets such as Russia and India, Samsung and LG’s home appliances are known for their cheapness in the U.S. and European markets.
"Focusing on premium products such as side-by-side refrigerators, air conditioners, washing machines, and microwave ovens, Samsung will capture strategic markets like North America, China and Europe, and strengthen brand marketing in emerging markets," Mr. Chung said.
Samsung, the world’s top memory chip maker and the third-largest mobile phone maker, ranked fifth in a global brand poll by consultants Interbrand, ahead of Nokia, Nike and Sony LG, the world’s biggest maker of air conditioners, didn’t make the top 10.
Samsung, which makes sleek "Hauzen" air conditioners and washing machines and "Zipel" side-by-side refrigerators, posted an operating loss of 111 billion won in home appliances in 2003, compared with a profit of 4.5 trillion won from chips and flat screens and 2.7 trillion from handsets.
Analysts are divided on the future: Merrill Lynch forecast an operating loss of nine billion won this year and a profit in 2005 but Citigroup expects a 36 billion won profit this year.
LG, known for "Whisen" air conditioners, "Tromm" washing machines and "Dios" refrigerators, reported the home appliance division’s operating profit fell 18 percent to 496.7 billion won in 2003, making it the only wholly-owned unit to report a decline.
LG became more focused on the digital appliance operation after selling off its semiconductor business in 1999."Domestic sales fell last year on the depressed economy and heightened competition with Samsung," said Kim In-seog, vice president of LG’s digital appliances division. (Reuters)
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