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Business

Samsung seeks components-driven comeback

Pivot to parts comes as smartphones, TVs lose steam

Samsung Electronics on Monday announced the results of its investigation into defects that caused some of its Galaxy Note 7 smartphones to catch fire.

SEOUL -- With defects marring its smartphone business and Chinese rivals hot on its heels, Samsung Electronics is falling back on the kind of products consumers do not buy: semiconductors and display panels.

Case closed

Defective batteries from two suppliers were behind the spontaneous combustion of Samsung Galaxy Note 7 smartphones last year, the South Korean electronics giant said Monday.

Seven hundred engineers checked more than 200,000 smartphones and 30,000 batteries, said Koh Dong-jin, president of Samsung's mobile business, in a news conference here.

Koh did not identify the battery suppliers. But they are said to be Samsung SDI and Amperex Technology, a Hong Kong unit of Japan's TDK. Samsung SDI batteries for the Note 7 are said to have a design flaw, while Amperex batteries appear to suffer from a manufacturing error involving insulating tape. Both problems cause positive and negative electrodes to come into contact and short-circuit the batteries, according to experts.

Samsung bears the ultimate responsibility for failing to spot the defects, Koh said, indicating that the company has no intention of seeking damages from the battery suppliers. To prevent similar problems in the future, an eight-point plan will include X-ray screenings and special inspections.

This officially lowers the curtain on the Note 7 debacle, but not the lingering impact on Samsung's smartphone business. Koh indicated that the company is leaning toward not exhibiting the Galaxy S8 at an international trade show in Spain next month. This successor to the Note 7 is now expected to hit the market around April rather than February.

Chips not down

Samsung has seen its global market share in phones fall from more than 30% to around 20%. As Chinese competitors catch up quickly, gone are the days when Samsung had to keep its eye only on Apple, its biggest rival. TVs are no longer so lucrative, either, with the influx of Chinese products further heating up price attrition. The consumer electronics business' ability to drive earnings at Samsung has fallen.

But its memory business, where prices have proved buoyant, has performed solidly. It helped Samsung make a 29.2 trillion won ($25 billion) group operating profit for 2016, preliminary results show -- up 11% on the year and second only to the record set in 2013. Sales figures show a slight rise to 201 trillion won.

Samsung has already moved to bolster its components segment to cushion the impact of the slowdown in smartphones and TVs. It decided last autumn to make its largest acquisition yet with a deal to purchase U.S. automotive electronics producer Harman International Industries for $8 billion, making a clear advance into this field. Samsung also plans to invest roughly 10 trillion won a year in production of OLED panels. The company intends to supply the next-generation displays, which use organic light-emitting diodes, broadly even among Chinese smartphone rivals.

If Samsung can apply its renowned decisiveness and agility to reorienting its business more toward industrial goods instead of consumer gadgets, the South Korean group may regain strength before too long.

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