Posted by: Moon Ihlwan on January 15
Will a new leadership shakeup inject fresh confidence into Samsung Electronics? That’s a key question many corporate analysts are asking as Samsung Group, South Korea’s largest conglomerate, prepares to announce a major leadership shakeup at its 59 affiliates, including its flagship Samsung Electronics. Spokesman James Chung at the electronics giant says an announcement will be made within days but declined to give further details.
The long-awaited leadership change at Samsung Electronics is significant for two main reasons. Firstly the new leaders will have to make key investment decisions in the face of the worst global slowdown since the Great Depression. Perhaps more importantly, the imminent announcement will give hints at who will emerge as the successor to CEO Lee Yoon Woo, who is largely seen as a stopgap figure. Lee was appointed as the CEO after both co-CEOs Lee Kun Hee and Yun Jong Yong stood down last spring in the wake of a tax-evasion scandal embroiling Samsung.
The influential Chosun Ilbo speculated today Lee Yoon Woo and Choi Gee Sung, now the head of Samsung’s telecom business, will form a “two-top” leadership. Lee is expected to head the component businesses of chips and liquid-crystal-diplay panels, while Choi is most likely to oversee set businesses such as TVs, handsets, PCs and DVDs, according to Chosun, which quoted an unnamed company source. Spokesman Chung declined to comment on the report.
Meanwhile, Samsung is expected to post its worst quarterly financial performance in a decade later this month as its memory chip and LCD divisions, traditionally major cash cows, no longer make profits because of sharp price declines. Nevertheless, Samsung will have to keep investing billions in chip and LCD facilities to maintain its leadership and increase market shares when consumers and companies start spending again in PCs, TVs and other electronic devices.
Some corporate analysts have said investors are beginning to lose confidence in Samsung in the lack of trend-setting products in the past year or so. While Lee Yoon Woo, as a 31-year-veteran of the company, has played a coordinating role, “what Samsung needs now is a stronger leader who could make quick investment decisions,” says Chang In Whan, head of fund manger KTB Asset Management.
Posted by: David Rocks on January 13
After the Satyam scandal, I started wondering how corporate governance in India stacks up against other emerging markets. I did a bit of digging around online, and found an interesting site run by a group called GovernanceMetrics International, or GMI. The New York consulting firm rates about 4,000 companies worldwide on dozens of metrics related to corporate governance: board accountability, financial disclosure, internal controls, shareholder rights, executive compensation, and more. Each company is given a score between 1 and 10.
The 58 Indian companies studied by GMI got an average rating of 4.91, placing India 19th out of 38 countries on the list. Topping the table is Ireland, with an average ranking of 7.55 for the 19 Irish companies assessed by GMI. Canada, Britain, and Australia are right behind. India is No.3 in Asia, behind only Singapore and Thailand. And it comes out ahead of Belgium, Denmark, and France. It's also well above the emerging markets average of 4.09.
I spoke with John Jarrett, the research director at GMI. He cautioned that the list shouldn't be taken too literally, since in some countries the group studies relatively few companies. But he said it provides a decent sense of the quality of governance in various countries. And, of course, he insisted that the group's research on companies is quite valuable (but you won't get that for free!)India, he said, scores relatively well due to its British legal tradition--which helps ensure shareholder rights. But he also said that Satyam scored relatively poorly because of questions about its board of directors.
Posted by: Kenji Hall on January 13
Would the recession put a damper on the tech industry’s glitziest event of the year? That’s one question I hoped to answer last weekend at the Consumer Electronics Show inside the Las Vegas Convention Center.
The show--a sprawling high-tech bazaar that ended on Jan. 11--stretched over four days, and executives had flown in from around the globe to hobnob and show off new products. A tour of the booths, I reasoned, might shed some light on how companies planned to get through one of the worst economic downturns in recent memory.
But it wasn’t as cut and dry as I had assumed. Companies had made plans for the show up to a year in advance, reserving hotel rooms, paying for booth space, and booking party venues long before the global financial crisis started to affect the tech sector. Sharp, for instance, hired a Cadillac Escalade SUV limousine to drive executives to dinner with Boston Red Sox slugger David Ortiz, a half dozen other baseball stars and tech journalists at the hip N9NE Steakhouse inside the Palms hotel. Intel kept its high-profile 12,000-square-foot booth near the convention center entrance and went ahead with a party featuring the band Counting Crows at the Luxor hotel’s LAX nightclub. “We had to book things for this year’s show by the first quarter of last year,” said Intel spokeswoman Suzy Pruitt. “And the food and other arrangements were paid for by the second quarter. I’d be curious to see what happens in 2010.”
Continue reading "CES Recap: Hard Times Bring Some Cutbacks"
Posted by: Kenji Hall on January 12
Just last month, Sony announced plans to lay off thousands of employees, delay spending on factories, and streamline its supply chain for semiconductor chips and flat TVs. The cutbacks, which came in the wake of a downward profit revision, were expected to help the company eke out a profit by lowering expenses to the tune of $1 billion over the next 15 months.
But now Sony faces the prospect of a sizable loss. That's according to the Nikkei business daily, which reported today that Sony could suffer an annual operating loss of "around 100 billion yen" ($1.1 billion)--its first such loss in 14 years--and that a pile-up of unsold goods in the January-March quarter might worsen the pain. The Nikkei said it would only be the second time the company has posted an operating loss since it went public in 1958 (the first was in the year that ended March 1995). Investors reacted today by selling Sony's shares, pushing them down nearly 9% at one point. The Nikkei index was down 4.6% in midafternoon trading. In a statement, Sony said that it had "made no announcement in this regard and at this time has no further comment."
Sony is slated to release third-quarter earnings on Jan. 29. The announcement will be telling: The October-December quarter is a make-or-break period for the company's electronics business. The division, which brings in 70% of Sony's revenues, raked in about a third of its annual revenues and almost half of its operating earnings during the third quarter last year.
If the Nikkei's predictions are true--the paper has a reputation for speculating about corporate earnings and spinning it as fact--they would be drastically lower than Sony's current forecasts. In October, Sony predicted that annual operating profit would fall 58% to 200 billion yen ($2.2 billion), from 475.2 billion yen ($5.3 billion) in fiscal 2007.
The reasons Sony is hurting now are no different from what they were a few months ago: The strong yen is eating into profits and the economic downturn has made consumers less willing to buy the gizmos that Sony and other tech companies make.
The problem now is, the yen's surge against the dollar hasn't let up, as industry executives had hoped. Like many global companies, Sony hedges against the risk of big currency swings. But recently its officials admitted that they had been unprepared for the euro's sudden weakness against the yen.
The yen is now hovering at 89 yen against the U.S. dollar and 119 yen against the euro. Sony had revised its currency predictions to 100 yen to the dollar and 140 yen to the euro. The difference could mean a significantly smaller sum when Sony converts its overseas earnings to yen and closes its books for the fiscal year because the company makes almost 80% of revenues overseas. What's more, weakness in global equity markets could do damage to the investments held by Sony's insurance and banking unit.
Bad news for Sony means others in the sector aren't likely to get away unscathed. In a report today, Goldman warned that Toshiba's PC unit may lose money in the fiscal second half (October-March), and predicted that the company's overall operating loss would exceed 35 billion yen ($391 million). (Toshiba's revised earnings call for 150 billion yen in profit, roughly $1.7 billion.) Last year, Toshiba's digital products division accounted for more than a third of overall revenues and about 6% of operating profit. "Toshiba currently appears to have excess inventory, mostly in Europe, and looks likely to take measures to dispose of it," Goldman analyst Ikuo Matsuhashi wrote in the report.
Posted by: Manjeet Kripalani on January 12
As the Satyam drama unfolds, becomes more mysterious and draws other players into its web of deception, the immediate thoughts of investors and analysts are: Will Satyam as a company live or die? If it dies, how will its assets be distributed? If it is broken up, who will find the pieces valuable?
Smart executives and industry insiders point out to a big fact: That 46% of Satyam’s business comes from package implementation, and within that, the biggest chunk of work is done integrating SAP’s manufacturing package. Wipro, TCS, Infosys, IBM, Congnizant – they all do SAP implementation, and in various areas like finance, pharma, chemicals, retail, as also manufacturing. But Satyam is the second largest in SAP manufacturing package implementation and maintenance player in the world.
Now that’s a strong position – and a valuable piece of business. Agreed, it’s not at the very high end of the value chain, but could be worth a lot to SAP, especially now. Analysts estimate it could cost SAP under $100 million to buy a healthy business – a bargain for SAP.
Two years ago, the German software maker may not have known what to do with a battered Satyam. But now things have changed. First, the largest conglomeration of software professionals is based in Bangalore today, and they are among the best in the world, doing high value work. Second, SAP wants to move into high value consulting from being just a software product company. Third, SAP wants to protect its customers and keep their accounts at Satyam viable.
So the company may be well disposed to buying that chunk of Satyam which works SAP’s software for clients. Satyam employees have the expertise, and it will give SAP a leg up, while buying it grace from its customers – particularly as software sales aren’t so strong in these recessionary times.
Saswato Das, SAP AG spokesman confirms that “SAP stands by its customers and will do everything to support them” but as for the possible buyout, he says only, “we are monitoring the situation.”
The Indian government has appointed three top-level, credible businessmen of India to head a new board at Satyam. The board met this morning, with the mandate of restoring confidence in the India story, and in Satyam’s employees, customers and investors. It has stilled some of the jangled nerves after Satyam chairman Raju’s arrest yesterday. But customers have already planned their exit strategies from Satyam, and are unlikely to stay with the company for more than the next three weeks, say insiders.
It’s better to salvage the good left in Satyam, and preside over an orderly winding up, than to witness the vultures circling overhead. SAP should keep its check ready.
