Samsung Overhauls TV, Appliance Operations as China Pressure and Chip Costs Bite

Samsung audits domestic sales unit as it reshapes production lines

Broad review targets appliances, mobile and other businesses

Some low-margin lines to close and shift to outsourcing

Samsung Electronics Co. has launched an intensive management audit of its Korea sales organization, which oversees domestic sales and marketing for TVs, home appliances and smartphones. At the same time, the company is undertaking a broad restructuring that includes winding down some low-margin appliance production lines.

The moves are aimed at countering a three-pronged squeeze from prolonged weak demand, pressure from Chinese rivals and a surge in raw-material costs linked to the Middle East conflict, industry officials said.

Samsung began the review of its Korea sales organization in late March, according to industry officials on April 28. The unit handles domestic sales and marketing and serves as a test bed for strategies later deployed in global markets. The audit is being led by Lee Sang-won, a vice president who heads the management audit team in Samsung's Device eXperience, or DX, division.

The review follows last year's assessment of the Visual Display, or VD, business led by the company's business support office. This time, Samsung has expanded the scope beyond production to frontline sales operations. The home appliance and TV businesses turned to losses in the fourth quarter of last year, and concerns have emerged that the mobile business could also slip into the red this year. That has prompted a ground-up redesign of the sales organization's cost structure.

Samsung is restructuring its business portfolio in parallel. The appliance division recently decided to shut some low-margin production lines, including dishwashers and microwave ovens, and shift them to outsourced manufacturing through OEM and ODM arrangements.

Domestic sales unit under review as Samsung shifts low-margin products to outsourcing

Microwave line to close as company focuses on AI appliances, HVAC and other higher-value businesses

Operating profit at Samsung's finished-goods DX division fell to 1.9 trillion won ($1.37 billion) last year from 17.3 trillion won ($12.49 billion) in 2021. Profitability has dropped to about one-tenth of its earlier level in just four years. The decline followed the end of the pandemic-era demand boom, weak consumption, mounting competition from China and so-called chipflation, or rising semiconductor prices.

The pressure has intensified this year. Samsung's appliance and TV businesses, which slipped into losses in the fourth quarter of last year, still face an uncertain recovery. Even the mobile business, long the DX division's final profit pillar, has been hit by soaring memory prices. Industry officials say that has raised the prospect of simultaneous losses across all of Samsung's finished-goods units for the first time. The audit of the Korea sales organization, the core of Samsung's domestic sales operation, reflects that urgency. The review, together with production adjustments now under way, marks the opening move in a wider overhaul of the finished-goods business.

China challenge shakes Samsung on its home turf

On April 28, industry officials said Samsung was reviewing the overall structure of its Korea sales operation, including marketing spending and inventory management. The unit manages appliance dealers, big-box electronics retailers and online malls in South Korea while setting sales strategy. That role also makes it a heavy spender on promotions and marketing aimed at attracting consumers. The current audit is focused on the business-to-consumer segment, where spending is especially high.

Samsung moved to tighten control of the sales organization as higher oil prices tied to the U.S.-Iran conflict and increases in memory and other raw-material costs weighed on profitability. Chinese appliance brands that once competed mainly on price have recently improved their technology as well, eroding Samsung's share in the South Korean market. Industry officials said Samsung appears to have concluded that its existing sales model is no longer sufficient. In robot vacuum cleaners, Chinese brands including Roborock and Ecovacs account for more than 70% of the Korean market.

The review goes beyond simple cost cutting. Samsung plans to eliminate unnecessary promotional spending and examine entrenched industry practices such as push sales and inventory management, then redesign the cost structure from scratch. Industry officials said the findings could later be applied across Samsung's global sales organizations. "The idea is to redesign the sales strategy and maximize efficiency," one industry official said.

Low-margin appliance lines also face restructuring

Samsung is simultaneously pushing ahead with a broader business overhaul. On April 17, the appliance division held a management briefing for employees and presented measures to improve profitability through structural changes. The company plans to reassess profitability by product and shift weaker lines to outsourced manufacturing. For non-core products such as dishwashers and microwave ovens, Samsung is reviewing a switch to OEM and ODM production. It has decided to close its microwave plant in Malaysia.

Samsung plans to redeploy the workers and resources freed up by those changes into higher-value businesses. Those include artificial intelligence appliances and software development, expansion in the global heating, ventilation and air conditioning, or HVAC, market, and a broader lineup of appliance subscription services and business-to-business products. A key part of the plan is to work with Germany's FlaktGroup, which Samsung acquired last year, to sharply expand its share of the central air-conditioning market, including cooling solutions for data centers.

"Profitability has reached its limit under the combined weight of rising costs from external risks and China's aggressive push," another industry official said. "A rapid shift toward higher-value businesses will be key to a rebound in Samsung's earnings."

Kang Hae-ryeong and Won Jong-hwan, Hankyung reporters hr.kang@hankyung.com