SEOUL Samsung Electronics Co Ltd (005930.KS) said on Monday that it will cease its light emitting diode (LED) lighting business outside of South Korea, scaling back what was identified as a key growth business just four years ago.
The pullback comes on the heels of Dutch rival Philips' (PHG.AS) recent decision to spin off its century-old lighting business. Price wars have slashed profitability to levels deemed too unattractive in the long run, despite an LED boom that has upended the global incandescent lighting industry.
Analysts say Samsung Electronics' retreat reflects the growing competition from Chinese manufacturers even as demand for LED lighting remains strong. LED lamps last 10 times longer than fluorescent bulbs and 100 times longer than traditional incandescent tungsten filament bulbs.
"It appears that Samsung decided to fold the business because price competition was so fierce and there was not a lot of room for growth going forward," said Seoul-based IM Investment analyst Lee Min-hee.
Philips said in September that it will spin off its lighting business to expand its higher-margin healthcare and consumer divisions. Two month earlier, Germany's Osram Licht AG (OSRn.DE), which also makes LED lights, announced a cost-cutting plan that included nearly 8,000 job cuts.
A spokeswoman at Samsung Electronics said revenue contribution from the business was small but did not comment on specifics, including how much Samsung had invested.
"We will remain active in the LED industry through our LED component business," Samsung Electronics said in an emailed statement, adding that it will focus on areas such as backlighting for displays of consumer products like televisions.
Samsung's decision also underscores the challenges faced by the company and the wider Samsung Group in nurturing new growth drivers. Samsung Electronics is battling falling profits in its smartphone business, the world's largest, and group patriarch Lee Kun-hee has been hospitalized since a May heart attack.
In 2010, Samsung Group identified LED, rechargeable cells for hybrid electric cars, solar cells, medical devices and biopharmaceuticals as new growth drivers for the conglomerate and tipped them to generate 50 trillion won ($47.5 billion) in annual revenues by 2020 for its affiliates.
But the conglomerate has yet gain traction in most of these businesses. Though Samsung SDI Co Ltd (006400.KS) is supplying German premium automaker BMW (BMWG.DE) with electric vehicle battery cells, other businesses have yet to show significant revenue growth.
SEARCH FOR GROWTH
Identifying and developing new growth drivers will be a key test for Jay Y. Lee when he takes the reins at the group from his father.
Some media reports have speculated that Samsung may also pull back from the solar business. A Samsung SDI spokesman said the firm continues research and development in the sector, but analysts say the recent decline in oil prices and the entry of Chinese players have hurt the outlook.
"These moves also give us a small glimpse of Jay Y. Lee's management style, with him now at the helm for five months," said Park Ju-gun, head of corporate watchdog CEO Score.
"He's moving away from businesses like solar and LED lighting and seem to be putting more resources in software or platform-oriented businesses," he said, noting that Samsung Electronics' acquisition of home automation startup SmartThings in August as well as Lee's recent meeting with Facebook Inc (FB.O) CEO Mark Zuckerberg in Seoul.
Samsung Electronics shares ended 1.5 percent lower on Monday, underperforming a 0.3 percent rise for the broader market .KS11, but showed muted reaction to the LED lighting exit.
(1 US dollar = 1,052.6100 Korean won)
(Editing by Ryan Woo and Tony Munroe)