At crisis-hit Samsung, nerves jangle as annual review looms

The next few weeks are traditionally a tense time at Samsung Electronics Co (005930.KS) as executives wait to see if their work over the year is rewarded with promotion at the South Korean firm's annual performance review.

This year, that tension has been ramped up several notches as the year-end ritual comes on the heels of the debacle over Samsung's flagship Galaxy Note 7 smartphone.

The world's top smartphone maker this month pulled the plug on the near-$900 device after phones overheated and caught fire. With some replacement phones suffering the same problem, Samsung has forecast a $5.4 billion hit to its operating profits. Some analysts predict the smartphone business may post a first quarterly loss for July-September.

"Everyone's afraid to be heard even breathing," said one Samsung employee. "There will be punitive measures; someone will have to take responsibility for this."

None of the Samsung employees Reuters talked to for this article wanted to be named as they were not authorized to speak to the media.

Samsung's annual personnel decisions - a common practice in South Korea around December - is a secret more closely guarded than even details of its new products. Executives are told about any changes only at the last minute.

Samsung insiders say there is more nervousness this year than normal, and talk internally of sweeping changes, with a cull both in the executive suite and on the ground level.

"There's a lot of talk there could be major turnover in the executive ranks on the hardware side," said an insider at the mobile division. "There's also a lot of concern among the working-level employees about a major restructuring."

Samsung told Reuters it was not considering any management changes or restructuring in response to the Note 7 crisis.

FRUSTRATION

The sense of frustration among Samsung staff has been heightened by the company's inability to find the cause of the fires in replacement Note 7s that began shipping last month with what Samsung said were safe batteries, insiders said.

"We are working around the clock to analyze the causes of the reported cases," Samsung said in a statement to Reuters, adding it is premature to speculate on what went wrong.

In an internal Oct. 11 email apologizing to staff, mobile chief Koh Dong-jin - who has been in the job for less than a year - wrote of the "big wound" the scrapping of the Note 7 would be for executives and employees. Samsung confirmed Koh wrote to staff, but did not comment on what he said.

Some Samsung workers said there were already rumors circulating internally about which executives might be ousted. Some investors and analysts have said top executives including Koh may be held responsible at the year-end review.

Others said they felt ashamed when people they know ditched the Note 7 for a rival product or when they heard news announcements about the phones being banned from aeroplanes.

Koh and other Samsung executives have been active on internal messaging boards, discussing with employees how to deal with the Note 7 crisis, insiders said.

About 70 percent of Samsung's more than 325,000 employees work outside South Korea. It is not clear how overseas jobs or those at subsidiaries might be affected by the Note 7 storm; Samsung said it has no plans to cut jobs this year in Vietnam, a major smartphone manufacturing base.

TAKING IT SLOW

Internally, the mobile business was criticized by some for changing product specifications without delaying launch schedules, putting staff and suppliers under pressure to deliver fast.

"Some people who work in other business divisions feel something like this was bound to happen," said a Samsung employee at the consumer electronics division, noting mounting pressure on the mobile business to overcome slowing growth amid strong competition from rivals including Apple Inc (AAPL.O) and Huawei Technologies Co Ltd [HWT.UL].

A person familiar with the development of the next Galaxy S smartphone, expected to launch early next year, said the process has now slowed as Samsung is anxious to avoid any repeat of the Note 7 problems in its future premium handsets.

"Depending on the cause (of the Note 7 problem), certain configurations may need to be altered," the person said. "So the specifics for the (next) phone have not been finalised."

Samsung is not likely to bring forward the launch of the next Galaxy S smartphone to make up for lost Note 7 sales, the person added.

Samsung told Reuters it will take "any and all necessary steps" to ensure product safety, but did not comment on whether the Note 7 fallout was affecting the next Galaxy S phone's development.

Source: Reuters

In Samsung's town in Vietnam, workers confident of riding out Note 7 storm

As Samsung Electronics (005930.KS) struggles to salvage its reputation after the safety problems that have beset its flagship Galaxy Note 7 smartphone, the South Korean company can at least bank on an army of Vietnamese workers for support.

Tens of thousands of them are involved in assembling more than a third of Samsung's smartphones - the Galaxy Note 7 included - in the Pho Yen area of Thai Nguyen province, which is about 65 km north of the Vietnamese capital Hanoi. Samsung's arrival three years ago transformed it from a sleepy farming district into a sprawling industrial town.

While the company expects to take a profit hit of around $5 billion from the scrapping of the fire-prone phone, 13 workers interviewed by Reuters outside the factory almost all said they are confident their employer will pull through. They also say Samsung pays well, offers good benefits and takes care of their needs.

"Recalling (Note 7) doesn't mean we are unemployed or such; Samsung also makes many other phones and new models, not just the Note 7," said Nguyen Thi Hang, one of some 110,000 Vietnamese who work for Samsung Electronics across Vietnam, making it one of the nation's biggest employers.

The Samsung factory workers get around $180 in monthly base salary, which can grow to around $300 when overtime, annual incentives and other benefits are included. That is well above average incomes in such rural areas.

Young workers are also drawn to the Thai Nguyen jobs by generous benefits, including subsidized or free meals, and accommodation that cost less than $3 a month. There are also organized sports, karaoke and discounts on various products and services, such as Samsung phones and hair salons.

Nguyen Van Doai, 27, a worker at the plant, said some overtime options had been reduced due to the Note 7 withdrawal, but there was no indication of job cuts.

"Samsung hasn't reached a level where they have to cut jobs because they are still hiring many people and constructing more buildings," Doai said.

Samsung Vietnam said on Wednesday there would be no job cuts this year as a result of the end of its production of the Galaxy Note 7, and its exports for 2016 would still grow as it ramps up production of other models.

SAMSUNG VILLAGE

Samsung has invested $14.5 billion in Vietnam, according to Vietnam's Association of Foreign Invested Enterprises, equivalent to 10 percent of the country's total foreign investment over the past three decades. The attractions for Samsung include relative political stability, tax breaks and lower labor costs than in China.

For those who don't live on the site, the company provides transport. Every day, thousands of Vietnamese are ferried to and from their homes in Hanoi and other cities and towns in the region in a procession of buses to the sprawling factories in Thai Nguyen and Bac Ninh provinces. In a corner of the capital on Thursday, workers queued at daybreak to board 14 of around a hundred factory-bound buses, some still emblazoned with advertisements for the Note 7.

But there are some workers and people running local businesses who are not convinced Samsung's Vietnam operations will emerge unscathed.

Dentist Phung Minh Ngoc, who moved to Thai Nguyen from Hanoi a year ago to set up a clinic named "Rang Xinh Samsung" (Pretty Tooth Samsung), fears the Note 7 fallout could hurt his business.

"Their sales will certainly fall and so jobs for workers will lessen and workers' salaries may also decrease," he said.

One female worker at the Pho Yen factory, who declined to be named, said she was worried because her contract was up for renewal next month.

"I just brought my baby here with me. If I couldn't work for Samsung any longer, I would have to go back to farming," she said.

Source: Reuters

Samsung to replace or refund one million U.S. Galaxy Note 7 phones

Samsung Electronics Co Ltd (005930.KS) formally recalled 1 million Galaxy Note 7 smartphones sold in the United States, replacing or refunding the flagship phones, whose susceptibility to catching fire has damaged the image of the Korean powerhouse.

Samsung received 92 reports of batteries overheating in the United States, including 26 reports of burns and 55 cases of property damage, the company said as it announced the recall in cooperation with the U.S. Consumer Product Safety Commission (CPSC).

The recall is a costly setback for Samsung, which was counting on Galaxy Note 7 to bolster sales as rivals such as Apple Inc (AAPL.O) launch new devices. The scale of the recall is unprecedented for Samsung, the world's largest smartphone maker.

Samsung said on Thursday that new Note 7 replacement devices will be available at most retail locations in the United States no later than Sept. 21.

Earlier this month, Samsung said it would recall all Note 7 smartphones equipped with batteries it found to be fire-prone and halted their sales in 10 markets, denting a revival of the firm's mobile business.

While recalls in the smartphone industry do happen, including for rival Apple Inc (AAPL.O), the nature of the problem for the Note 7 is a serious blow to Samsung's reputation, analysts have said.

The CPSC said on Thursday that consumers should immediately power down and stop using the recalled Galaxy Note 7 devices.

The U.S. Federal Aviation Administration has asked airline passengers to switch off and unplug the recalled Note 7s during flights.

Some 2.5 million of the premium devices worldwide need to be recalled, Samsung said. Some analysts say the recall could cost Samsung nearly $5 billion in lost revenue this year.

Source: Reuters