Just four years back, Samsung Electronics had identified its light emitting diode (LED) business as a key growth area, but according to the latest announcement made by the South Korean firm, it will be scaling back and only provide it in its own country. This decision comes right on the heels of the announcement made by Phillips, the company’s Dutch rival, to spin off its lighting business, which is nearly a century old. Profitability has been slashed by price wars to levels that were deemed unattractive in the long term even though the incandescent global lighting industry has been upended by an LED boom.
According to analysts, the retreat made by the South Korean giant is a reflection of the growing competition from Chinese companies, despite the fact that LED lighting has a strong demand in the market. As compared to fluorescent bulbs, LED lamps can last 10 times longer. As far as traditional incandescent tungsten filament bulbs are concerned, LED lights can last 100 times longer than those. According to a Seoul-based analyst, Samsung had made the decision of folding the business due to fierce price competition and not much room for growth. In September, it had been announced by Philips that its lighting business would be spun to expand to its consumer divisions and healthcare, which offered greater margins.
Two months back, another maker of LED lights Osram Licht AG, based in Germany, had announced a plan to cut-costs, which meant that 8000 jobs were eliminated. Samsung Electronics’ spokeswoman said that there was a small revenue contribution from this business, but didn’t provide any specific details including the investment of the company. In a statement, the company said that the company would still have the LED component business to stay active in this particular industry and it would shift its focus on different areas such as backlighting for displays on televisions and other consumer products.
The decision of the South Korean firm also underscores the problems it and the entire Samsung Group is facing for coming up with new growth drivers. The company has been witnessing a fall in its smartphone business, which is the largest in the world. Moreover, Lee Kun-Lee, the group patriarch, has been hospitalized since a heart attack in May. In 2010, LED, rechargeable cells had been identified by Samsung Group for electric hybrid cars, medical devices, solar cells and biopharmaceuticals as new drivers for growth of the conglomerate and said that they would generate $47.5 billion in revenues in the next 10 years.
However, the Group has yet to gain any major success in any of these businesses. Even though BMW, German premium automaker is getting its electric vehicle battery cells from Samsung, there has been no major revenue contribution seen from other businesses. There has also been speculation that the company may pull back from the solar business as well. A spokesman of the company said that research and development is ongoing, but as per analysts, the entry of Chinese firms and reducing oil prices has hurt the outlook.