Samsung initiates comprehensive review of smartphone business

Samsung Electronics has initiated an internal review of its smartphone division due to a wide range of concerns, from supply bottlenecks to chip performance.

Galaxy smartphones are displayed at a retail store in southern Seoul. [NEWS1]

Samsung Electronics has initiated an internal review of its smartphone division due to a wide range of concerns, from supply bottlenecks to chip performance.

It comes as the company, Korea's largest, faces challenges on a number of fronts related and unrelated to the smartphone business.

"The review is intended to address tough external conditions, such as rising logistics costs and the purchasing of chips being installed in the smartphones," said a spokesperson at the electronics manufacturer.

The company says the process will be comprehensive, looking at development, purchasing, customer service and marketing. It will specifically examine problems related to chip performance and software that was developed to prevent chips from overheating.

The spokesperson explained that the ongoing examination is different from a full-fledged probe, which is led by in-house auditors and is for poorly-performing businesses. A review is done by the division and is staffed by employees of that division, so it is not an external probe.

"It will be conducted within the division, not by a corporate audit team," the spokesperson said.

The smartphone division was subject to a full-fledged auditor-led probe last year, while this year, the company's contract chipmaking — or foundry — division became a target of the probe, following reports about lower-than-expected yield rates for the company's advanced chips.

The review comes as the smartphone maker is adjusting its yearly production targets, according to market analysts and media reports.

"Samsung Electronics initially planned last year to produce at least 300 million devices in 2022, up 20 percent from the previous year," according to Park Hyung-wou, an analyst at Shinhan Financial Investment.

"We now expect Samsung Electronics to produce 270 million smartphones in 2022, down roughly 10 percent from our previous projection as global demand slows and due to the negative impact of the Game Optimizing Service (GOS) fiasco," Park wrote in a report, predicting production cutbacks are likely for both expensive and budget models.

But production targets for foldable models - the Galaxy Z Flip and Z Fold - increased from 13.5 million units to 18 million, according to the analyst citing parts suppliers.

The company refused to confirm.

Samsung Electronics has pre-installed the GOS app since 2016 on multiple Galaxy models, mainly to prevent overheating by cutting processing speeds. Consumer anger increased with the Galaxy S22 as the manufacturer blocked ways to disable GOS. Samsung Electronics later allowed the users to disable the app.

Park projects that Samsung Electronics is not alone in facing unfavorable market conditions, estimating that overall sales of smartphones will decrease by up to 10 percent this year.

Apple smartphone production will be flat this year at 220 million, according to Bloomberg.

To enhance the performance of chips powering Galaxy smartphones, the electronics maker has formed a task force to develop a new range of application processors exclusively designed for the Galaxy series, according to local press.

Samsung Electronics develops mobile application processors under the Exynos brand, and Exynos chips are not only used in the Galaxy S and A series devices but also by Chinese smartphone vendors.

The performance of the latest Exynos processors have come under fire due to overheating and slower processing speeds than competing products by Qualcomm, Apple and MediaTek.

A spokesperson at the company said that nothing is decided about the creation of the division.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]