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Bloomberg
The people who make Samsung phones are an elite bunch. They hold the most coveted jobs at the most valuable company within Samsung Group, the largest and most prestigious conglomerate in South Korea.
But the sense of exceptionalism was smashed last week as Samsung Electronics Co. took the unprecedented step of killing off an entire generation of its Note 7 smartphone after persistent problems with battery fires and explosions. Now the 26,600 workers in Korea who were celebrated for taking the company’s profit and brand to new heights are seen as responsible for the worst crisis in Samsung Electronics’s 47-year history.
A sense of gloom has descended, employees say, describing the episode as sad and tragic.
Samsung has said the fiasco will cost more than $5 billion and the phone unit will probably pay a steep price. The division has often received the biggest bonuses within Samsung Group, typically about half of base salary, and employees now suspect they may get nothing. Some senior executives will likely lose their jobs too, including perhaps chief D.J. Koh.
“The mobile unit had naturally towered above other business divisions,†said Kim Young-woo, an analyst with SK Securities Co. and former Samsung employee. “Now they’ve created what may be the worst-case scenario for corporate recalls in business school textbooks.â€
Samsung declined to comment on salaries, bonuses or potential job losses. “Right now, our focus is ensuring that all remaining Note 7 devices are returned to ensure the safety of our valued customers,†the company said in a statement.
Samsung introduced the Note 7 in August and recalled the first batch of 2.5 million smartphones in September. The company was forced to call back the phones again this month after replacement devices it said were safe also overheated.
Samsung is navigating the crisis with its leadership in transition. Lee Kun-hee, the family patriarch and chairman, has been hospitalized for more than two years after a heart attack. His son, Jay Y. Lee, is vice chairman and heir apparent, but hasn’t been able to take his father’s position because of Korean customs. In the meantime, Samsung Group is being led by a management committee, which includes the younger Lee and Co-Vice Chairman G.S. Choi.
SMARTPHONES RISING
For years, the mobile-phone unit was just one of several important divisions within Samsung Electronics, along with semiconductors and televisions. That changed with the advent of the smartphone and Samsung’s success in becoming a leader in the burgeoning new field. The mobile-unit accounted for 27 percent of revenue in 2010, with the proportion surging to 61 percent in 2013.