Samsung plans to scale back its LED business due to unattractive profitability levels

Samsung to scale back LED lighting business

Samsung says it will cease its LED lighting business outside of South Korea, despite identifying the sector as a key growth business just four years ago.

Despite an LED boom, price wars have slashed profitability to levels deemed too unattractive in the long run, and Samsung Electronics’ decision follows Dutch rival Philips' recent move to spin off its lighting business.

Analysts say the retreat is a result of growing competition from Chinese manufacturers even as demand for LED lighting remains strong.

"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, and two months earlier Germany LED light producer Osram Licht announced a cost-reduction plan that included nearly 8,000 job cuts.

A spokeswoman at Samsung 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.

LED lamps last 10 times longer than fluorescent bulbs and 100 times longer than traditional incandescent tungsten filament bulbs.

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 ($47.5bn) in annual revenues by 2020 for its affiliates.

But the conglomerate has yet gain traction in most of these businesses. Though Samsung SDI is supplying German premium automaker BMW with electric vehicle battery cells, other businesses have yet to show significant revenue growth.

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.

The group’s patriarch, Lee Kun-hee, has been hospitalised since a May heart attack and analysts say 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.

"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 seems to be putting more resources into software or platform-oriented businesses," he said, noting Samsung Electronics' acquisition of home automation start-up SmartThings in August as well as Lee's recent meeting with Facebook CEO Mark Zuckerberg in Seoul.

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