Samsung Galaxy S5 Sales Tank, CEO In Glare

Samsung shipped 40% fewer GS5 smartphones than it expected to, leaving them piled up in warehouses.
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Samsung is taking a long, hard look in the mirror, but it hasn't yet decided whether it likes what it sees. The company is sitting on stockpiles of unsold smartphones and is seriously thinking about ousting the executive in charge. Stiff competition from every angle bit deep into sales of Samsung smartphones this year, and the company believes change may be in order.

This year hasn't been Samsung's strongest. The company released the Galaxy S5 smartphone -- its flagship device -- in April. Samsung moved 12 million GS5 units during the first three months of availability, a huge drop from the 16 million GS4 units shipped in mid-2013. Further, bullish predictions of GS5 sales led Samsung to manufacture 20% more units than it did of the GS4, according to sources cited by The Wall Street Journal. In total, Samsung has shipped 40% fewer GS5s compared to GS4s.

Samsung no longer spells out sales of its handsets, but one thing is for sure: There haven't been any self-congratulatory press releases bragging about sales of the Galaxy S5.

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Not only are people buying fewer flagship smartphones from Samsung, they are buying fewer entry-level and midrange handsets, as well. Samsung lost its No.1 position in the Chinese market to local companies such as Meizu, Huawei, ZTE, Xiaomi, and Lenovo. Chinese competitors have been able to undercut Samsung on price, while still offering quality products. Most, if not all, of these phone makers use Google's Android operating system.

Further, Samsung has wasted resources on its own operating system, called Tizen, which is not going anywhere. The company has delayed releasing Tizen-based handsets by a full year, with network operator partners backing out due to a lagging ecosystem.

The result? A 60% drop in profits during the third quarter. Samsung's mobile division is responsible for the lion's share of the company's profits, so its weak performance put screws to the entire company -- including the co-CEO in charge of mobile devices.

Samsung uses a unique management configuration and employs three co-CEOs. J.K. Shin is CEO of the mobile device business and has been for years. B.K. Yoon oversees the company's appliance and TV businesses. Kwon Oh-hyun is in charge of Samsung's semiconductor and display businesses. The WSJ's sources suggest that Shin's responsibilities may be handed to Yoon in one potential scenario. This would let the company reduce the number of CEOs to two, as well as provide some fresh perspective at the top of the mobile device business. With compensation totaling $10.9 million so far in 2014, Shin out-earns the other two CEOs combined. It's not clear if Shin will be given new responsibilities or cut from the company altogether.

Samsung conducts a review of its leadership each year. It did not comment on the WSJ's story.

Publicly, Samsung has said it will reduce the number of smartphones it makes each year by up to 30%. This year, it released some 54 handsets. Dropping that number to 40 will help slash expenses, and will also help it produce better devices in the long run. (Something to consider: Apple made two smartphones this year.) Samsung said it will renew its focus on entry-level and midrange devices to win back share in emerging markets.

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