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Samsung CEO announces shock resignation

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Samsung Electronics CEO and vice-chairman Kwon Oh-hyun.
Samsung Electronics CEO and vice-chairman Kwon Oh-hyun.

Samsung Electronics said today its CEO and vice-chairman Kwon Oh-hyun plans to step down from management, deepening concerns over a leadership vacuum at the tech giant after group scion Jay Y Lee was jailed for bribery.

The surprise resignation of Samsung's chip and display head came as he was expected to take a bigger role following Lee's arrest in February and the departures of other key executives in the wake of the bribery scandal.

The move came on the same day the South Korean smartphone maker forecast record third-quarter operating profit on the back of the memory chip business, which Kwon was instrumental in building into the world leader.

"The timing is nonsensical. Samsung tipped record earnings, it's going to be better in the fourth-quarter, and all that's been driven by Kwon's components business," said Park Ju-gun, head of research firm CEO Score.

Kwon, 64, is seen as Samsung Group number two. As well as being chairman of the board and a board director, he heads the components business - including memory chips - and the display business.

In a statement, the man known as "Mr Chip" said the time had come to "start anew with new spirit and young leadership".

"We are fortunately making record earnings right now, but this is the fruit of past decisions and investments; we are not able to even get close to finding new growth engines by reading future trends right now," he added.

The world's biggest maker of memory chips, smartphones and TVs is set to smash its annual profit record this year, thanks partly to soaring demand for memory chips. Semiconductors were Samsung's top earner in the three months through June, making a record 8 trillion won ($7.20 billion).

The global chip industry is undergoing a major shift, with Japan's Toshiba partnering with home rival SK Hynix, and other firms consolidating in search of new growth areas like artificial intelligence and automobiles.

Shares in Samsung, worth about $350 billion, fell 0.6% on Friday after hitting an all-time high earlier in the day.

Changing the old guard

Billionaire heir to Samsung Group Jay Y Lee.
Billionaire heir to Samsung Group Jay Y Lee.

The departure of 32-year Samsung veteran Kwon after five years in the top job comes at a time of leadership uncertainty at the company.

Choi Gee-sung, Jay Lee's mentor, quit earlier this year for his alleged role in the bribery scandal, and Samsung Electronics now needs to fill several more key roles with Kwon's exit.

Kwon would serve out his term as chairman of the board and board director until March 2018, the company said. He is also not stepping down immediately from his two other roles.

A Samsung Electronics spokeswoman declined to comment on the exact timing of succession and potential successors for Kwon's roles.

While Samsung Group is South Korea's top conglomerate with businesses ranging from smartphones to hotels, it has had no 'Plan B' for taking big decisions following Lee's arrest, people familiar with the matter have said.

"I'm worried about a leadership vacuum at a time when Lee is absent from management," Chung Sun-sup, chief executive of research firm Chaebul.com, said following Kwon's announcement.

However, the leadership changes could be an opportunity for a new generation to emerge, he added.

Increasing wealth

Meanwhile, Jay Y Lee, the billionaire heir to Samsung Group, should find some comfort that its crown jewel Samsung Electronics has reported record profit every quarter since he was jailed in February, making him even richer.

Detained over charges that he bribed former president Park Geun-hye, Lee has since missed the launch of two new flagship phones and three record-breaking quarterly earnings, including the July-September earnings guidance issued today.

Kwon was his top lieutenant and was expected to take a bigger role following Lee's arrest and the departures of other key executives in the wake of the bribery scandal.

While Lee is unable to do much to minimise a leadership vacuum at one of the world's biggest technology firms, the 49-year-old Samsung scion will get some solace that Samsung is chugging along without him.

He may also like to know his wealth, in terms of his stake in Samsung Electronics, has increased by at least 45% since his arrest.

His Samsung Electronics stake, albeit below 1%, is now worth 2.3 trillion won ($2 billion). Lee also received at least 11.8 billion won ($10.5 million) in dividends from Samsung Electronics during his detention and 837 million won in pay during the first half of 2017. He owns stakes in other Samsung affiliates.

Lee will miss another record earnings announcement expected in the fourth quarter as he is expected to stay in prison at least until February, when the appellate court hearing his case is likely to try to rule on the bribery suit.

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