CH147 | Heir

The iPhone craze showed no signs of cooling down over time.

The initial batch of 100,000 units sold out within a week, and Taewoo Electronics was running its factories at full capacity to meet the soaring demand.

As a result, Taewoo Electronics found itself in a state of emergency.

With workers assigned to iPhone production, overtime had become the norm, and even weekends were no longer off-limits.

As the situation worsened instead of improving, CEO Woo Sung-il came to me with complaints.

"Vice Chairman, our factories are overwhelmed. Even if we sell iPhones, most of the profits go to Apple. Is there really a need for Taewoo Electronics to allocate more manpower for this?"

"Who told you that Apple takes most of the profit?"

"You can see it just by looking at the contract. Apple only pays us 3% of its revenue as an outsourcing fee. The more we produce, the more we lose."

He only saw part of the picture.

If we only looked at the contract terms, it did seem like Taewoo Electronics was operating at a loss. But if we dug deeper, it was clear that this was actually a highly profitable deal.

"Yes, we receive 3% as an outsourcing fee. But have you considered the royalties Apple pays to Taewoo Electronics? The more iPhones they produce, the higher our royalty earnings. When you factor in both the royalties and the outsourcing fees, we’re not losing money—we’re making a huge profit."

Taewoo Electronics held patents for most of Apple’s core technologies.

On top of that, Taewoo owned 10% of Apple’s shares, meaning that even if we didn’t make a single cent from production, we were still turning a profit.

"I hadn’t thought about the royalties. My apologies."

"Do you know how much Apple’s stock has risen since the iPhone launch?"

"I believe it’s up more than 20%."

"After the dot-com bubble, most IT companies’ stocks have remained low. Apple is the only one hitting new highs. And Taewoo Electronics is benefiting from that too."

"…Since the iPhone launch, Taewoo Electronics’ stock has also started to rebound."

Even though it was still early, the stock market had already started to react.

Once the iPhone launched in Europe, Apple’s stock price could return to pre-dot-com bubble levels.

Taewoo Electronics’ stock, which had been cut in half, could also recover.

"Hasn’t the semiconductor division’s deficit also shrunk?"

"Our yield rate still hasn’t reached 70%, but it’s gradually improving, so our losses are decreasing."

"As long as iPhone sales continue, semiconductor demand will keep rising. That will push our semiconductor division’s yield rate even higher."

"I wasn’t thinking broadly enough. I’ll head straight to the factory and oversee iPhone production myself."

Quick to admit fault—good.

I had kept him in the CEO position of Taewoo Electronics because he followed orders well, but if I found someone more capable, I wouldn’t hesitate to replace him.

"Hold on a moment. Taewoo Telecom' CEO, Lee Joo-young, will be here soon. There’s something I need to discuss with both of you."

By the time I finished my cup of coffee, Lee Joo-young had arrived.

Like Woo Sung-il, Lee Joo-young had been busier than ever, and it showed in his haggard face.

"I heard Taewoo Telecom has been working overtime every day. Things must still be hectic."

"Thanks to the iPhone, our workload has increased tenfold. We had to triple the number of employees handling phone activations, and we’ve even had to pull in extra staff to manage the app ecosystem. We’re seriously understaffed."

Despite his exhausted face, Lee Joo-young spoke in a bright voice.

"Our market share is going to increase significantly."

"A lot of customers from other telecom providers have switched to Taewoo Telecom. If this trend continues, breaking the 60% market share mark won’t just be a dream."

"That will only happen if iPhone users have no complaints."

"We're constantly getting complaints about the limited availability of wireless internet."

I had anticipated this problem for a long time.

That’s precisely why I had installed free wireless internet on university campuses.

"Hmm, we need to prioritize installing wireless internet in places where people spend the most time."

"Most people spend the majority of their day at school or work. We’ll start with buildings owned by Taewoo Group, then expand to financial districts and Yeouido."

"It would be great if people could also use wireless internet on subways and buses. A significant portion of students and office workers rely on public transportation for over an hour a day."

In my past life, using wireless internet on the subway was completely normal.

But in this era, there were still places where cell phones barely got a signal, let alone wireless internet.

"Installing wireless internet on all subway lines will require negotiations with the Seoul city government."

"If we’re offering to install it for free, they won’t oppose it."

"The telecom cartel might try to block it."

"Then the Seoul mayor can kiss reelection goodbye. If word gets out that the mayor is the reason public transportation has no wireless internet, which citizen would vote for them?"

At the end of the day, politicians needed money to win elections.

Even if the telecom cartel funneled money into the campaign, a negative public image would make winning impossible.

"I’ll begin discussions with the city government today."

"And I’d also like to install wireless internet in cafes—starting with the ones owned by Taewoo Group."

"Are you referring to Starbucks?"

During the financial crisis, I had secured the distribution rights for Starbucks.

Since then, we had opened over 500 locations nationwide.

"There’s no better place to enjoy wireless internet than a café. Make sure to install power outlets so customers can charge their phones too."

"I’ll coordinate with the Starbucks division and get this done as quickly as possible."

An iPhone in one hand, a Starbucks coffee in the other.

This combination had already proven to be a winning formula, so there was no need to hesitate.

***

The iPhone craze continued for over a month.

Naturally, feature phone sales declined, throwing CL Electronics’ mobile division into crisis.

"When will we have a countermeasure for the iPhone? It's already been a month!"

"McKinsey just sent us their report!"

CL Electronics valued external perspectives for the company's growth.

To that end, they had commissioned the world-renowned consulting firm, McKinsey.

"Summarize the report for me."

"According to McKinsey, smartphones are nothing more than a temporary storm in a teacup. Even across all phone models, smartphone users make up no more than 10% of the market. So, focusing on feature phones would be the best strategy for increasing sales."

McKinsey tailored its advice to the companies that hired them.

Since CL Electronics had expressed interest in prioritizing feature phones, their report naturally aligned with that perspective.

"So even McKinsey sees it that way."

"I’ve tried using the iPhone myself, but it's slower than I expected. It still feels unfinished."

"It looks like we’re still a long way from the smartphone era."

"I believe it’s the right choice to invest our resources in feature phones rather than smartphones."

"Push forward with developing high-performance feature phones. What’s CL Electronics’ biggest strength? Even Apple uses our LCDs. All we have to do is equip our feature phones with the best possible displays."

From a future perspective, CL Electronics’ decision was a mistake.

With the rise of the iPhone, the fall of feature phones was inevitable, and the era of smartphones dominating the mobile market was on the horizon.

But only someone who knew the future could say that.

Since CL Electronics already possessed various technologies related to feature phones, focusing on them made sense for immediate revenue growth.

The present and the future.

The choice depended on which one to prioritize.

CL Electronics chose to focus on the present.

At the same time.

An emergency meeting was called at Samsung Electronics.

It was a large-scale meeting attended by all company executives, including Chairman Oh Hee-gun himself.

"I tried the iPhone myself. It’s so revolutionary that I can hardly believe it exists in this era. But when I checked the components, I found that most of them were produced by Samsung Electronics. So why is it that we couldn’t create a phone like this?"

"Apple built the iPhone based on their failed product, the MessagePad. Because of that, many predicted the iPhone would follow in the MessagePad’s footsteps and fail as well."

"Look, I’m not here to blame anyone. We've already achieved the world's No.1 spot in the feature phone market. But don’t you think we should aim to be No.1 in the smartphone market as well?"

Chairman Oh Hee-gun spoke as if it were the most natural thing in the world.

He had emphasized time and again that every product from Samsung Electronics had to be the best in the world.

"The moment we become number one globally, our revenue will double, even triple. We’re already number one in feature phones, and we must also be number one in smartphones."

"Right now, all of our resources are focused on feature phone development. If we divert our efforts to smartphones as well, we risk losing both."

"It's always 'we can't do this' and 'we can't do that.' Do you know why those words come out so easily? It’s because you don’t care about the company. And it’s because you don’t want to take responsibility! Saying 'we can’t' is just a way to avoid accountability!"

Chairman Oh roared in frustration.

All the executives exchanged wary glances, silently rebuking the head of the mobile division for provoking the chairman.

Yet, despite the tension in the room, the mobile division director continued speaking, oblivious to the atmosphere.

"This is a time for selection and focus. To maintain our lead in feature phones, we must dedicate all our efforts to them."

"Hmph. Those who fear change can never become first-rate. I rarely use the word ‘never,’ but let me make this clear—if we don’t change now, Samsung will NEVER become a world-class company."

"……."

Only then did the mobile division director fall silent.

He realized just how unwavering Chairman Oh’s resolve was. No matter what argument he made, it wouldn’t change the chairman’s mind.

"If you’re afraid of change, then fine—don’t change. Do as you please. Those who want to change a little can change a little, and those who want to change a lot can change a lot. I have all the time in the world to wait. But one thing—don’t hold others back. That’s all I ask."

"Understood, Chairman!"

"In the process of change, mistakes will happen. If you challenge yourselves again and again, you’ll make countless errors. And that’s fine. Every mistake made in this process will become an asset. That’s what I’m saying!"

Samsung Electronics made a different choice than CL Electronics.

While CL Electronics decided to focus solely on feature phones, Samsung Electronics committed to developing both feature phones and smartphones simultaneously.

From the perspective of Samsung’s executives, this decision was frustrating.

It already seemed overwhelming to defend their dominant position in the feature phone market—why divert resources to smartphones, which still had a relatively small user base?

But at Samsung Group, Chairman Oh’s words were law.

Whether they liked it or not, Samsung Electronics had no choice but to begin smartphone development.