Samsung Electronics “Creating new lifestyles for the world”

Wilfredo F. Acevedo

Michael L. Bokor

John C. Kluka

Daniel G. Koetter

David R. Pettengill

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OverviewLine of Inquiry

Strategic Positioning

Marketplace Differentiators

Success Factors

Conditions of Sustainability

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Strategic Positioning

South Korea’s cultural advantages are diminishing due to an effervescing view of the population against corporate culture.

• Invest in Thailand and/or Philippines– Give us favorable business incentives– Cultural attitudes towards corporations are

similar to those in South Korea prior to the present

– Philippines has been cited as "the world's top source of knowledge workers"

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Strategic Positioning (cont.)

Taiwanese government has a very generous

tax code.– Offered to local Taiwan companies– Prepare joint venture or partnership to take

advantage of these tax breaks– WTO review of Taiwan’s compliance

Will the Taiwanese government be leery of allowing outside firms with a strong market share in Taiwan?

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Strategic Positioning (cont.)

• Diversification of factories and plant locations would minimize the effect of fluctuations in the exchange rate.

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Marketplace Differentiators

What makes Samsung stand out?

• According to President Kun Hee Lee;– Leading companies negligence– Pure Luck – Predecessors sacrifice

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Marketplace Differentiators (cont.)

Outstanding brand name recognition– Samsung is the 17th most recognized

company in the world– 24,000 researchers at 17 R&D sites around

the world– Fastest growing in the world for the 3rd

year in a row.

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Samsung’s Current Market share

http://webct.rpi.edu/SCRIPT/MGMT_1100_03_0601/scripts/serve_home

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Success Factors

Samsung has remained one of the most solvent companies throughout the past four years.

– Samsung’s assets are the most liquid of its competitors

– Its quick and current ratios hover around one for consecutive years

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Success Factors (cont.)• Company’s ongoing investments in manufacturing capacity

• Commitment to advancing technology and the high barriers to entry in the memory business

• Samsung’s profitable memory business has enabled a continuous investment in 300mm wafer capacity.

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Success Factors (cont.)

• Already successfully transitioned to 90nm

process technologies and has developed a groundbreaking 70nm process that will begin producing chips next year

• By the end of 2005, one out of every three

300mm wafers will have been produced within Samsung FABs.

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Solvency-Current RatiosCurrent Ratio - relates to the liquidity of the company

2004 2003 2002 2001 2000

Samsung .93 1.03 1.03 .38 .35

Hynix 1.35 .82 .89 .65 .33

Micron 2.13 2.06 1.58 2.02 3.58

Infineon 1.41 1.41 1.98 1.35 .81

Elpidia 2.03 1.12 .41 na na

• The ratio should be at or around the number one to show optimal liquidity standing.

• Samsung’s 2004 current ratio shows the most liquid as compared to all other firms. Samsung also leads its competitors in 2003, and 2002.

• Multiple factors could have affected Samsung’s 2001 and 2000 financials (i.e. acquisition, buy-back of stock, etc.)

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Solvency-Quick RatiosQuick Ratio

2004 2003 2002 2001 2000

Samsung 1.23 1.27 1.24 1.14 .59

Hynix 1.02 .56 .52 .41 .17

Micron 2.99 2.71 2.05 2.81 4.57

Infineon 1.92 1.84 2.49 1.76 1.31

Elpidia 2.36 1.31 .56 na na

• Samsung’s quick ratio shows improved liquidity between 2004 and 2003.

• The firm should focus on steadily reducing the current ratio to improve overall liquidity.

• In 2004, Hynix shows the best liquidity standings, however, shows overall unstable financial fluctuations.

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Management Style and Culture

Chaebols - South Korean business conglomerates.

• The Korean word meaning business group• Large, family-controlled Korean corporate

groups, assisted by government financing • This familial governance is being heavily

restricted by antitrust laws.

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Management Style and Culture (cont.)

GFRI’s - (Government Financed Research Institutes)

– Korea Development Institute– Korea Institute of Science and Technology

• Think tanks for the government in formulating economic and technological policy.

• Provided technical know how to commercial enterprises.

• Provided an essential infrastructure for Korea to absorb and improve foreign technologies.

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Management Style and Culture (cont.)

• Samsung should attempt to get back some of its millions or outstanding shares in order to attain a more balanced network that does not leave them susceptible to foreign hostile takeovers.

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Conditions of Sustainability

With technology expanding at such a rapid

rate, we must keep our strategies up to date

as well.

• Who do me make partners with?– Supplying DRAM for Playstation 3– Samsung DRAM is integrated into the I Pod– Also provide DRAM for Nokia, Motorola, and

Microsoft

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Conditions of Sustainability (cont.)

• Samsung has focused on high profit margin technologies in the past

– Focused on highly specialized machines

– Shied away low profit margin DRAM technologies

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Conditions of Sustainability (cont.)

• Samsung is an industry leader– First movers have huge advantages– First company to set up FAB in U.S.– Releases new products before competitors

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Threats to Competitive Advantages

Samsung’s Chaebol effectiveness– Subsidized loss making credit card unit,

Samsung Card

– Pleaded guilty to price-fixing charge

Issues like these, within a company, can halt relations and corrode a company from the inside, taking the attention off competitors.

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Research and Development

Only 3 Chinese universities are currently developing SRAM or DRAM technologies.– China Academy of Sciences– Tsing Hua University– Lishan Electronics

Are there any South Korean universities researching SRAM or DRAM?

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Research and Development (cont.)

Where does Samsung stand in relation to evolving technologies?– SOI’s (Silicon on Insulator)– Moving past CMOS and MOS– Role of BK21

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DRAM Expected Market Share

http://www.channelregister.co.uk/2005/11/08/dram_market_q3_05/

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Patents

• Patent infringement lawsuits between semiconductor companies are not unusual.

• The major semiconductor makers are almost constantly involved in litigation, often suing a company while at the same time collaborating with it on some other area of research or development.

• 1/29/02 Matsushita Electrical Industrial Co. LTD., better known as Panasonic sues Samsung for an alleged three copyright infringements.

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Patents (cont.)

• Looking a patent involving the input of text

or drawings through a virtual screen.

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DRAM Speed Evolution

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SWOT AnalysisSTRENGTHS OPPORTUNITIES•InnovationStrong product lineBrand equity and recognition Research and DevelopmentAbility to capitalize on opportunities for improved efficiencyAbility to acquire or develop new information and distribution technologies, on a timely basis and without exceeding budget requirementsOverall financial stability

•Emerging markets, specifically Russia, India, and ChinaOnline retailing3G Market Strategic alliances with major consume electronics manufacturers.Accessories and gadgetsMass customizationVirtual Retailing

WEAKNESSES THREATS

Technology is quickly outdatedCorporate structure not indicative of the current eraCostly product failuresInconsistent sales growthHigh dependence on semiconductor industry

•Shift away from PC’sConsolidation of the PC businessSlowing DRAM demandForeign currency fluctuationsChanges in the global or local conditions, including those due to natural or man-made disasters or energy costs, that could affect consumer purchasing, the cost and availability of raw materialsReal estate rates and availabilityBattle for market share

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5 Force Model

Threat of New Entrants – (Low to Moderate)– Due to the extremely high capital investment

needed for entrance into this industry, the threat of new entrants is low to moderate. At this time, the following four companies dominate 75% of the industry: Samsung, Hynix, Infineon, and Micron. Brand recognition is a key element that detracts entrants because from the beginning of entrance, there is only 25% of market share to battle for.

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5 Force Model

Bargaining Power of Buyers- Low and High– Retailers- HIGH: In today’s marketplace,

companies are more reliant on key retailers to distribute their products. The most prominent example of this new trend is seen with the contractual agreement between Apple and Samsung.

– End Users- LOW: Due to the vast number of consumers in the DRAM industry, the buying power is low. It is also important to note that the items categorized in this industry are both essential and non essential items.

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5 Force Model

Threat of Substitutes- Moderate

– In the DRAM industry, there is a moderate diversification of DRAM producing companies. There are only a few key players and they have pretty much marked off their territory in retail markets.

Rivalry- High– Rivalry is extremely high and is continuing to

intensify within this industry, with Samsung being the dominant player. In order to maintain substantial market share in the semiconductor segment, having a competitive advantage to differentiate your product is essential.

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5 Force Model

Supplier Buying Power- Low– The companies in the semiconductor

industry, while powerful themselves, have relatively low supplier power. As previously noted, product standardization is a sign of buyer, not supplier, power.