Samsung

Electronics

BUSINESS STRATEGY

Presented by: Zhenghan Zhang, Huiyan Sang

 01 02 03 04
Background Competitive Future Strategy Conclusion
Advantage
 01
Background
01 Background

Add Your Project Title Classification of memory chips

• DRAM – more than 50%
• SRAM – 10%
• Flash – 32%

Since 1998, Korea has taken over the most of market share in
memory industry, which accounts for $33.7 billion sales in 2003.
01 Background

“Since 1992, semiconductors had been South Korea’s largest export,

and as of 2004, Korea’s semiconductor exports totaled $25.1 billion,
fully 10.4% of the country’s export volume. Samsung alone was
responsible for 22% of all Korea’s exports in 2004, and the company
represented 23% of the total market value on the Korea Stock
Exchange.”
 02
Competitive
Advantage
02 Value Stick

Industry Samsung Electronics benefitted from

Samsung
Average having a larger “added value”
compared to its peers.
WTP WTP

Price
Added Value Samsung Electronics sold its
Price
products at a higher price
Cost than its average competitors,
Added Value meanwhile its selling cost is
Cost significantly lower than the
industry average
WTS WTS
 02

Competitors’
Samsung Micron Infineon Hynix SMIC Weighted
Average
Average Selling Price of Average
DRAM in 2003 Selling $5.68 $4.93 $5.05 $4.97 $4.43 $4.96
(256Mbit Equivalent) Prices
Difference
to - -$0.75 -$0.63 -$0.71 -$1.25 -$0.72
Samsung
Competitors’
Samsung Micron Infineon Hynix SMIC Weighted
Average
Average
Selling $4.29 $6.59 $4.98 $5.27 $4.84 $5.66 Average Selling Cost in 2003
Prices (DRAM)

Difference
to - $2.30 $0.69 $0.98 $0.55 $1.37
Samsung
02 Competitive Advantage

Management Strategy Research and Development

• Massive funding from mother enterprise • Enter the industry as a producer by

• First-mover advantage getting license of the technology
• Focus on gaining market share and • “Stacking” technology
disregard profit • Vertical Integration
• Technology-lead status • Enjoyable environment for engineers
• Diligence, productivity
• High efficiency and lost cost

Product Quality Manufacture HR Policy

• Efficient and reliable
• Variety
• Seek more technology
improvement
• More customization
• A mix of 8-inch wafers and 12-inch
wafers
• Flexible production lines
• Lower production costs per product
• Encourage diligence and
internal competition
• Meritocratic evaluation
• Invest heavily on employees
• Non-discriminatory atmosphere
• Recruit foreign talent
02 Porter’s 5 Forces Analysis

Supplier Threat of
Power Substitutes

Industry
Rivalry
Threat of Buyer
New Power
Entrants
 03
Future Strategy
03 Future Strategy

Strategy 1 Strategy 2

Develop and Expand Flash Develop More High-Value

Memory Market Niche DRAM Products
03 Future Strategy 1: Develop and Expand Flash Memory Market

Competitive Advantage

• First-Mover Advantage in Flash Memory Market • Solid Foundation of Technology

• In 1995, the top ten DRAM players accounted for about 80
percent of market share. Since then, the market has been
consolidating. In contrast, the number of NAND players has
been relatively small since the technology was launched
• Higher Price & Lower Cost
• The production of NAND Flash Memory requires
sophisticated experience and high technology in the field of
semiconductor, which is a high barrier for other competitors
to enter.
• Samsung’s capability of designing new smaller chips and
better quality semiconductors enables it to stand in the
frontline of the whole industry. As it quickly adapts to the
dynamic market, Samsung could finally get to control the
new market and lead the new-tech trend

512Mbit 512Mbit NAND

• The Growth Trend in the Future
DRAM in 2003 Flash in 2004
Average Selling Prices $14.21 $9.48 • It was tied to growth in digital cameras and PCs. The flash
memory market was expected to grow at a double-digit rate
Full Loaded Cost $10.52 $3.28
for at least five years. That growth was expected to keep
Operating Profit $3.69 $6.20 Flash prices quite high relative to DRAM prices.
03 Future Strategy 2: Develop More High-Value Niche Products

Competitive Advantage

• Higher Price & Lower Cost • Innovation & Customization

• With the Samsung’s own

256Mbit DDR SDRAM in 256Mbit Rambus DRAM in superior core designs, it can take
2003 2003 advantage of it and manufacture
Samsung Infineon Samsung Infineon customized product for users
and it helps to open new field of
Average Selling Prices $8.83 $8.67 $9.21 $8.45 DRAM markets.
Full Loaded Cost $4.93 $5.72 $4.89 $5.59
• Samsung prides itself on its
Operating Profit $3.90 $2.95 $4.32 $2.86 ability to customize products to
Operating Margin 44.10% 34% 46.90% 33.80% the customer demand. There are
two ways for expanding its niche
market. One is marketing its own
product with the niche material,
• Solid Foundation of Technology: capability for more creation another is to be the high-end
niche material supplier.
• The Growth Trend in the Future: mobile phone’s market
• Mature Market
03 Future Strategy 2: Develop More High-Value Niche Products

Telecommunications and the consumer electronics market were growing consumers of DRAMs in 2003. Communications
products such as mobile phones, switches, and hubs were predicted to grow from 3.5% to 7.9% of the DRAM market in 2008.

Become main supplier of mobile Cooperate with mobile phones

phone market
(Supply)
With the rapid growth of mobile phone’s market
and higher demand for multiple entertainment
methods, Samsung could generate huge profit by
supplying the raw materials to these products. A
bigger market means a greater profit margin.
Samsung is already the leading company in
DRAMs market and it costs less for Samsung to
maintain the high-end supplier position for the
new-coming products.
market and personal game consoles
(Co-Develop)
If it successfully dominates the high-end niche
market, even though the customers might be loyal
to a variety of different brands other than Samsung,
their vital raw material supplier would still all be
Samsung. And it would be a considerable reputation
and profit earning capacity.
03 Future Strategy

Chinese Challenges

• Sacrifice profits for market shares

• Government support on policy and

funding

Chinese Competitors’ • Adequate financial funding

Competitive Advantage
• Talented engineers

• Huge market base in China

• Partnerships with Infineon and Elpida

03 Future Strategy

Solution

• Keep itself at the top-tier regarding

technology, and exploit the niche market by
providing state-of-the-art DRAMs.

• Regarding that Chinese market rely heavily

How to react to China’s
on the Samsung-provided memory chips,
Challenge on DRAM Market Samsung gets the initiative for negotiation on
cooperation.

• Focus on profitability over market share.

 04
Conclusion
04 Conclusion: Choose the Strategy 2
Greater Market Share
DRAM still accounts for more
proportion of Samsung’s
market as a whole.
Synergy with the Mobile
Devices Industry
DRAMs are being widely
used in Mobile devices,
whereas NAND Flash
memories are mainly used
in SSDs, which are used in
top-tier PCs
Supply: Slowdown in bit-
capacity growth
The NAND Flash bit-
capacity growth plundered.
It hit the bottleneck .
“Hwang’s Law” is not
necessarily true.
A New Focus on Profitability
Over Market Share
The basics of the DRAMs, such as
manufacturing infrastructure and
technology has already been well-
established, and initially investments
have not been fully cashed out.
04 Conclusion

The Chinese newcomers are coming strong, with massive

capital and the conviction to gain market share regardless of
losses. For Samsung, the only way to maintain the lead is to
keep itself at the top-tier regarding technology, and exploit
the niche market by providing state-of-the-art DRAMs.
While we do not mean to completely abandon the Flash
market, we would recommend more priority in the DRAMs
field
THANK YOU

ANY QUESTION?