Samsung Case
After reviewing Samsung’s current position in the semiconductor and memory chip industry, Swift Consulting has come up with a full analysis on the threats and opportunities facing the company. The primary threat facing the firm is the entry and growth of Chinese semiconductor companies. To respond to this threat, it is our assessment that Samsung should allocate less production to capacity to Dynamic Random Access Memory, and increase production and research to the more rapidly growing higher end Dynamic Random Access Memory, Static Random Access Memory and Flash memory markets. When Samsung entered the memory chip market, they gained market share by initially taking a loss on DRAM, because the company believed they would see future profit. The Chinese companies are following the same strategy to gain ground in the industry by their ability to produce at a high level, and sustain a loss. Samsung’s biggest threat in the semiconductor industry is the Chinese company Semiconductor Manufacturing International Corporation. By licensing agreements with German based Infineon, Japan based Eplida, subsidies from the Chinese government and private investment; SMIC has had profit increase of over $300 Million from 2002 to 2003. The secondary threat in facing Samsung is that China is expected to become the world’s second largest purchaser of semiconductors, after the United States. SMIC and the Chinese markets are deeply invested in lower end DRAM. By extensive research, development and investment on higher end DRAM and flash, Samsung can take advantage of the projected growth in those markets. Chinese competitors are heavily invested in lower end DRAM products for personal computers. Along with the expected cyclical downturn in the memory market, and especially the personal computer market, it is our opinion that the DRAM market will get flooded with suppliers and severely decrease the opportunity for growth. The only competitor that has decided to focus on higher end DRAM for mobile devices and consumer electronics is Elpida Memory, Incorporated in Japan. Elpida Memory Inc being the only competitor in that area causes a low threat and great opportunity to expand into DRAM and flash for mobile technology and consumer electronics. This opportunity the main reason for our conclusion.
With the predicted cyclical downturn in the memory market, Samsung must sustain its competitive advantage of lower cost than competitors in their Research and Development department. The centralized site in Seoul for the R & D department will be play a crucial role in competing with other companies with globally spread R & D departments. The low cost will help sustain profit during a time of heightening need for innovation and downturn in the market. Competitors following the same strategy will struggle to keep up with higher research costs in this time of market recession. The option to collaborate with Chinese companies would be a mistake by Samsung. Due to their higher cost of R & D and unprotected intellectual property rights, they would ultimately be the one to benefit by Samsung’s innovation to later become a bigger rival in the future.
Samsung has grown to become the worlds leading memory producer by investing in products that have provided future benefits and cutting costs in times of market decline. Although the cyclical downturn would call for Samsung’s typical behavior of reducing expenses, this junction calls for increased investment in cutting-edge memory products to capture the opportunity of growth in that area.