Samsung Electronics: An Analysis
Swati Poddar
H13115

Situational Analysis * Samsung has become the world’s leading memory producer for all types of PC’s, digital cameras, game players and other electronic products in terms of low cost and productivity * Samsung offered 1200 variants of DRAM products with products ranging from “frontier products” to “legacy products” and “speciality products” * Memory chip industry is expecting to experience a cyclic downturn * Chinese counterparts are attacking Samsung’s DRAM market * Because of the amount of resources they had attracted from Chinese and foreign investors, these Chinese competitors could afford to sacrifice profits for market share

Porter 5 Forces Analysis

Threat of New Entrants
The threat of any new entrant can be measured by the number of barriers to entry of new players. In the case of semiconductor industry, Samsung possesses very high economies of scale, which leads to lower production costs i.e. cost to company. Any new entrant not is able to match these prices. Moreover, setting up a new production unit for an entrant will incur high fixed costs. This too serves as a barrier for a new entrant as compared to an incumbent industry player. Samsung also has a number of design patents as well as technological superiority which cannot be matched by a new player. Hence, threat from a new entrant is low.
Threat of Substitutes
For Samsung, there are not any substitutes for memory chips in the market. The substitute for DRAM could potentially be flash memory chips, but even in that Segment, Samsung was a market leader and the nanotechnology based memory is still not available in the market. Hence, the threat from substitutes is low.
Power of Suppliers Power
In case of the semiconductor industry, the supplier is an important stakeholder as on-time delivery of equipment as well as maintaining the quality of the materials is of utmost importance. These suppliers provide discounts as big as 5 percent for buyers who make high volume purchases. Moreover, the suppliers became more concentrated with each generation of semi conductor equipment. Hence, the power of suppliers is high.
Power of Buyers
Buyers are used to easily changing vendors due to the commodity characteristic of memory chips. Moreover, due to the existence of a number of players in the market, these chips which were sold to personal computer producers and mobile phone makers mainly were price conscious. The buyers negotiated hard on price and would agree to pay an upwards of a 1% average price premium for a reliable supplier. Hence the power of Buyers is moderate to high.
Rivalry amongst existing firms
There are a number of competitors of Samsung in the market including Micron, Infineon, Hynix and SMIC with Samsung being the clear market leader. There exists price competition amongst these firms. Hence, rivalry amongst existing firms is high.

Suggested Plan of Action

Samsung could partner with the Chinese entrants providing it with access to the expansive Chinese market. This would further result in Samsung getting access to low cost Chinese resources and China’s local talent. It is important to note that Chinese producers had very little design capability or effective research and development facilities whereas this was Samsung’s core competency. Samsung prided itself on the reliability of its products and ability to customize products on customer demands. The only reason why China was able to sell its products at a low price was due to its availability of resources. Thus, collaboration with these Chinese entrants will help Samsung access their resources and gain pricing advantage.
China’s memory chip manufacturing capacity is expected to rise to 9% by 2007 and given these forecasts, Samsung could produce a lower end product in the Chinese market. Unlike SMIC, Samsung will be able to gain on its design capability and maintain its technological advantage while entering into a booming Chinese market all at the same time. Given that the Chinese producers besides SMIC were yet to enter the memory chip market, the timing of entry is very important for Samsung.
Samsung could continue selling high end high priced products in Korea which can serve to be a distinct product category from its product portfolio in China. In order to lessen the risk of losing its unique product culture and technological advancements, Samsung will have to ensure a strict control over its intellectual property and patents.