Download
samsung electronics and the chinese threat n.
Skip this Video
Loading SlideShow in 5 Seconds..
Samsung Electronics and the Chinese Threat PowerPoint Presentation
Download Presentation
Samsung Electronics and the Chinese Threat

Samsung Electronics and the Chinese Threat

528 Vues Download Presentation
Télécharger la présentation

Samsung Electronics and the Chinese Threat

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Samsung Electronicsand the Chinese Threat MBA 290G Fall ‘07 Prof Charles Wu TEAM 9 Alex Mehr, Bindiya Jadhwani, Kerem Tutuncu, Lucian Popa, Rodrigo Fonseca, Uttara Parikh

  2. DRAM Industry

  3. Types of Memory • Volatile • DRAM: Dynamic RAM • Higher density, lower cost, power hungry • SRAM: Static RAM • Lower density, higher cost, 2-4X faster than DRAM • New technologies: ZRAM (Hynix, AMD), TTRAM (Renesas) • Non-volatile • Flash • High growth market (mobile, digital music and imaging) • Slow to write, degrades over time • PCM (PRAM) - Most promising new technology • Fast, long lasting • Prototypes by Samsung (512Mb), Intel/STM, Sep 2006 Sources: Introduction to Memory Types http://www.netrino.com/Publications/Glossary/MemoryTypes.php Samsung Sep 11,2006 Press release and http://www.eweek.com/article2/0,1895,2021822,00.asp

  4. Memory Industry • Global Memory Chip Industry • Approx $250 billion in 2006 (10% growth) • $227.5 billion in 2005 from $213.0 billion in 2004 • Segmentation • DRAM ( over 50% of this market) • SRAM (10%) • Flash (32%) • Asia-Pacific projected to be the largest and fastest growing market • Cyclic industry with massive swings • 2006 was a good year, prices were rising (revenue had 10% growth) 1 • 2007 was a bad year, significant price plunge (by 39%) 2 • http://www.infoworld.com/article/06/05/31/78779_HNchipforecast_1.html • http://www.informationweek.com/showArticle.jhtml?articleID=201201654

  5. Cyclic Structure of Semiconductor Industry Factors : Rapid Technical Progress High Sunk Costs and Large Lag Times $1.5-2 billion for a fab, ready in 1-2 years Steep Learning Curves → higher variations of price Large R&D investments Periodic Technology Shocks

  6. Global Market Share by Countries, DRAM Sector • (Source: Dataquest, May 2001) • www.american.edu

  7. Products Breakdown • DRAM : - Traditionally in PC’s ( 80% of DRAM shipments in 1990,declined to 67% by 2003) - Telecommunications and consumer electronic markets are growing consumers : mobile phones, switches, hubs - 2008 Prediction: TV’s, set top boxes and game devices to represent 7% of this DRAM market

  8. Value Chain • Powerful players - only 2 or 3 main dominating players • Price conscious customers • End user is not aware of DRAM brand • Customers were fragmented • No single OEM controlled more than 20% of the global PC market • OEMS negotiated high on price

  9. Porter Analyses

  10. Factor ConditionsLocation – Ports, Major marketsLabor – High concentration of skilled engineers, HR policiesGovernment – policies for trade, education Porter’s Diamond Model for Samsung/Korea • Related/Supported IndustriesLCD, Mobile Phone and PC industries • Demand ConditionsKorea has early adopters Demand in east Asia is high • Strategy and StructureHigh internal competition – HynixTechnology know-how, experience

  11. Porter’s five forces for DRAM New entrants • Guarded by economies of scale • Significant capital costs • Learning Curve • Threat of retaliation • Little brand identity significance • Government Policy –e.g. China Substitute products • Danger of future substitutes given rapid changes • Probable little switch cost Suppliers • No significant differentiation of inputs • Suppliers not concentrated • No threat of forward integration Customers • No significant buyers by volume • Buyers are very price sensitive • Price limited by other memory substitutes • Little threat of backward integration? Rivalry • Small no. of competitors • Significant exit barriers • Cyclic Industry growth

  12. Samsung

  13. Samsung History • Established in 1969 to manufacture black and white TV sets • Purchased a Korea Semiconductor Business in 1974 • In 1980 dedicated most of its resources to semiconductor business and built its first manufacturing facility. • By early 1990’s, was amongst the industry’s top contenders • Brand value rank grew from 43rd in the world ($ 5.2 billion) in 2000 to 21st in the world ( $12.6 billion) in 2004 and 20th in 2006 (16.1 billion) • Ahead of many brands such as Pepsi, Google, and Siemens • Total net revenue in 2004 was $78.5 billion, and $78.7 billion in 2006

  14. Samsung Structure • Spans 58 countries • Samsung Electronics has 5 business divisions : • Semiconductor • Digital Media • Telecommunications • LCD • Digital Appliances

  15. Samsung DRAM Facts • 2nd Largest chipmaker worldwide (2006) 1 • Market leader in DRAM ‘92 - ’07 2 • Total DRAM Volume 896.4M units (2003) • Over 1200 DRAM products • “Frontier” to legacy products • Specialty and customized products • Versus competitors (1Q00-1Q04): • Average price premium: 34% • Average operating margin difference: +53% • www.dailytech.com • Samsung 2006 Annual Report

  16. DRAM Operating Profits

  17. Samsung Performance • Cost Advantages • Lowest raw materials cost (volume) • Lowest depreciation • Labor and SG&A not high • Shared core designs • Lower cost fabs (12%) • Flexible production lines • Higher yields (because of process quality) • Highest Price • Highest reliability in industry: >$1 premium

  18. DRAM Cost of Materials vs Volume (2003) 2.5 Hynix Micron SMIC 2 Infineon 1.5 Samsung Cost of Raw Materials ($) 1 0.5 0 0 200 400 600 800 1000 Prod. Volume 256Mbit equiv (M Units) Cost of Materials

  19. Kun-Hee LeeChairman & CEO Samsung Strategy

  20. Generic Competitive Strategies • Two dimensions of competitive strategy • Competitive advantage - low cost vs. differentiated play • Target Market - broad vs. niche play • Samsung, because of the unique ecosystem created around it, has successfully spread its product line across both of these dimensions

  21. Generic Competitive Strategies Lower Cost Differentiation Overall Low-Cost Provider Strategy (Commodity DRAM) Broad Differentiation Strategy (Cutting Edge DRAM) Broad Range of Buyers Best-Cost Provider Strategy (Samsung’s Strategy) Target Market Focused Low-Cost Strategy (Low cost flash memory) Focused Differentiation Strategy (Rambus DRAM) Narrow Buyer Segment or Niche

  22. Combined low-cost/differentiated strategy is difficult to achieve • Difficult to implement • Firms aiming to do this are often stuck in the middle • Firm’s products are too costly to compete with low costs provider’s product, and too undifferentiated to command the price premium gained by the differentiated firm A variety of internal and external factors have helped Samsung achieve this desirable position

  23. Samsung’s Combined Low-cost/Differentiated Strategy Samsung’s success has been due to a variety of factors: • Successfully customize products around a core design • Large product portfolio (occupy the entire spectrum for a broad market play) • Collocation of fab and R&D facilities (internal conversation among engineers to decrease time to market)

  24. Samsung’s Combined Low-cost/Differentiated Strategy (cont’d) • Easy access to Asian market • Combination of educated guessing and pure luck (e.g. stack design vs trench design) • Talent pool strategy: Access to local talents, sponsoring employees for PhD and MBA education) • Availability of capital: E.g. from 1983 to 1985 during recession of semiconductor industry, Samsung allocated significant capital to build capacity

  25. Chinese ThreaT

  26. Emerging Competitors

  27. Chinese Environment

  28. Chinese Advantages • Ample access to capital • Low cost of labor and administration • Government incentives • Cheap credit, land, utilities • Tax incentives • Engineering talent • Strategy • Licence technology, designs • Sell at low prices to gain market share, increase volume

  29. Recommendations

  30. Options (1) • Do not cooperate with the Chinese • Save the current ecosystem in Korea • A. Try to suppress the Chinese firms • Cost reduction on low end DRAM: reduce from a margin of 24% close to zero with the extra benefit of reliability incurring significant losses to Chinese companies (already at -9%) • For how long can both sustain the war? Chinese gain in workforce and capital whereas Samsung in volume • B. Focus only on cutting edge high-end products • Danger in the future that Chinese might learn and overtake (just as Samsung did in the past) • C. Search for a new technology • Will it appear in time?

  31. Options (2) 2. Collaborate with Chinese firms • Lose the local ecosystem and increase some costs • Lose perhaps on quality, i.e. reliability • Easier to penetrate the Chinese Market • A. Build a fab in China • Benefit the long term cost reduction in salaries and SG&A • Keep under control the Chinese firms • Pay an initial potentially large cost of entry • A large part needs to be controlled by Chinese local partner • Could also lose sensitive information, helping competition • B. Cooperate as Infineon by providing technology • Not clear what the benefit is since they currently produce at a lower cost and by partnering could create a future competitor

  32. Recommendation • Do not Open a fab in China for now • Currently, it is not yet viable to move to China • current prices are higher; extra cost of a new fab; potential decrease in quality might even affect other Samsung products; • If future prices of the Chinese products will be lower, consider building a fab there with the low-end Samsung technology • Focus on R&D to maintain technological lead • Try to suppress the Chinese companies by price reduction on low end DRAMs • Do not allow them to gain market share • Also affect Infineon and Micron which provide them with the initial design • Samsung is a large company that can afford to have lower margins in one segment (lower end DRAM) • Not even the Chinese can afford to lose a lot of money on long term

  33. BACKUP SLIDES

  34. Largest Chip Manufacturers 2006 DRAM Competitors Samsung, 2nd (+11%,+2B) Hynix, 8th,first time among top 10 (+32%, +1.8B) Qimonda AG, newly created Infineon memory division spin off, 12th Micron, 13th (+10.8%, +.5B) Elpida 20th (+89%, +1.6B)

  35. What makes DRAM special? • Type of RAM that stores each bit of data in a separate capacitor within an integrated circuit • Since real capacitors leak charge, the information eventually fades unless the capacitor charge is refreshed periodically. • Because of this refresh requirement, it is a dynamic memory as opposed to SRAM and other static memory. • Its advantage over SRAM is its structural simplicity • This allows DRAM to reach very high density

  36. Major Players Samsung is the market leader, ahead of Japanese rivals in both size and profits In 2005, large scale entry by Chinese firms Easy access to money from local and international forces Were willing to sacrifice profits for market share. In 2004 – Samsung announced sharp drop in market prices due to increase in industry capacity and partly due to cyclic downturn