An Industry Analysis of Samsung
Question 1) How attractive is Samsung’s primary (core) industry? Conduct an industry analysis.
Five Forces Model: 1. Barriers to Entry
Because of the extremely intricate and sophisticated nature of manufacturing semiconductors, a competitor should expect high initial capital requirements to build facilities needed for production. Cost to build a new semiconductor fab has gone up from $200 million in 1985 to $3 Billion in 2004. Incumbent companies have capabilities to design newer generations of semiconductors with greater amounts of memory and processing abilities that make older generations obsolete. Older generations tend to drop half their amount in price one year after a new model is reduced (exhibit 6). The United States and Taiwan governments restricted domestic producers from shipping semiconductor equipment to China. China’s government began to subsidize all semiconductor infrastructural needs to local producers in hope of making China competitive in the market. Micron was granted amnesty in an April 2005 price fixing charge against Hynix, Infineon, and Samsung for bringing the alleged wrong doing to the US Department of Justice. This type of coordination is prevalent among firms in an Oligopoly, in which Barriers to Entry are categorized as high. 2. The Power of Suppliers
With each generation of semiconductor equipment, the technology grew more complex and the number of suppliers became more concentrated. Although these suppliers are concentrated and hold a lot power on the raw materials industry, they lack the incumbent specialization knowledge to compete with incumbent firms. Samsung spent billions in research to develop their current stacking strategy to fit more cells into a semiconductor chip; technology suppliers cannot compete with. Applied Materials, Tokyo Electron, and ASML dominated key segments of the equipment market. Suppliers of memory raw materials would provide discounts of up to 5% for high volume buyers. This shows
Five Forces Model: 1. Barriers to Entry
Because of the extremely intricate and sophisticated nature of manufacturing semiconductors, a competitor should expect high initial capital requirements to build facilities needed for production. Cost to build a new semiconductor fab has gone up from $200 million in 1985 to $3 Billion in 2004. Incumbent companies have capabilities to design newer generations of semiconductors with greater amounts of memory and processing abilities that make older generations obsolete. Older generations tend to drop half their amount in price one year after a new model is reduced (exhibit 6). The United States and Taiwan governments restricted domestic producers from shipping semiconductor equipment to China. China’s government began to subsidize all semiconductor infrastructural needs to local producers in hope of making China competitive in the market. Micron was granted amnesty in an April 2005 price fixing charge against Hynix, Infineon, and Samsung for bringing the alleged wrong doing to the US Department of Justice. This type of coordination is prevalent among firms in an Oligopoly, in which Barriers to Entry are categorized as high. 2. The Power of Suppliers
With each generation of semiconductor equipment, the technology grew more complex and the number of suppliers became more concentrated. Although these suppliers are concentrated and hold a lot power on the raw materials industry, they lack the incumbent specialization knowledge to compete with incumbent firms. Samsung spent billions in research to develop their current stacking strategy to fit more cells into a semiconductor chip; technology suppliers cannot compete with. Applied Materials, Tokyo Electron, and ASML dominated key segments of the equipment market. Suppliers of memory raw materials would provide discounts of up to 5% for high volume buyers. This shows