Case Analysis for Samsung Electronics
1. What is SMIC’s strategy? Should Samsung be concerned about SMIC? SMIC seems to execute the same kind of strategy Samsung used before to succeed. The strategy is selling their products at low prices and growing their market share at the expense of profitability. SMIC may threaten Samsung’s business in the future, but not too much. Although SMIC can get many resources, such as cheap funds and lands from Chinese government and foreign investors, SMIC only focuses on producing chips, not designing chips. The cost of the application of a new tap today is 3 billion and it is difficult for SMIC with sales revenue of 365.8 million in 2003. Samsung’s success depends on its constant technology innovation, leading to high quality products and efficient manufacturing process which will benefit Samsung with high retail prices and low cost. SMIC seems hard to get core technology from their partners unless forming a joint venture. However, cooperating with chip manufacturers in Taiwan seems more attractive for the leading technology owners. Except the technology, Samsung still enjoy unit cost advantage in raw materials, R&D and depreciation. SMIC may threaten Samsung’s old generation products. However, memory chip industry is a tech-oriented industry, Samsung can still maintain its leading position because its advantage in innovation. What Samsung should concern is that the fast growing Chinese market (estimated to be the second-largest semi-conduct buyer in 2010), their global competitors may get market-entry advantages through cooperating with SMIC. 2. The low cost position.
Samsung operating profit advantage over the industry composite is $2.11 per unit, 34% from selling price and 66% from cost advantage. To SMIC, it is 1.78 per unit, 70% from selling price and 30% from cost advantage (Exhibit 1). For the comparative cost analysis, Samsung have unit advantage over the industry composite in all the five elements. They...
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