Samsung Case Analysis

Memo
To: Kun Hee Lee, Chairman and CEO
From: VP Strategy and Business Development, Samsung Electronics
Date: 31-Oct-2005
Re: Chinese DRAM entrant threat

The Strategy and Business Development team has reviewed the current position of Samsung in the semiconductor and memory chip industry. In spite of our current success, we are concerned that Chinese companies are going to begin attacking us in the same way we had went after Japan 20 years ago. We are facing new competition from Chinese companies who are trying to enter the DRAM market. They are using partnerships to learn from the rest of the industry, attracting billions of dollars to build state of art facilities and willing to sacrifice profits for market share. The question is how to response to this imminent change to the structure of the global semiconductor market which may impact the future of the company. One option we have is to collaborate actively with a Chinese partner. The risk in working with Chinese partners is that our intellectual property rights are still not protected fully and could lead to a Chinese partner become a rival some day. In addition, moving our production site from Seoul to China is not aligned with our unique company culture. An alternative option for us is to increase our investments in products for niche markets and let the Chinese control the lower end market while focusing on to develop more high value products.
As seen in this document, our team has conducted an extensive analysis to react to the threat of Chinese competition.
External Analysis
The global memory chip industry accounted for $33.7 billion in sales in 2003. Memory chips are classified into three categories: DRAM, SRAM and Flash. DRAM accounted for about half of the memory chip market and SRAM and Flash accounted for 10% and 32% respectively.
DRAM was traditionally used mainly in PCs, but the share of DRAMs going to PCs declined from 80% to 67% between 1990 and 2003. Flash memory and SRAM market is... [continues]

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