Samsung Electronics Strategic Analysis

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  • Topic: Flash memory, Samsung Electronics, Dynamic random access memory
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  • Published : April 28, 2008
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To:Kun Hee Lee, Chairman and CEO of Samsung Electronics
From:Josh Graham, Senior Consultant, Whirlwind Consulting Co. Date:28-Apr-08
Re:Emerging Chinese DRAM industry
Executive Summary
Whirlwind Consulting Company has reviewed the current position of Samsung in the semiconductor and memory chip industry, and has completed an extensive internal and external analysis to determine Samsung’s options in response to the threat of significant future expansion within the Chinese semiconductor industry. It is our opinion that Samsung should begin an incremental decline in the production of low-end DRAM memory chips, and initiate an extensive strategic movement towards capturing the higher-end of the DRAM market, as well as new niche markets, such as Flash memory.

The external analyses showed that there are many competitors that have begun to focus solely on production of low end DRAM. The greatest threat observed is the rampant growth of the Chinese company SMIC, which comes as a result of low-cost production and tax-incentives from the Chinese government. The primary recommendation that resulted from this analysis is that the low-end DRAM market has become overcrowded, while the high-end market is currently occupied by only one major competitor, Eplida Memory.

The internal analyses were a clear indication that Samsung’s current organizational structure, policies, and business strategy are all competitive advantages. The conclusions drawn from the SWOT analysis were that Samsung’s strengths carry more weight than your weaknesses, and that the opportunities that exist, if properly exploited, should help Samsung navigate the threats with no significant difficulties. The financial analysis was also an indication of the exemplary track record of Samsung Electronics, most notably the semiconductor division. Our opinion is that Samsung should have no financial difficulty with shifting your concentration to a new segment of the memory chip market.

It is the recommendation of Whirlwind that the implementation of this strategic shift should occur in two phases. The initial phase will be a concentrated focus on R&D and informing channel partners of the upcoming changes. The second phase will be the restructuring phase. Both production structure and employee structure will need to be shifted to facilitate the manufacture, advertisement, and sale of the new focus for Samsung’s memory chip business. Current Issue

Samsung Electronics has been a model example of success in the constantly shifting technology industry over the last twenty years. Samsung has risen to the top of the semiconductor sector of the market, and has enjoyed the largest market share for over thirteen years. However, as a result of the success of all sectors of the technology industry, it does not usually take long for new competitors to enter any portion of the market. Similar to the way that Samsung entered the semiconductor industry over 15 years ago, several companies in China have been working diligently to obtain market share at the expense of Samsung. Through mainly low-cost production, these Chinese companies pose a threat to the leading segment of Samsung’s semiconductor business, the 256Mbit DRAM division. As of 2003, the 256Mbit DRAM production, shown in Table 1, represented 78% of Samsung’s manufacturing process. Some analysts have estimated that by 2010, China will be the world’s second largest producer of semiconductors behind the United States. The issue facing Samsung is how to deal with this newly developed Chinese semiconductor industry. The future of Samsung will depend on how it evolves in response to this imminent change to the structure of the global semiconductor market. Competitor Analysis

Samsung has five major competitors within the memory chip industry. They consist of the following: Elpida Memory, Hynix Semiconductor, Infineon Technology, Micron Technology, and Semiconductor Manufacturing...
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