I. Industry Analysis
Threat of Entry
Threat of entry is moderate to high. The entry barrier is high because there is a high capital requirement to enter into the memory industry. Companies would either invest huge amount of money in R&D to design the products from beginning or get license of technology from other companies. Even though, the industry has moderate threat of entry from Chinese competitors who are willing to sacrifice profits for market share. Chinese competitors have easy access to outside finance and local engineers and they also have support from local government.
Threat of Substitutes
The memory industry has low threat of substitutes. No product can substitute DRAM or Flash memory now. Maybe in the future, with the development of nanotechnology, new types of memory would substitute the current memory products. However, currently the nanotechnology is not mature.
Power of Suppliers
The power of suppliers is moderate. Three main suppliers Applied Materials, Tokyo Electron, and ASML dominate the equipment market. As Samsung is a very large buyer, these suppliers can offer up to 5% discount for raw materials due to high volume.
Power of Buyers
The power of buyers is medium. PC producers are the major buyers of memory, while telecommunications and communications products producers are growing consumers. OEM PC producers are moderately price sensitive because of the fierce competition among PC industry and because of price-sensitive PC consumers. Meanwhile, PC producers care about the memory quality, so they are willing to pay a price premium to reliable suppliers.
Rivalry among existing competitors
Competition among existing competitors is moderate. Technologies as well as innovation are advancing every year, as every existing company has made huge investment on improving technology. According to Exhibit 7a, compared with major competitors Micron, Infineon, Hynix and SMIC, Samsung seems to be the industry leader with highest operating profit of 1.224 billion dollars.
II. Business Strategy
Samsung Electronics uses integration strategy. In the memory industry, Samsung has been able to differentiate itself from its competitors by offering customers reliability of products as well as variations and customization of products according to customer demands. Samsung puts quality first and has won reputation for reliability from most major customers. In addition, Samsung offers over 1200 different DRAM products. According to Exhibit 4, Samsung has products ranging from 16Mbit to 1Gbit, while its competitors such as Infineon and Hynix only cover few of the production volume. Samsung also offers “specialty products” using customization targeting for niche market. Meanwhile, Samsung is able to maintain lowest cost of operation in the industry. According to Exhibit 7a, Samsung has the lowest fully loaded costs of $4.31 compared with competitors’ weighted average of $5.70 in total DRAM production.
Samsung’s value drivers:
Product features: DRAM products are known for reliability
Customization: Samsung is able to offer specialty product according to customer demands Signals conveyed with the brand
Support Activities: Samsung takes care of employees’ burden so employees can focus on work
Samsung’s cost drivers:
Economies of scales
Cost of input factors: Samsung has lower input costs than its competitors
Samsung “widen the wedge” by both increase the selling price and decrease the cost. According to table 1, the price of product made by Samsung is higher than all of its competitors, and is 14.5% higher than the average selling price. And the cost such as labor, raw material and depreciation are much lower than its competitors. As a result, the profit margin of Samsung is 24.1%, defeating all its rivals (Graph1). And following are the reason why Samsung possess the superiority.
Samsung offered over 1,200 different variations of DRAM segment, and ranged them from cutting...
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