Samsung electronics and the chinese threat
Download
1 / 36

Samsung Electronics and the Chinese Threat - PowerPoint PPT Presentation


  • 425 Views
  • Uploaded on

Samsung Electronics and the Chinese Threat MBA 290G Fall ‘07 Prof Charles Wu TEAM 9 Alex Mehr, Bindiya Jadhwani, Kerem Tutuncu, Lucian Popa, Rodrigo Fonseca, Uttara Parikh DRAM Industry Types of Memory Volatile DRAM: Dynamic RAM Higher density, lower cost, power hungry

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Samsung Electronics and the Chinese Threat' - JasminFlorian


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Samsung electronics and the chinese threat l.jpg

Samsung Electronicsand the Chinese Threat

MBA 290G Fall ‘07 Prof Charles Wu

TEAM 9

Alex Mehr, Bindiya Jadhwani, Kerem Tutuncu,

Lucian Popa, Rodrigo Fonseca, Uttara Parikh



Types of memory l.jpg
Types of Memory

  • Volatile

    • DRAM: Dynamic RAM

      • Higher density, lower cost, power hungry

    • SRAM: Static RAM

      • Lower density, higher cost, 2-4X faster than DRAM

    • New technologies: ZRAM (Hynix, AMD), TTRAM (Renesas)

  • Non-volatile

    • Flash

      • High growth market (mobile, digital music and imaging)

      • Slow to write, degrades over time

    • PCM (PRAM) - Most promising new technology

      • Fast, long lasting

      • Prototypes by Samsung (512Mb), Intel/STM, Sep 2006

Sources: Introduction to Memory Types http://www.netrino.com/Publications/Glossary/MemoryTypes.php

Samsung Sep 11,2006 Press release and http://www.eweek.com/article2/0,1895,2021822,00.asp


Memory industry l.jpg
Memory Industry

  • Global Memory Chip Industry

    • Approx $250 billion in 2006 (10% growth)

    • $227.5 billion in 2005 from $213.0 billion in 2004

  • Segmentation

    • DRAM ( over 50% of this market)

    • SRAM (10%)

    • Flash (32%)

  • Asia-Pacific projected to be the largest and fastest growing market

  • Cyclic industry with massive swings

    • 2006 was a good year, prices were rising (revenue had 10% growth) 1

    • 2007 was a bad year, significant price plunge (by 39%) 2

  • http://www.infoworld.com/article/06/05/31/78779_HNchipforecast_1.html

  • http://www.informationweek.com/showArticle.jhtml?articleID=201201654


Cyclic structure of semiconductor industry l.jpg
Cyclic Structure of Semiconductor Industry

Factors :

Rapid Technical Progress

High Sunk Costs and Large Lag Times

$1.5-2 billion for a fab, ready in 1-2 years

Steep Learning Curves → higher variations of price

Large R&D investments

Periodic Technology Shocks


Slide6 l.jpg

Global Market Share by Countries, DRAM Sector

  • (Source: Dataquest, May 2001)

  • www.american.edu


Products breakdown l.jpg
Products Breakdown

  • DRAM :

    - Traditionally in PC’s ( 80% of DRAM shipments in 1990,declined to 67% by 2003)

    - Telecommunications and consumer electronic markets are growing consumers : mobile phones, switches, hubs

    - 2008 Prediction: TV’s, set top boxes and game devices to represent 7% of this DRAM market


Value chain l.jpg
Value Chain

  • Powerful players

    - only 2 or 3 main dominating players

  • Price conscious customers

    • End user is not aware of DRAM brand

    • Customers were fragmented

    • No single OEM controlled more than 20% of the global PC market

  • OEMS negotiated high on price



Slide10 l.jpg

Factor ConditionsLocation – Ports, Major marketsLabor – High concentration of skilled engineers, HR policiesGovernment – policies for trade, education

Porter’s Diamond Model for Samsung/Korea

  • Related/Supported IndustriesLCD, Mobile Phone and PC industries

  • Demand ConditionsKorea has early adopters Demand in east Asia is high

  • Strategy and StructureHigh internal competition – HynixTechnology know-how, experience


Porter s five forces for dram l.jpg
Porter’s five forces for DRAM

New entrants

  • Guarded by economies of scale

  • Significant capital costs

  • Learning Curve

  • Threat of retaliation

  • Little brand identity significance

  • Government Policy –e.g. China

Substitute products

  • Danger of future substitutes given rapid changes

  • Probable little switch cost

Suppliers

  • No significant differentiation of inputs

  • Suppliers not concentrated

  • No threat of forward integration

Customers

  • No significant buyers by volume

  • Buyers are very price sensitive

  • Price limited by other memory substitutes

  • Little threat of backward integration?

Rivalry

  • Small no. of competitors

  • Significant exit barriers

  • Cyclic Industry growth



Samsung history l.jpg
Samsung History

  • Established in 1969 to manufacture black and white TV sets

  • Purchased a Korea Semiconductor Business in 1974

  • In 1980 dedicated most of its resources to semiconductor business and built its first manufacturing facility.

  • By early 1990’s, was amongst the industry’s top contenders

  • Brand value rank grew from 43rd in the world ($ 5.2 billion) in 2000 to 21st in the world ( $12.6 billion) in 2004 and 20th in 2006 (16.1 billion)

  • Ahead of many brands such as Pepsi, Google, and Siemens

  • Total net revenue in 2004 was $78.5 billion, and $78.7 billion in 2006


Samsung structure l.jpg
Samsung Structure

  • Spans 58 countries

  • Samsung Electronics has 5 business divisions :

    • Semiconductor

    • Digital Media

    • Telecommunications

    • LCD

    • Digital Appliances


Samsung dram facts l.jpg
Samsung DRAM Facts

  • 2nd Largest chipmaker worldwide (2006) 1

  • Market leader in DRAM ‘92 - ’07 2

    • Total DRAM Volume 896.4M units (2003)

    • Over 1200 DRAM products

      • “Frontier” to legacy products

      • Specialty and customized products

  • Versus competitors (1Q00-1Q04):

    • Average price premium: 34%

    • Average operating margin difference: +53%

  • www.dailytech.com

  • Samsung 2006 Annual Report



Samsung performance l.jpg
Samsung Performance

  • Cost Advantages

    • Lowest raw materials cost (volume)

    • Lowest depreciation

    • Labor and SG&A not high

    • Shared core designs

    • Lower cost fabs (12%)

    • Flexible production lines

    • Higher yields (because of process quality)

  • Highest Price

    • Highest reliability in industry: >$1 premium


Cost of materials l.jpg

DRAM Cost of Materials vs Volume

(2003)

2.5

Hynix

Micron

SMIC

2

Infineon

1.5

Samsung

Cost of Raw Materials ($)

1

0.5

0

0

200

400

600

800

1000

Prod. Volume 256Mbit equiv (M Units)

Cost of Materials


Samsung strategy l.jpg

Kun-Hee LeeChairman & CEO

Samsung Strategy


Generic competitive strategies l.jpg
Generic Competitive Strategies

  • Two dimensions of competitive strategy

    • Competitive advantage - low cost vs. differentiated play

    • Target Market - broad vs. niche play

  • Samsung, because of the unique ecosystem created around it, has successfully spread its product line across both of these dimensions


Generic competitive strategies21 l.jpg
Generic Competitive Strategies

Lower Cost

Differentiation

Overall Low-Cost

Provider

Strategy

(Commodity DRAM)

Broad

Differentiation

Strategy

(Cutting Edge DRAM)

Broad

Range of Buyers

Best-Cost Provider

Strategy

(Samsung’s Strategy)

Target Market

Focused

Low-Cost

Strategy

(Low cost flash memory)

Focused

Differentiation

Strategy

(Rambus DRAM)

Narrow

Buyer

Segment

or Niche


Combined low cost differentiated strategy is difficult to achieve l.jpg
Combined low-cost/differentiated strategy is difficult to achieve

  • Difficult to implement

  • Firms aiming to do this are often stuck in the middle

  • Firm’s products are too costly to compete with low costs provider’s product, and too undifferentiated to command the price premium gained by the differentiated firm

A variety of internal and external factors have helped Samsung achieve this desirable position


Samsung s combined low cost differentiated strategy l.jpg
Samsung’s Combined Low-cost/Differentiated Strategy achieve

Samsung’s success has been due to a variety of factors:

  • Successfully customize products around a core design

  • Large product portfolio (occupy the entire spectrum for a broad market play)

  • Collocation of fab and R&D facilities (internal conversation among engineers to decrease time to market)


Samsung s combined low cost differentiated strategy cont d l.jpg
Samsung’s Combined Low-cost/Differentiated Strategy (cont’d)

  • Easy access to Asian market

  • Combination of educated guessing and pure luck (e.g. stack design vs trench design)

  • Talent pool strategy: Access to local talents, sponsoring employees for PhD and MBA education)

  • Availability of capital: E.g. from 1983 to 1985 during recession of semiconductor industry, Samsung allocated significant capital to build capacity


Chinese threat l.jpg
Chinese (cont’d)ThreaT




Chinese advantages l.jpg
Chinese Advantages (cont’d)

  • Ample access to capital

  • Low cost of labor and administration

  • Government incentives

    • Cheap credit, land, utilities

    • Tax incentives

  • Engineering talent

  • Strategy

    • Licence technology, designs

    • Sell at low prices to gain market share, increase volume


Recommendations l.jpg
Recommendations (cont’d)


Options 1 l.jpg
Options (1) (cont’d)

  • Do not cooperate with the Chinese

    • Save the current ecosystem in Korea

  • A. Try to suppress the Chinese firms

    • Cost reduction on low end DRAM: reduce from a margin of 24% close to zero with the extra benefit of reliability incurring significant losses to Chinese companies (already at -9%)

    • For how long can both sustain the war? Chinese gain in workforce and capital whereas Samsung in volume

  • B. Focus only on cutting edge high-end products

    • Danger in the future that Chinese might learn and overtake (just as Samsung did in the past)

  • C. Search for a new technology

    • Will it appear in time?


Options 2 l.jpg
Options (2) (cont’d)

2. Collaborate with Chinese firms

  • Lose the local ecosystem and increase some costs

  • Lose perhaps on quality, i.e. reliability

  • Easier to penetrate the Chinese Market

  • A. Build a fab in China

    • Benefit the long term cost reduction in salaries and SG&A

    • Keep under control the Chinese firms

    • Pay an initial potentially large cost of entry

    • A large part needs to be controlled by Chinese local partner

    • Could also lose sensitive information, helping competition

  • B. Cooperate as Infineon by providing technology

    • Not clear what the benefit is since they currently produce at a lower cost and by partnering could create a future competitor


  • Recommendation l.jpg
    Recommendation (cont’d)

    • Do not Open a fab in China for now

      • Currently, it is not yet viable to move to China

        • current prices are higher; extra cost of a new fab; potential decrease in quality might even affect other Samsung products;

      • If future prices of the Chinese products will be lower, consider building a fab there with the low-end Samsung technology

    • Focus on R&D to maintain technological lead

    • Try to suppress the Chinese companies by price reduction on low end DRAMs

      • Do not allow them to gain market share

      • Also affect Infineon and Micron which provide them with the initial design

      • Samsung is a large company that can afford to have lower margins in one segment (lower end DRAM)

      • Not even the Chinese can afford to lose a lot of money on long term


    Backup slides l.jpg
    BACKUP SLIDES (cont’d)


    Largest chip manufacturers 2006 l.jpg
    Largest Chip Manufacturers 2006 (cont’d)

    DRAM Competitors

    Samsung, 2nd (+11%,+2B)

    Hynix, 8th,first time among top 10 (+32%, +1.8B)

    Qimonda AG, newly created Infineon memory division spin off, 12th

    Micron, 13th (+10.8%, +.5B)

    Elpida 20th (+89%, +1.6B)


    What makes dram special l.jpg
    What makes DRAM special? (cont’d)

    • Type of RAM that stores each bit of data in a separate capacitor within an integrated circuit

    • Since real capacitors leak charge, the information eventually fades unless the capacitor charge is refreshed periodically.

    • Because of this refresh requirement, it is a dynamic memory as opposed to SRAM and other static memory.

    • Its advantage over SRAM is its structural simplicity

    • This allows DRAM to reach very high density


    Major players l.jpg
    Major Players (cont’d)

    Samsung is the market leader, ahead of Japanese rivals in both size and profits

    In 2005, large scale entry by Chinese firms

    Easy access to money from local and international forces

    Were willing to sacrifice profits for market share.

    In 2004 – Samsung announced sharp drop in market prices due to increase in industry capacity and partly due to cyclic downturn