Memo
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 Samsungs 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 Samsungs current organizational
structure, policies, and business strategy are all competitive advantages. The conclusions
drawn from the SWOT analysis were that Samsungs 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
Samsungs 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 Samsungs semiconductor business, the 256Mbit DRAM
division. As of 2003, the 256Mbit DRAM production, shown in Table 1, represented 78%
of Samsungs manufacturing process. Some analysts have estimated that by 2010, China
will be the worlds 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 International Corporation (SMIC). All
these companies have unique characteristics that are outlined in Table 2, and described
below.
Elpida Memory is the only DRAM producer left in Japan. Their strategic focus is on
memory chips for smaller devices, such as cell phones, gaming systems, and other
consumer electronics. In 2004, they added another production facility in an attempt to
increase output, and increase market share. Elpida manufactures advanced memory
technologies, like double data rate (DDR) DRAMs and Rambus-based DRAMs, in
addition to standard memory modules. They have investment ties to Nintendo, Hitachi, and
Intel.
Hynix Semiconductor is the second largest memory chip manufacturer in Korea behind
Samsung. Hynix has suffered over the last 6 years as a result of poor economic decisions,
and legal troubles in the United States. Hynix still manufactures DRAM and other standard
memory chips, but sold most of their other businesses to avoid bankruptcy as a result of
their former debt. Despite financial troubles, Hynix has recently decided to collaborate
with a Chinese company to build a new production plant in China. Hynix accounts for
almost two thirds of the memory chip sales in Asia.
Infineon Technologies is a German-based company, and has manufactured semiconductors
since the start of the technological revolution. Infineon has more than 25 locations for
research and development spread all over the world. They have significant financial and
business development ties to various smaller memory chip companies. Three quarters of
Infineons sales are in Asia and North America. Its primary product is DRAM. Infineons
top customers are Hewlett-Packard and Dell, two of the largest home and office computer
suppliers in the world.
Micron Technology is the only remaining US producer of memory chips. They have grown
in size mostly through acquisitions and mergers. Micron has also had some financial
difficulties and has been forced to sell most of its non-DRAM divisions. Micron sells to
companies in telecommunications, but the majority of its sales are in the computer market,
