Semiconductor Production: storing data or processing data.
Technology development: Invested $1 billion towards mastering the new technology.
Product Mix: offered different variations of DRAM products.
e Frontier products (512Mbit DRAM)f e Legacy products (64Mbit DRAM)f e Specialty products(DDR2, SDRAM, Rambus(design firms) DRAM)
DRAM-> Flash memory *DRAM market still closely followed growth in PCs, which were becoming a mature, Flash memory was tied to growth in digital for at least another five years.
Samsung product 1. Memory chip: store info. + classified intoa 1) DRAM (50%) ex)PC 2) SRAM (10%) a type of buffer memory 3) Flash (32%) digital camera, mobile phones. Continue to store data
2. Logic chip: process info. + control process
Success factor Employeesd global business skills, hard work, unique culture Dual advantage(cost +value) Different variations of DRAM with lower cost and high quality Release new cutting edge products in advance Create new market, high-end technology
Competitor: Chinese entrants who were attacking the DRAM market in much the same way In 2005, major memory competitors (memory chip)
1. Elpida Memory, Inc. - Japand s only remaining DRAM producer ( a joint venture between NEC and Hitachi) - Focus on developing memory products for mobile devices and consumer electronics products.
2. Hynix Semiconductor, Inc. - Some of the same cost advantages as its Korean competitor Samsung but lost technological lead. - Had trouble timing its capital investments to take advantage of market developments. - Entered into a joint venture with ST Microelectronics to build a memory production fab
3. Infineon Technologies AG - Germany-based Infineon from Siemens - Alliances with other industry competitors to reduce investment rist and shorten time-to-market. - Formed a joint venture with Taiwan-based Nanya Technology to build a new plant in Taiwan. 4. Micron Technology - Based in Boise, Idaho. The sole U.S producer remaining in this industy
5. Nanya Technology corporation + Infineon => Inotera (joint venture) - Taiwan-based, fifth-largest DRAM manufacturer, - Purchased current-generation DRAM technology from IBM Corporation.
6. Semiconductor Manufacturing International Corp. (SMIC) - Chinad s largest foundry, manufacturing logic and memory products including DRAM - Foundries didnd t design chips as Samsung did, but rather, took designs from other firms and produced chips based on blueprints.
Advantage China entrants - Because of the amount of resources they had attracted from Chinese and foreign investors.=> could afford to sell their products at low prices and grow their market share at the expense of profitability.
1. What kind of advantage are the Chinese entrants seeking? How close are they to achieving that advantage?
SMIC . 2003 SMIC , Elpida . 64K DRAM .
2. How much of Samsungd s performance is based upon its low-cost advantage? : . 256M DDR SDRAM 4.72 4.55 . 4.06 .
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3. What are the sources of Samsungd s price premium in DRAMs in 2003? Does this mean that Samsung has a value advantage in DRAM?
4. What final recommendation would you give to chairman Lee regarding Samsungd s response to the threat of large-scale Chinese entry?
Samsung had two options one is to actively collaborate with Chinese partners. Collaboration would provide access to local Chinese market which was growing rapidly and access to cheap resources and local talented engineers. Risk was to lose its unique culture and intellectual rights were not fully protected. Alternative option is to invest heavily in cutting edge memory products and niche markets and leave low end of the market for Chinese.
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HBS case analysis: Samsung Electronics Semiconductor industry has seen average growth rates of 16per per year since 1960.Semiconductors were classified into two broad categories, memory chips and logic chips. Memory chips would be further classified into DRAM, SRAM, and flash memory. DRAM represent approx 55 per of memory market and SRAM and flash memory represent 10per and 32 per respectively. Share of DRAM has reduced from 80per to 67per due to saturation I computer. Flash memory and SRAM market was expanding by extensive use of memories in telecommunication and consumer electronics.
Rivalry within industry: Industry was experiencing fierce rivalry by increase in industry capacity and normal cyclical downturn. Many Chinese firms were ready to enter the market. Chinese competitors were willing to sacrifice profits for market share.
Suppliers: With the growth of industry, supplier become more concentrated and would offer 5per discount on bulk purchases.
Substitute: There was no effective substitute for memory chips. Buyers: Buyers were largely OEM, with no one controlling more than 20% of global PC market. OEM would negotiate hard for price as memory represented 4-12per of PC cost and 4-7per of mobile phone cost. Buyers would pay 1per premium for reliability of product. Buyers were highly fragmented.
Entry Barrier: Entry barriers were high. It involves high capital investment and complex technology. Chinese firm with help of joint venture and agreements were in position to get license and technology for manufacturing. Finance was now available for foreign partners to rip the benefit of low cost access to manufacturing resources and talented local engineers.
Samsung offered over 1200 different variations of DRAM. Unlike competitors, Samsung tried to create new uses for DRAMs. Samsung had launched new DRAM products with product-specific applications in laptops and personal game players. It enabled Samsung in creating new markets that were unavailable to its competitors.
Samsung was market leader in memory chip technology and constantly remained ahead of its competitors. Samsung was able to create new market was developing new applications of memory and latest better technology. This had provided Samsung dual advantage of cost and value over its competitors. It was like crating Blue Ocean in every few years. The Chinese counterparts were sinking the profitability of market as they have easy access to raw materials.