BUSS402-04
Final Project Report
Strategies for Samsung Electronics
: Maintain competitiveness in memory
& Increase competitiveness in non-memory
Project Team E
2011120066 박상민 2012120327 이기승 2013120030 이지훈
2015140611 김혜진 2019952013 장현정
Cover Letter…
Ⅰ. Introduction
The semiconductor industry is divided into the memory part and the non-memory
part according to the purpose of use. The memory semiconductor plays a role of storing
information, of which DRAM and NAND flash is the primary product. DRAM can read and
write data fast but data disappears when power is off. In contrast, NAND flash is relatively
slow in speed but it has advantage of storing the processed information for a long period of
time even if power is off. The non-memory semiconductor is like brain, processing the
information. CPU and AP is the primary product. CPU is brain of personal computer while
AP is that of mobile devices. AP performs only about one-third of the CPU, but it uses much
less power, so it’s suitable for mobile devices.
Samsung Electronics is major company in semiconductor industry, which competes
for the top spot every year. It participates in the DRAM and NAND of the memory industry.
In the non-memory industry, it invests only the AP, which is related with its main business,
Smartphone, as it is difficult to pioneer the CPU market due to the strongest competitor, Intel.
Based on the analysis of internal and external environment around Samsung, we suggest
some strategies Samsung should do.
Ⅱ. Industrial environment analysis
1.
Industry internal environment analysis: Porter’s 5 forces analysis
(1)
Industry Competitors
①
DRAM
The DRAM market has been dominated by Samsung Electronics,
SK Hynix and Micron.1
②
NAND flash
The NAND market is larger than the DRAM market so it consists of
both big three companies in the DRAM market and other competitors such as
Toshiba and Intel.2
③
AP
The AP market is dominated by Qualcomm, which controls about 40
percent of the market. Apple, Samsung, HiSilicon and MediaTec are the next major
companies. Recently, one thing to note is that MediaTec, which had the secondlargest market share, has lost its market share gradually and HiSilicon has continued
to grow every year.3
(2)
Potential Entrants
The entry barrier is high. It is impossible to enter the semiconductor
industry without having a large amount of capital. Even though it requires a huge
amount of funds, it also has a lot of risks in collecting investments. One situation that
needs to be watched is Intel’s entry into the memory Industry. 4 Intel already proved
its power in the non-memory industry so it can change current situation in the
memory industry.
(3)
Substitutes
Each DRAM and NAND flash has so obvious strength and
weakness that they are forced to use both. However, recent improvements in
technology have led to the development of a new generation of memory that
incorporates both strengths. It is called next-generation memory such as MRAM and
PRAM. It doesn’t replace them completely because it is difficult to commercialize it
due to its materials.5 If it succeeds to lower the price of next-generation memory, it
will be the substitute of DRAM and NAND flash. For the non-memory AP, there is
no specific substitute yet.
(4)
Supplier
Samsung is an IDM company that produces semiconductors by
itself from design to final product but it purchases equipment and materials for
semiconductor production from business partners. Therefore, maintaining relations
with business partners is very important.
(5)
Consumer
It is predicted that there will not be much volatility in demand as
semiconductor is used in various fields such as datacenter, IoT and self-driving car,
where information and communication technology is applied in modern industry. In
the case of DRAM, price control is possible as the market is in the form of oligopoly,
but in the case of NAND flash and AP, cost competitiveness through technical
development is urgently needed as there are relatively many suppliers.
2. Industrial external environment analysis : PET analysis
External
Environment
Analysis Contents
Political
The Korean government
: Establishment of ‘System Semiconductor Vision and Strategy’
The Japanese government
: Enforcement of the export regulation policy for core materials
The Chinese government
: Implementation of policies to strengthen its semiconductor industry
The US government
: Support for domestic companies and Regulations for Chinese companies
Economical
Deterioration in profitability
: Price decline due to low semiconductor demand
Increased uncertainty
: US-China trade dispute
Technological
Advent of the 4th industrial revolution
Low localization rate of domestic semiconductor materials and equipment
China’s chase of semiconductor technology
(Additional information will be included in the appendix 1)
Ⅲ. Establishment of strategic direction
1. SWOT
(1) Strength
① Dominant market share in memory market.
② Has lots of other business departments, which can make synergies with
semiconductor business in technological development
(2) Weakness
① Relatively low level of market share & technology in non-memory market
(3) Opportunity
① Opportunity of making sure to be a leading company in memory market
② Independent development chance of AP parts
③ Opportunity of cooperating with other foreign companies
④ Korean government’s support in semiconductor business
(4) Threat
① Non-memory market is much more valuable-in-future rather than memory market
② Threaten of Chinese company in memory market (Chinese government’s support),
especially in NAND market
③ Trade restrictions of Japanese government
④ Frictions between Samsung and Korean government could happen
2. Strategic direction
(1)
In the memory sector, Samsung needs to continuously develop technology for
memory semiconductor to maintain its position as a strong player in the current
memory market.
(2)
In the non-memory sector, Samsung has only competitive edge over AP
semiconductor. Therefore, through the development of semiconductors that can be
made by applying AP, Samsung should seek to link them with industries that
Samsung currently participates in, and those that are not run by Samsung but are
likely to be grown in the future.
Ⅳ. Strategic recommendations
1. The memory sector
(1) Maintain competitive advantage in the semiconductor industry and pursue further
development
Samsung Electronics continues to maintain its position as the number one chipmaker
in the global semiconductor industry. According to market researcher IHS Markit on
June 7, Samsung Electronics placed first for three consecutive quarters since the third
quarter of last year, with US$18.607 billion (19.9 trillion won) in sales in the
semiconductor sector in 2018. This is a 45.4% increase from the same period a year ago.
Compared with the previous quarter, its sales grew 1.6%. Samsung Electronics accounted
for 16.1% of the global semiconductor market (excluding foundry), which is estimated at
US$115.762 billion in the first quarter of this year.6
Although the demand for both DRAM and NAND is continuously increasing, it is
expected that there will be a mild decline in the fourth quarter of 2019. However, prices
will most likely boost up again in the first quarter of 2020 due to the pre-orders for the
Chinese New Year and the release of new 5G smartphones. The sources that might block
the rise of prices are the pre-established chip inventory by Chinese local companies.7
Therefore, it is important for memory vendors to carefully check whether
smartphone OEMs have placed double orders. In addition, the understanding of the
operating conditions of OEMs is crucial in order for Samsung to mitigate the risk of
oversupply and excessive inventory.8
Samsung confidently maintains its competitive advantage in the semiconductor
industry. Although keeping its lead position is fundamental, it is also important to pursue
further development. Samsung should work towards creating new, innovative means of
memory other than DRAM or NAND to pioneer in the industry.
(2) Necessary to reduce the dependence of Japan on material parts
In response to Japan’s export regulation policy on semiconductor core materials, it is
necessary to diversify material importers in the short term and localize materials in the
long term.
2. The non-memory sector
(1) Self-innovation
There is a way that Samsung develop its own products in non-memory market. There
are lots of components which compose SOC. On one hand, there are some dominant
companies in some parts of SOC. For example, Qualcomm is good at GPU, Intel is good
at CPU. On the other hand, there is not a dominant company in some parts of SOC. So
what can Samsung do is targeting a niche market.
A business of semiconductor related to home appliances could be a good business.
①
IOT business is one of the most valuable future-business, which is not developed
well in present and has a huge development possibility in future.
② There is no dominant company in IOT(related to home appliances) market.
③ Samsung already doing home appliances business so that development of AP of
home appliances can influence both business in good way
(2) Cooperation with companies which participate in another industries
It is the best way for growth to use internal resources and capabilities but cooperation
with other companies could be more effective if it takes too much time and capital to
develop new technology. Samsung also experienced cooperation for entering new
industries in which it didn’t have professional information. For example, Samsung
wanted to use its AP technology for automotive semiconductor which is one of promising
markets in the future. Therefore, in November 2016, it acquired Harman in the U.S. in
order to start full-fledged automotive electronics business and strengthen its audio
business. Based on this acquisition, it succeeded in releasing Exynos Auto, which is a
processor brand for cars, and ISOCELL Auto, which is an image sensor brand.
Security market is also expected as one of promising markets, which is included in
the business road of Samsung’s non-memory business. Therefore, it is good for Samsung
to link up with the vault industry, one of the security markets. The vault industry has
been in demand recently due to plunging interest rates, a shift in image from luxury to
home appliances and a lighter weight. As the vault industry becomes a burden for
Samsung to deal with the overall process from production to sales, cooperation with
companies belonging to the vault industry can create a pathway for Samsung to take
advantage of image sensor semiconductors currently under development. Thanks to the
image of home appliances, Samsung can expect synergy with other home appliances that
Samsung is selling
(3) Have a new try in various areas
① Customized healthcare field
Develop smart clothes with semiconductors inserted so that you can know your basic
health conditions at home. In the future, there will be a surge in the number of elderly
people who are uncomfortable with mobility, and they will be uncomfortable going to
hospitals on a regular basis. Therefore, they need to be able to check basic health
conditions, which can be done by ‘smart clothes’. In particular, if the company
cooperates with “Cheil Industries” to develop these garments, it would be beneficial not
only for Cheil but also for Samsung Electronics. Both of their companies’ profit can be
higher by developing products that fit for consumers’ needs. Furthermore, since the
company belongs to the same group, it will be able to accelerate the exchange of opinions
and product development.
Further, smart watch can also be developed with a function that checks their basic
health status frequently and tells you what to do if emergency or bad health condition
happens. Smart Watches in the current market provide basic functions such as measuring
heart rate and exercise time, so we need to move further and provide more developed
functions. If Samsung Electronics work with Samsung Hospital to develop these
technologies, it will be easier to develop health care smart watch because Samsung
Hospital has many experts in health care system and they can provide practical solutions
for developing it. Further, because Samsung Hospital have many data regarding patients’
condition and illness, it also can be helpful for developing health care smart watch. Also,
if other companies fail to copy this technology, Samsung’s smart watch can be un
conquerable leader in this area or other companies try to buy AP made by Samsung
Electronics to put this functions in their product and it can lead to dramatic profit
increase in Samsung Electronics.
② Smart city
The fourth industrial revolution, which used to be vague and blunt, is now taking
shape through smart cities. 5G mobile telecommunication, IoT, AI (Artificial
Intelligence), VR (Virtual Reality), ESS (Energy Storage System), and self-driving cars
are now expanding to one device, building, region and city instead of staying separately.
In smart cities, semiconductors work evenly across all disciplines.9
Smart City, at the heart of the fourth industrial revolution, wants to realize efficient
service, sustainable urban structure, high mobility, high safety and security. 10 It is
expected that non-memory semiconductors will play a significant role in developing
Smart City. Specifically, to develop Smart City, ① Smart CCTVs and early response
systems can be installed and developed to build a safe city, ② Develop voluntarily
heating and ventilation system to make more pleasant environment ③ Can control oven,
ventilation system, or heating system outdoors to promote more convenient living ④
Smart waste system : a system where the amount of garbage is automatically measured
and the amount of trash specified is exceeded, and a professional company comes to
clean it up.11
It would be a good idea to work with apartment brands such as Trapalace and
Raemian within Samsung Group to build Smart City. This is an opportunity for Samsung
Electronics to promote the semiconductor industry as well as increase its preference for
apartments of Samsung group by creating more residential-friendly and convenient
environment. Or it can also be a good idea to cooperate with the government and
Samsung Electronics provided great technological helps to develop Smart City. Because
government has a lot of knowledge regarding village-making and they have huge budget,
it can be good idea to cooperate with them.
Ⅴ. Conclusion
Strategies are also important, but each industry ranging from design to production of
semiconductors should be developed in a balanced manner as both the memory sector and the
non-memory sector are complexly intertwined industries. Although Samsung is an IDM
company, it is seen that it has strengths in foundry and fabless companies in Korea are not
competitive. The semiconductor vision of Korean government is focused on making a
balanced semiconductor ecosystem by fostering start-ups and companies that are at a weak
stage. However, there are still factors that could delay development, including technical
limitations and the adverse effects of the company culture. Even now, Samsung is making
every effort to create symbiotic and synergistic effects with its suppliers, but it needs to
control the obstacles that are not related with technical problems.
[Appendix]
1. Additional information on PET analysis
(1)
Political environment
①
The Korean government: Establishment of ‘System Semiconductor Vision and
Strategy’
The Korean government recently set up ‘System Semiconductor Vision and
Strategy’ to support the semiconductor industry.12 This document shows that the
Korean government is aware of the importance of system semiconductors and the
problems of the Korean semiconductor industry. The system semiconductor sector is
a larger market than the memory sector, and steady growth is expected in the era of
the 4th industrial revolution. However, Korean companies lack competitiveness and
technology in system semiconductors. Therefore, The Korean government is
preparing support strategies such as fabless demand creation and foundry market
support to solve the problem of Korean companies.
②
The Japanese government: Enforcement of the export regulation policy for core
materials
In July 2019, the Japanese government implemented export restrictions on
three key materials of Korean semiconductor and display industry, such as hydrogen
fluoride, photoresist and fluorinated polyimide.13 These core materials were shifted
from comprehensive permits to individual permits, and Korea was taken out of the
White country.14 Prior to this, imports of these materials were not regulated, so
imports were made so quickly. But now, it takes considerable time and it is uncertain
whether the permit will be granted because each export of the Japanese companies
has to be permitted respectively.15
③
The Chinese government: Implementation of policies to strengthen its
semiconductor industry
The Chinese government has continuously pursued policies to strengthen its
semiconductor industry’s competitiveness over the past 10 years: 「IC Industry 12-5
Development Plan」(2012), 「National Semiconductor Industry Development
Promotion Summary」(2014), 「China Manufacture 2025」(2015). Through this,
financial and tax support for domestic semiconductor companies, R&D cooperation
with foreign companies, joint ventures and M&A, domestic training and overseas
recruitment of professionals are being made.16 The China, which owns MediaTek
and HiSilicon, has emerged as the third largest fabless market share (12.6%) in 2018,
based on the huge domestic market that consumes half of the world’s semiconductors
and the government’s strategies to foster memory and system semiconductors.17
④
The US government: Support for domestic companies and Regulations for Chinese
companies
The United States is the first mover in the field of system semiconductors,
and the US government supports its companies through basic research support and
technology protection. As a result, the US owns six companies of the world’s top 10
in the system semiconductor fabless sector and accounts for 70% of the global
market.18
Recently, the Trump administration has severely regulated Chinese
companies’ economic and investment activities in the US in relation to the China’s
policy to foster high-tech industries. The US government defined China’s industrial
policies, such as US core technology and intellectual property acquisitions as
‘Economic Aggression’. They imposed retaliatory tariffs on semiconductor-related
items, prevented the acquisition of semiconductor companies, and banned exports of
parts and equipment to Chinese companies that could infringe US companies.19
(2)
Economical environment
①
Price decline due to low semiconductor demand: Deterioration in profitability
Semiconductor makers have increased production capacity due to the boom,
but the global semiconductor ICT market slowed down due to oversupply as global
ICT companies slowed down data center investment. As a result, as shown in the
graph below, prices of DRAM and NAND fell from 2018, which led to a decline in
profitability of memory manufacturers.
20
21
<DRAM Near-Term Pricing>
<NAND Near-Term Pricing>
According to the World Semiconductor Market Statistics Organization
(WSTS) this year, semiconductor market revenue is estimated at $ 41.2 billion, down
12.1% year-on-year, and the memory semiconductor market is expected to drop
30.6%. 22 Since price competitiveness in memory is relatively due to process
efficiency rather than labor costs, it is likely to be an opportunity for Korean
companies after 2020, when prices are expected to rise, as it is difficult for followers
like Chinese companies to withstand such price declines.23
②
US-China trade dispute: Increased uncertainty
Since the fourth quarter of 2018, the impact of US-China trade disputes has
intensified, leading to a slowdown in China's trade in electrical, electronic and hightech products, as a result Korean companies’ semiconductor exports to China also fell
sharply.24 China is a consumer market that demands two-thirds of Korean exports,
while the US supplies advanced equipment and technology essential for
semiconductor production, and Korean foundry firms are highly dependent on the
fabless companies of the US.
In the long run, if the global supply chain is segmented into China or the
United States, there will be big damages to Korea's semiconductor industry, which
considers China and the United States as the two most important trading partners.
However, US sanctions on Chinese companies like Huawei, could also give Korean
companies a reflexive benefit in the growth of the fabless and foundry market. 25 In
fact, Samsung Electronics signed a CPU for PCs foundry contract with Intel in
November 2019, because TSMC, the No.1 foundry and Chinese-related company,
deals with Huawei continuously.26
(3)
Technological environment
①
Advent of the 4th Industrial Revolution
Currently, technologies related to the Fourth Industrial Revolution are
rapidly developing: Artificial Intelligence (AI), Internet of Things (IoT), Big Data,
Cloud, Autonomous Vehicles, Wearable Devices, and Drones. 27 In addition,
commercialization of 5G, a core technology necessary for the universalization of
data-driven autonomous driving, IoT, and AI, is underway in each country.
DRAM and NAND memories are the core components for building the
foundation technologies of the Fourth Industrial Revolution and demand for modem
chips included in non-memory sector is expected to increase with the spread of 5G.
In this situation, competition over semiconductors between countries and companies
is continuing to survive in the 5G era and Qualcomm, Samsung Electronics, and
Huawei which owns HiSilicon compete with modem chips severely. However, the
recent sanctions of the US will disrupt the launch of the Huawei 5G smartphones, so
the 5G modem chip supply is expected to be a structure that Samsung Electronics
follows in the dominance of Qualcomm.28
29
<5G Network Sites by Country >
②
30
<Market Share of 5G Modem Chip>
Low localization rate of domestic semiconductor materials and equipment
Korean semiconductor industry in vulnerable to overseas supply chain risks
due to its low self-sufficiency for core equipment and materials. Based on sales in
2017, the localization rate of domestic semiconductors is only about 50% of materials
and about 20% of equipment. The localization rate of some equipment such as
exposure and ion implantation and materials like hydrofluoric acid was 0% before the
recent export control of the Japanese government, so production disruption was
inevitable when imports are stopped due to lack of supply or conflict between
countries.31
<Korea’s Imports by Country for 3 Japanese Export Control Items>
Competitive domestic companies in relation to the three items subject to
Japanese export control are as follows. There are DONGJIN SEMICHEM and
KISCO in photoresist, Soulbrain, SK materials and FOOSUNG in etching gas, and
Dowooinsys, UTI, Kolonindustries and SKC in fluorine fluimide.
③
China’s chase of semiconductor technology
China pushed for semiconductors with a goal of 75% semiconductor selfsufficiency rate by 2025, but technology acquisition and production plans was
hampered due to US’s restrictions on exports of equipment and materials. In memory
semiconductor sector, Fujian Jinhua (JHICC), which prepared mass production of
mobile DRAM in 2019, is experiencing a business disruption due to the US sanctions.
Similarly, production of DRAM (Innotron) and NAND (YMTC), which were
scheduled for mass production in 2019, will be delayed. So, the memory gap between
Korea and China is estimated to be at least three years for NAND and at least five
years for DRAM, but the gap is expected to widen due to delays in mass production
by Chinese companies.32
However, China is ahead of Korea in the field of system semiconductors. In
Fabless, four of the top 10 fabless companies in the world in 2018 are Chinese-based
companies, including MediaTek and HiSilicon. In the foundry, the Chinese-based
company TSMC holds 48% of the total market share as of 2018.33
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