Samsung Electronics
TCTE Consulting Group
Consultants:
Katherine Alexanderson
Matthew Hacke
Kevin Nguyen
Daniela Richani
Tianpei Sun
Patrick Tye
Problem Identification
Threat of Chinese competitors
entering the memory chip market
Industry
• Industry Group 376- Electronic Components and
Accessories
• SIC Code 3674- Semiconductors and Related
Devices
• RAM (Random Access Memory) broken down into
three categories:
- DRAM
- SRAM
- Flash
Strategy
Broad and differentiation strategy
• Providing the market with the highest quality
semiconductors (differentiation)
• Every PC company can be defined as a potential
memory chip buyer (broad)
• It has several product lines to meet different demands
Samsung’s Competencies
• Technology
• R&D
• Cost Control Production: Compared
with competitors, Samsung has lower
production costs.
Customer Segmentation
Customers: PC, telecommunications and
consumer electronics companies
• They look for price and quality, it can
be difficult to balance the two
• Easy reach to its customers
• Not loyal to an organization, but to
quality and price of semiconductors
SWOT Analysis
STRENGTHS
• Profits and size
• Quality and reliability of products
• Product mix
WEAKNESSES
• No clear strategic direction
• Lack of innovation and technology development
• Unable to compete effectively in the long-run
SWOT Analysis
OPPORTUNITIES
• Joint venture or acquisition of other companies
• Increase production of other semiconductor memory types
• Develop a cheaper sub line to compete in the market
THREATS
• Competitors are willing to sacrifice profits for market share
• Industry attractiveness to Chinese logic chips producers
• Competitors partnerships and outside support
Porter’s Analysis
Threat of New Entrants (3)
• High switching cost (difficult to exit)
• Drop in market prices due to an increase in industry capacity
• High organizational experience in tacit knowledge needed to master
design and production
Availability of Substitutes (2)
• There was no effective substitutes by 2005
• Memory based in nanotechnology
• Books, paper, discs, tapes, etc.
Porter’s Analysis
Bargaining Power of Suppliers (4)
• Powerful suppliers
• Highly concentrated due to product complexity
• Two/three main players in each segment
Bargaining Power of Buyers (3)
• Price-consciences customers (negotiated hard on price)
• More fragmented than suppliers
• Intense rivalry between PC producers.
Porter’s Analysis
Competitors (4)
Advantages
Infineon Technologies AG
• Years in industry
• Successful strategic alliance
• R&D resources
Micron Technology
• Sole U.S. producer
• Focused almost entirely on DRAM
• Investment capital on R&D
SMIC and other Chinese Producers (ASMC,
NEC, Grace SMC)
• 84% of China’s semiconductor
production
• Key alliances with chips designers
• Produced chips based on existing
blueprints
• China’s chip manufacturing capacity was
increasing worldwide
Industry’s Attractiveness
Stay in the Industry
Enter the Industry
ATTRACTIVE
NOT ATTRACTIVE
• High Profitability
• High start-up cost
• High switching cost
• Mature industry
• Product demand
• Lack of experience and skills
TOTAL SCORE
16 out of 25
Alternative 1
Merge with Chinese Competitors (SMIC)
PROS
Score
Increase overall market share
5
Access to low-cost input
4
Continue to dominate and have a presence in the
lower end market
3
CONS
Score
Unprotected intellectual property rights
-4
Jeopardizing Samsung’s brand image
-3
Maintaining corporate culture
-3
TOTAL
2
Alternative 2
Heavily invest into research and development
PROS
Score
Profit and social incentives
5
Competitive position as the market and technology
trends start to shift
5
Contribute to society
4
CONS
Score
Risk of failure
-4
R&D leads to spillovers
-3
Capital constraint
-2
TOTAL
5
Alternative 3
Do nothing and embrace the environment
PROS
Score
The market may be in favor of Samsung
3
No capital constraints/unnecessary complications
2
Sustain existing corporate culture
4
CONS
Score
The market may not be in favor of Samsung
-3
Possibility of going under due to ambiguity
-5
Failure to meet customer demands
-3
TOTAL
-2
Recommendation
Heavily invest into research and development
• DRAM is becoming a mature industry
• It is a familiar strategy
• Willing to cede the low-end of the market—cannot
compete on price Chinese firms
Implementation
1. Competent and Competitive R&D team with sites
in California and South Korea
2. They have existing resources to invest in R&D (Net
Debt: -6b)
3. Set R&D budget to 13% of Net Revenues for the
following 3 years
4. Use resources to develop new products and
further develop Flash Memory—double digit
growth rate for next 5 years
Implementation Issues
ISSUE
SOLUTION
Intellectual Property Rights
concern
Produce in countries with effective
Intellectual Property Rights Law
Ideas are scarce and R&D is
expensive
Make R&D expense proportional
to Net Revenues
Dilute the culture and focus of
existing R&D department
Create more teams rather than
increasing the existing ones
Samsung
Electronics
Thank you
TCTE Consulting Group
TCTE Consulting Group