1. Does Samsung have a competitive advantage? If so, how are they creating added-value compared to
industry competitors?
Based on the details presented in this case, Samsung has a clear competitive advantage. In the DRAM and
SRAM marketplaces, Samsung is able to charge a higher price while incurring lower cost compared to the
industry average. Within the emerging Flash market, despite charging customers a similar price, Samsung has a
much more efficient cost structure compared to its closest rival, Toshiba. Now we will examine each market
more closely.
In the DRAM market (FIGURE 1) and SDRAM market (FIGURE 2), Samsung is able to charge 17%
and 12% more, respectively, compared to the industry average due to superior product customization, faster
time-to-market, and stronger brand recognition. Samsung also incurs lower costs than others in the industry by
having more efficient, centrally-located operations. They are able to lower production costs by leveraging the
same designs for the DRAM and SDRAM chips. More details on each of these markets can be seen in
EXHIBIT 1 and EXHIBIT 2.
FIGURE 1: Global DRAM Market1 (256Mbit equivalent)
Differences in
Value Stick
ΔWTP: +1%
Premium
WTP
Price
Samsung’s
Op. Profit:
$1.37
WTS
WTP
$5.70
$5.68
Cost
Industry Av.
Op. Loss:
($0.74)
ΔPrice2:
+$0.72
Cost
Industry Weighted
Average
ΔCost2:
+$1.39
$4.96
Price
$4.31
Same WTS
Notes: (1) Graphs without scale
(2) Difference between Samsung - Competitor (+ sign means additional Operating Profit for Samsung related to Competitor)
WTS
FIGURE 2: Global SDRAM Market1 (256Mbit equivalent)
Differences in
Value Stick
Industry Weighted
Average
ΔWTP: +1%
Premium
WTP
WTP
$5.61
Price
$5.19
2
Samsung’s ΔPrice :
Op. Profit: +$0.61
$1.04
ΔCost2:
+$1.45
Industry Av.
Op. Loss:
($1.02)
$4.59
Cost
WTS
Cost
Price
$4.15
Same WTS
WTS
Notes: (1) Graphs without scale
(2) Difference between Samsung - Competitor (+ sign means additional Operating Profit for Samsung related to Competitor)
In the Flash market, Samsung’s competitive advantage comes primarily from their more efficient cost
structure due to savings from labor and raw materials. Their costs are 39% lower than their competitor, Toshiba.
Because of their lower cost, Samsung has more flexibility to lower their prices, if necessary.
FIGURE 3: Global Flash Market1 (512Mbit equivalent)
Differences in
Value Stick
WTP
Price
WTP
Same WTP
$9.48
ΔPrice2:
($0.03)
$9.51
Toshiba’s
Op. Profit:
$4.97
Samsung’s
Op. Profit:
$6.20
Cost
$3.28
WTS
Price
ΔCost2:
+$1.27
$4.55
Same WTS
Cost
WTS
Notes: (1) Graphs without scale
(2) Difference between Samsung - Competitor (+ sign means additional Operating Profit for Samsung related to Competitor)
Samsung’s competitive advantage also stems from its heavy investment in R&D and new product
development. In 2003, Samsung invested ~60% more in R&D than all their closest competitors combined.
(TABLE 1). In the fast-changing semiconductor industry, innovation allows for Samsung to have a first-mover
advantage and it also introduces switching costs to consumers.
TABLE1: 2003 R&D Spend (Source: Samsung Electronics Case-Exhibit 1)
Company
Samsung
Micron
Infineon
Hynix
2003 R&D spend ($000)
$
2,947
$
656
$
864
$
269
EXHIBIT 1: Detail on the DRAM Market
Total Market
Volume3 (Mn Units)
64Mb1
Differences in
Value Stick
2,157.8
128Mb1
Differences in
Value Stick
Industry Weighted
Average
256Mb1
Differences in
Value Stick
Industry Weighted
Average
512Mb1
Differences in
Value Stick
Industry Weighted
Average
WTP
Industry Weighted
Average
ΔWTP: +1%
Premium
$15.22
Price
$14.21
Samsung’s
Op. Profit:
$3.69
ΔWTP: +1%
Premium
WTP
Price
380.2
79.7
64Mb
65.4%
16.9%
256Mb
18.4%
512Mb
26.0%
ΔPrice2:
+$0.63
$8.00
Cost
WTS
$2.99
ΔCost2:
+$1.08
Same WTS
Cost
WTP
Price
Industry Av.
Op. Profit:
$3.92
Samsung’s
Op. Profit:
$5.64
62.4
128Mb
$8.63
$4.07
Price
Cost
Cost
WTS
ΔWTP: +1%
Premium
WTP
$6.45
ΔPrice2:
Samsung’s +$0.79
Op. Profit:
$2.56
$3.89
WTS
(%): Samsung’s Op. Profit in
Each Market Segment
Notes: (1) Amounts in $ per unit. Chart scale between $2 and $15
(2) Difference between Samsung - Competitor (+ sign means additional Operating Profit for Samsung related to Competitor)
(3) Total volume of the competitors showed in the case
ΔCost2:
+$1.51
Same WTS
WTS
WTP
Industry Av.
Op. Profit:
$5.66
$0.25
$5.40
WTP
Price
Cost
WTS
Price
Samsung’s
Op. Profit:
$5.08
$0.94
Cost
$4.15
WTS
Industry Av.
Op. Loss:
($1.04)
ΔWTP: +1%
Premium
ΔPrice2:
+$0.51
ΔCost2:
+$1.46
Same WTS
$5.61
WTP
Cost
$4.57
Price
WTS
ΔPrice2:
+$1.59
ΔCost2:
+$4.70
WTP
Cost
Industry Av.
Op. Loss:
($2.60)
$12.62
Price
$10.52
Same WTS
WTS
EXHIBIT 2: Detail on the SDRAM Market
Total Market
Volume4 (Mn Units)
SDRAM1
1,621.0
Differences in
Value Stick
DDR SDRAM1
Differences in
Value Stick
Industry Weighted
Average
DDR2 SDRAM1,3
Differences in
Value Stick
Industry Weighted
Average
WTP
482.9
Price
SDRAM
DDR
SDRAM
34.4
32.7
DDR2
SDRAM
Rambus
DRAM
WTP
Price
Cost
WTS
16.0%
14.0%
48.4%
ΔWTP: +1%
Premium
Samsung’s
Op. Profit:
$0.79
$4.95 ΔPrice2:
+$0.28
ΔCost2:
+$1.79
$4.16
Same WTS
$5.95
$4.67
Industry Av.
Op. Loss:
($1.28)
WTP
Cost
WTP
Price
Price
Cost
WTS
WTS
Industry Av.
Op. Loss:
($0.96)
ΔWTP: +1%
Premium
Samsung’s
Op. Profit:
$0.66
$4.72 ΔPrice2:
+$0.17
$4.06
49.2%
(%): Samsung’s Op. Profit in
Each Market Segment
Notes: (1) Amounts in $ per unit. Chart scale between $2 and $15
(2) Difference between Samsung - Competitor (+ sign means additional Operating Profit for Samsung related to Competitor)
(3) Weighted average between 128Mb and 256Mb
(4) Total volume of the competitors showed in the case
ΔCost2:
+$1.45
Same WTS
$9.36
$8.94
$5.51
WTP
Cost
Price
Cost
WTS
WTS
$4.83
ΔCost2:
+$0.78
Same WTS
$5.61
Price
$8.63
Samsung’s
Op. Profit:
$4.70
Cost
Cost
WTS
WTS
WTP
$9.54 ΔPrice2:
+$0.91
Industry Av.
Op. Profit:
$3.33
Industry Weighted
Average
ΔWTP: +1%
Premium
WTP
Price
ΔPrice2:
+$0.42
Samsung’s
Op. Profit:
$4.53
$4.55
Differences in
Value Stick
Industry Weighted
Average
ΔWTP: +1%
Premium
WTP
Rambus SDRAM1,3
$4.85
Price
Industry Av.
Op. Profit:
$3.12
ΔCost2:
+$0.67
Same WTS
$5.52
Cost
WTS