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


Target
: powerful supplier, Price-conscious customers

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 .

.
.
.

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.

.
.
: .
,
.

,
.

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.