CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
SAMSUNG ELECTRONICS
Kun Hun Lee, Chairman of the Samsung group, Samsung electronics became the worlds
leading memory producer of all type of Pcs, digital cameras, game players and other electronic
products under his leadership.
1. ISSUES
The major issue in this case Samsung faced was the entrants of Chinese manufacturers in
memory chip industry. Mainly SMIC (Semiconductor Manufacturing International Corporation),
Chinas largest foundry manufacturing logic and memory products was the emerging industry in
producing DRAMs. Samsung was facing a cyclical downturn due to Chinese entrants.
Another threat that was faced by the Samsung electronics was that these Chinese companies
were collaborating with each other and were manufacturing dram chips at lower cost than
Samsung electronics even at their expense of profit. Chinese government also facilitated these
Chinese companies to help them sustain growth. Samsung was facing a decline in their market
share due to the Chinese firms as they could afford to sell their products at lower prices and grow
market share of profitability.
2. ANALYSIS OF ISSUES
SMIC (Semiconductor Manufacturing International Corporation) an emerging
competitor.
SMIC (semiconductor manufacturing International Corporation) is Chinas largest foundry
manufacturing logic and memory products including Dram production. SMIC strategy was not to
design chips but rather take blue prints of chips from other manufacturing firms such as in 2003,
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
SMIC and Infineon signed an agreement that authorized Infineon to license technology to SMIC.
Similarly they purchased production facility of worth $1 billion from Motorola in Oct 2003.
SMIC revenue increased from 50.3$ million in 2002 to 365.8 million in 2003.the company was
getting international success, as in march 2004 the company completed a dual listing on the New
York and Hong Kong stock exchanges. See (exhibit 1).
CHINESE COLLABORATION
The Chinese companies were collaborating with each other drastically to learn from the industry
sitting companies like Infineon and Elpida, and they were attracting billions of dollars in outside
financing to build state of the art production facilities.
Chinese companies despite being forbid from attaining equipment from us and Taiwan they
simply went to other countries for their production. In this process Chinese government played a
vital role in the development of semi conductor industries as they provided the necessary
infrastructure needs around Shanghai and Beijing. The government provided cheap credit,
abundant land, cheap utilities, engineering talent, tax incentives and other essential resources to
anyone who wanted to build a cutting edge semiconductor facility with Chinese partner. By 2010
china was expected to become the worlds second largest purchaser of semiconductors, after US.
See (exhibit 2).
3. DECISION CRITERIA
The decision criteria of Samsung electronics will be based on the SWOT Analysis of
Samsung electronics. See (Exhibit 3)
Samsung have competitive advantage had come from creating a unique culture of innovation
due to its huge investment on research and development (R & D). Another advantage they
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
have is that there research and development center is located in one single site. 7 % of total
revenues are due to the heavy investment in research and development.
Samsung can produce products for niche market segments and develop products that match
the needs of that market.
Samsung have an advantage as he has multiple product segments (mobile phones, LCD
development). Samsung can invest in its multiple products segment development rather than
focusing on memory chip production.
Another option Samsung have is to collaborate with a Chinese partner to remove the threat of
losing market share. But this can backfire Samsung in the long run as the partners can
become competitors in the future and can copy the infrastructure of Samsung which is the
core competency of Samsung.
Samsung can remove the threat of Chinese entrants by not focusing on their competitors
itself rather focus on their internal affairs such as investing more on their employee training
and development, hiring new talent, creating entrepreneurial environment which encourages
innovation.
4. DECISION
Samsung should invest in Research and Development and should stick to their competencies
which have gained them success.
5. RECOMMENDATIONS (exhibit 4)
Samsung should focus on investing on research and development and continue
manufacturing cutting edge innovative products.
Samsung should develop multiple product segments and don not focus on a single
segment development rather develop their segments collectively.
Samsung should not worry about the entrants of Chinese manufacturers as he is a high
value brand and its competitive advantage is being a customer responsive brand.
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
Samsung should focus on developing a customized product development for individual
needs.
Samsung should hire foreign talent and renew its recruitment strategy to develop a
competitive workforce.
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
Exhibit 1
Competitive advantage Chinese companies are seeking.
Lower cost structure
Easy access to large pool of engineering talent.
Government subsidies
Government relations
Exhibit 2
Comparison of Industries
SAMSUNG INFINEON
SMIC
SELLING $5.68
$5.05
$4.43
FULLY LOADED COST
$4.31
$5.02
$4.84
RAW METERIALS
1.18
1.58
1.84
LABOR
0.54
0.76
0.23
DEPRECIATION
1.35
1.50
1.63
R&D
0.60
0.71
0.80
AVERAGE
PRICE
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
Exhibit 3
SWOT ANALYSIS OF SAMSUNG ELECTRONICS
STRENGHT
WEAKNESS
HUGE R & D INVESTMENT
WEAK CUSTOMER PERCEPTION
PRODUCT BREADTH
LACK OF DEEP CUSTOMER
SEGMENTATION
INOVATIVE CULTURE
STRONG POSITION IN EMERGING MARKET
SWOT
OPPURTUNITY
THREAT
NEEECHE MARKET SEGMENT
CHINESE ENTRANTS
USAGE OF GREEN TECHNOLOGY
RISK OF LOOSING MARKET SHARE
( GOOD COROPATE CITIZENSHIP )
CASE WACC SAMSUNG ELECTRONICS
HAISUM KHAN #11208027
Exhibit 4
Competencies Samsung enjoys at the moment.
Samsung competitive advantages and opportunities it has
in future.
Lower cost infrastructure (research and
development in one single site )
High investment in R & D.
Multiple product segments.
Financial stability
High value brand
All the applications shared a common core design.
Customized products for individual needs.
Investing more on employees.
