Samsung, The Consumer Electronics Colossus

Until twenty years ago, Samsung was virtually unknown outside Korea. The firm, the largest of Korea's family-founded and run conglomerates called "Chaebols," the cornerstone of the original government-private axis on which modern South Korea emerged as a powerful economy following Japan's colonial domination, was founded in 1938 as a trading company. In the late 1960's it entered the electronics industry, followed by construction and shipbuilding a decade later. These three segments now are its largest.

The company entered modern international consumer businesses by supplying major components that are difficult and capital-intensive to produce. Examples of these are the CRT, LED, and LCD monitor screens for computers, televisions, and smart cell phones, often the most complex system components.

For smart cellphones, Samsung adopted the Google Android operating system software, and produces not only the monitor screen but also the internal semiconductor devices (integrated circuits), which are extremely demanding to manufacture. The company appears to enter a strategic industry with a major component, develop relationships with the manufacturers, learn the business, and then expand its capital investment in a highly capital-intensive industry to become a leader not only for the specific individual parts, but eventually the entire finished product.

In modern electronics the design cycles are frequent and risk of failure is major. However by producing key components to all the end-product manufacturers, Samsung "stays in the game" until the field thins out, and the firm has an increasingly accurate visibility on the business. Fundamentally, Samsung  appears to invest large amounts of money in capital-intensive business segments, gaining strategic visibility and leverage. It must be noted that Samsung Electronics is a public company and reports large profits, including an operating profit of $7.7 billion (USD) for the most recent fiscal three month period.

In the semiconductor field, Samsung has overtaken Intel as the world's leading company. It began the quest with an unstinting investment in memory chips, a difficult and volatile product area, by out-spending and out-producing the field, sometimes "doubling down" during the painful industry downturns by expanding its large "clean rooms," or wafer fabrication factories to huge cost-effective scales in order to gain market share as business recovered and capacity was short. Over the past several decade, the company has expanded its semiconductor capacity into logic and microprocessor devices in addition to memories. The Samsung "wafer fab" near Austin, Texas is the world's largest such facility, now running twelve inch silicon wafers through a mind-boggling sequence of hundreds of fantastically precise automated process steps in a factory that so far has a combined capital investment of over $10 billion. Last year alone, Samsung Electronics' total capital budget was over $21 billion, more than doubling the equivalent investments of Apple. That's a huge bet on continuing expansion and profitability.

With the company's unceasing heavy investments as well as excellent tactical operational execution, Samsung has become the critically important "can't do without" vendor for the most important components in modern smartphones: the largest supplier of the monitor screen; numerous memory chips; and now the communications devices, including the processors and base-band (voice processing) chips. This positioned Samsung strategically in the innards of the devices, and they subsequently have become the leading seller of smartphones as well as the industry's dominant component supplier to all other smartphone suppliers, including Apple. In the most recent quarter, Samsung's world market share was 29% compared with Apple's nearly 22% for smartphones, and the lead appears to be widening.

There have been (and continue to be) numerous intellectual property skirmishes along the way, in addition to some blemishes on this march to dominance, including three price-fixing court rulings: a DRAM price fixing cartel, a glass price cartel, and a liquid crystal panel cartel. Samsung is known within the industry as a first-class operational outfit that delivers on new products and has world-class manufacturing. They are a "can do" company that has grit and perseverance. Competitors consider the firm ruthless and able.


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James Kennedy George, Jr (Jim George)
Author, Reunion, a novel about relationships.

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