“Always have a sense of crisis,” says Yun Jong Yong, the deputy chairman and chief executive officer at Samsung Electronics Co. That mantra served the company well in the late 1990s when massive debt and a recession induced by Asia’s financial crisis threatened to push Samsung into bankruptcy. Yun responded by slashing the company’s workforce, eliminating unprofitable product lines and ramping up development of high-tech -- and high-margin -- products.
The results are impressive, even by the standards of South Korea’s dynamic economy. Samsung today is the world’s leading supplier of memory chips, the second-largest maker of mobile telephone handsets and the No. 1 producer of the flat panel, liquid crystal display screens, or LCDs, that are used in laptops and increasingly in television sets. The company’s net income of $8 billion in the first nine months of 2004 easily outstripped the $5.39 billion of earnings at Intel Corp., its biggest semiconductor rival. And Samsung’s market capitalization has swelled to $62 billion, almost twice that of Sony Corp., its main competitor in consumer electronics. Compared with its rivals, Samsung is a hydra-headed monster, with three businesses accounting for the bulk of its sales and profits. In the third quarter the semiconductor division produced one third of total Samsung revenues and 71 percent of operating profits. Cell phones claimed another third of sales and 22.3 percent of operating income. LCDs were responsible for 13.3 percent of sales and 8.2 percent of operating profits. (The laggards were the consumer electronics and digital appliances divisions, which showed a combined 1.5 percent loss.)
Far from being complacent, however, Yun has plenty of reasons to maintain his “sense of crisis” -- a slogan reminiscent of former Intel chairman Andy Grove’s call for a healthy dose of paranoia. Samsung’s profit margins in handsets and LCDs have slumped recently to levels no better than its rivals’, and once-robust sales growth is slowing. Even Samsung’s biggest cash cow, the semiconductor business, is under pressure. The company predicts that prices for its biggest-selling chips, dynamic random access memory chips, or DRAMs, an essential component of personal computers, will drop by 30 percent this year because of a global glut. All these unsettling trends knocked Samsung’s share price from a high of 637,000 won ($549) in April to 442,500 won in late December.
Yun’s response to the new pressure? More of the same. Samsung once again is jacking up research and capital spending and sharpening its focus on the higher end of its product markets. In December the company announced plans to invest a massive $24 billion over the next six years to develop new chip lines at two production facilities in South Korea. Yun believes the spending will keep Samsung ahead of the commoditization curve in memory chips and generate sales of $190 billion between 2005 and 2010. Without unique moneymaking products like Sony’s PlayStation game console or Intel’s Centrino microprocessor, Samsung has to rely on greater productivity and more competitive prices than those of rivals.
“When products turn into commodities, Samsung does a better job than other companies at turning them out in greater volumes and squeezing out more profits,” says Tom Starnes, a Texas-based semiconductor analyst at market research firm Gartner Dataquest.
Samsung is embracing a similar crisis mind-set to forge ahead in cell phones. The company believes its emphasis on upscale products -- launched at such a frenetic pace that 40 new handheld models appeared on the U.S. market in 2004 -- will enable it to overtake market leader Nokia within five years. And in LCD panel manufacturing, Samsung is teaming up with Sony to share the financial risks of a big new production facility.
As at other supersuccessful corporations, there is a succession issue at Samsung. Yun and most of his top executives are older than 60. “It’s not yet clear what they are doing to prepare the next generation of management,” says Simon Woo, a Seoul-based analyst who covers Samsung for Merrill Lynch & Co. But whoever takes over will inherit a company that is expanding its businesses in a variety of impressive ways.
Samsung’s list of top-selling global products already includes DRAMs, SRAMs, flash memory chips, LDI chips to light up handset screens, multichip packages to help power handsets more efficiently, large TFT-LCD panels, color monitors, videocassette recorders and CDMA handsets. According to Yun, in the next five years, Samsung’s total of global top sellers will more than double and will include, most prominently, digital television sets (now dominated by Sony and Sharp Corp.), laser printers (where Hewlett-Packard Co. is the market leader) and third-generation cell phones (overtaking Nokia).
Such moves are encouraging some of Samsung’s biggest foreign investors to weather more months of expected lackluster share prices. “Longer term, if you look at the cash flow Samsung is generating and the way it is building up market positions, then its stock is undervalued,” says Peter Nori, a Florida-based portfolio manager at Franklin Templeton Investments, which owns more than $1 billion in Samsung shares. Other fund managers take heart from the company’s past performance, particularly the way it rebounded from the Asian recession in 1997'98. “Compared to five or six years ago, Samsung’s product quality and the positioning of its brand name are a hell of a lot better today,” says Hugh Young, Singapore-based managing director of Far East operations for Aberdeen Asset Management, which holds $400 million of the company’s stock.
Although Samsung is sending some strongly positive signals to investors, its stock price isn’t being helped by South Korea’s deteriorating political and economic climate. GDP growth this year will fall short of 5 percent, a snail’s pace by local standards, mainly because soaring household debt has tamped down consumer spending. The center-left government of President Roh Moo Hyun is widely viewed as being more concerned with improving relations with North Korea and pushing for a more equitable distribution of wealth at home than with building business confidence. In December the government passed a bill that will curtail the voting rights of chaebol -- the giant business groups that dominate the South Korean economy -- in their affiliate companies from the current maximum of 30 percent to 15 percent by 2008. The legislation was bitterly opposed by the Samsung Group, the chaebol that includes Samsung Electronics, on the grounds that it could lead to a hostile takeover by foreign investors. But even that appeal to nationalism fell on deaf ears. “Many of the people around Roh grew up during the military dictatorship that lasted until the 1990s and resent the fact that the chaebol made many billions of dollars during that era,” says Yoon Tae Hee, president of Seoul University of Foreign Studies. Most foreign investors believe that Samsung’s size and remaining chaebol ties effectively rule out a takeover bid.
Samsung Electronics was born in 1969, at the apogee of the military regime, as part of Samsung Group, a chaebol founded in 1938 by a family of dried-fish vendors. The family, now headed by Lee Kun Hee, chairman of Samsung Electronics, still controls some 60 Samsung Group businesses, ranging from electrical component manufacturing to financial services to an amusement park. Nowadays Samsung Electronics downplays its roots and insists, despite some evidence to the contrary, that ties with its chaebol affiliates have withered. “The current chaebol structure is quite different from what it was before,” says Chu Woo Sik, vice president in charge of investor relations. “The links are all but severed now, with all companies operating independently.”
There are few references to past authoritarian politics or chaebol ties in an otherwise instructive historical exhibit at Samsung Electronics’ main production complex in Suwon, the company town, 28 miles south of Seoul. Grainy photos from 1969 show groundbreaking ceremonies for a household appliance factory in an area still scarred by the 1950'53 Korean War. For sheer nostalgia, there are numerous Samsung black-and-white and color television sets chronologically displayed, each playing a soap opera popular in the year the set was launched. Less eye-catching are exhibits of the waferlike memory chips from the 1970s and 1980s that first gained Samsung a high-tech reputation and major export revenues.
In 1983, Samsung shocked the information technology world by producing DRAM chips, which are essential for computers to simultaneously process and store data while running programs. Not only was the global market awash in chips, but it seemed presumptuous for a South Korean company to compete with established chip makers in higher-tech Japan and the U.S. A decade later, though, Samsung had taken over as the world’s top DRAM supplier and was pressing ahead with the flash memory chips that store data in digital cameras and MP3 players after power in those devices has been turned off.
Samsung made these semiconductor breakthroughs by embracing the strategy that has become a hallmark of other leading Samsung divisions: heavy R&D spending focused on higher-end market segments. “Take the case of flash memory,” says Lim Hyung Kyu, Samsung’s chief technology officer, who worked on that project in the early 1990s. “At that time, there was no market, but we thought we could create one with digital cameras, which were just coming out.” The first digital cameras, like one put out by Sony, stored data and images on a 3.5-inch floppy disc. “Can you imagine that -- a floppy disc?” asks Lim. “So we made a real breakthrough with flash memory on a small chip.” That was 1995, and the flash memory market has doubled annually since then.
Samsung’s semiconductor euphoria was doused by the Asian financial crisis that began in 1997 and soon turned into a regional recession. Yun, who had spent his entire career at Samsung after graduating with an electrical engineering degree from Seoul National University, had been appointed CEO in December 1996. He took over a company that was overly dependent on memory chips and burdened by a low-tech, copycat reputation in key consumer products. With corporate debt soaring to $12 billion, or two times equity, banks were threatening to cut off loans. In politics, meanwhile, a tectonic shift was under way with the 1998 election of a center-left president, Kim Dae Jung. He had little sympathy for the chaebol and sought to reduce their economic supremacy.
The crisis strategy pursued by Yun at Samsung was similar to those undertaken by other large South Korean companies, only more decisive and fast-paced. One third of Samsung’s 83,000 employees were laid off and some 50 product lines were discontinued. Attention shifted from market share to cash flow and profits. Extending the just-in-time delivery concepts he had learned during a stint as head of Samsung’s Japanese operations during the 1970s, Yun insisted that no consumer product be manufactured for foreign distribution before an order had been received. “There was a desperate need for restructuring to survive,” he recalls. “But rather than being engrossed merely in temporary survival, we focused on securing competitiveness.”
But even as Samsung hacked away at its costs, it gradually raised R&D expenditures, from 6 percent of sales in 1999 to more than 8 percent, or about $4 billion, in 2004. Squeezed between Japan’s technology lead and China’s cost advantage, “Korean companies shined after the 1998 financial crisis by applying IT to consumer electronics early and aggressively,” says Andy Xie, Hong Kongbased economist for Morgan Stanley. “IT products are still fueling Korean exports, so the bet paid off well.”
Nowhere has this been more evident than at Samsung. Led by rapid export growth, its net income mushroomed from less than $1 billion in 1997 to $5 billion in 2003 -- and probably double that by the end of 2004 -- while its debt-to-equity ratio fell to 23 percent. In 1999 exports accounted for two thirds of the company’s total sales of $22.8 billion. Four years later sales had grown 60 percent, to $36.4 billion, of which nearly 80 percent were exports. Sales jumped 27 percent, to $43.7 billion, in the first nine months of 2004, compared with the same period a year earlier, with exports accounting for 82 percent of the total. With labor costs and militancy mounting in South Korea, Samsung has built up 25 overseas production subsidiaries, a dozen of them in China. The company doesn’t break down its overseas sales by country, but Asia consumes close to half of Samsung’s exports, with Europe and the Americas almost equally sharing the other half.
Despite its dramatic turnaround, Samsung hasn’t quite managed to shed its negative image as a chaebol affiliate. Foreigners now own 54 percent of the company, and institutional investors say Samsung has become far more transparent over the past six years by embracing U.S. accounting standards and offering rapid access to financial information. Many shareholders were displeased, however, when Samsung decided early last year to extend a $500 million bailout to the chaebol’s credit card affiliate, Samsung Card, which was caught up by the wave of credit card defaults that has swept South Korea.
In another show of old-time chaebol solidarity, the company spent $110 million in December to buy a 1.4 percent stake in the country’s biggest oil refiner, SK Corp., which is battling attempts by its largest foreign shareholder, Monaco-based Sovereign Asset Management, to have senior management replaced. SK Corp. is part of SK Group, a chaebol whose main affiliate is SK Telecom, the biggest domestic client for Samsung handsets. “We think Samsung will play the role of a white knight for SK Corp.,” says Kyle Shin, a Seoul-based analyst for Good Morning Shinhan Securities. “If our theory is correct, the news is negative for Samsung shares.”
Some foreign fund managers informed Samsung that they didn’t consider the SK Corp. investment a proper use of the company’s money. “They say they did it to strengthen relations with a key telecom customer, which we think is basically a bunch of bull,” says Aberdeen’s Young. “Does that mean we can ask them to buy 1 or 2 percent of Aberdeen, since we are one of their big shareholders?”
The continued dominance of Samsung by the founding Lee family is another irritant. With only 3 percent of the chaebol’s shares, the family controls the entire Samsung Group, thanks to a complex web of investments among the affiliated companies. Through this financial maze Samsung affiliates -- and indirectly, the Lee family -- claim a combined 22 percent of the voting rights in Samsung Electronics. Foreign shareholders, who are much more fragmented, have about 20 percent of the voting rights in the company. “The main reason the government still doesn’t like Samsung is its ownership structure,” says Sunghyun Henry Kim, an economist at Tufts University. Outside investors scoff at Lee family claims that the recent government bill to curtail chaebol voting rights will open the door to a foreign takeover of the business group. “That’s just a red herring,” says Franklin Templeton’s Nori. “Nobody’s going to take over Samsung.”
Family control of chaebol and the interlocking financial relations among their affiliates are often blamed for the so-called Korean discount that depresses the share prices of even a premium company like Samsung Electronics. Despite performing better financially in recent years than its main foreign competitors, Samsung’s price-earnings ratio in early December was still only 12, well below Sony’s 33 and Nokia’s 18.
Some investors think Samsung’s ratio would improve if the company, which now trades only in South Korea, offered American depositary receipts on Wall Street. “Most analysts I talk to claim that this would bring up the share price substantially,” says Nori. But that won’t happen as long as Samsung maintains investments in chaebol affiliates that haven’t adopted U.S. accounting standards. The company should end those financial ties, argues Aberdeen’s Young. “We would certainly like them to sell off the bits and pieces they hold in Samsung Group affiliates -- the life insurance and credit card companies, for example -- and concentrate on Samsung Electronics divisions,” he says.
Meanwhile, Samsung Electronics officials contend that their company benefits by selling products to and buying components from its chaebol affiliates. “There is real synergy with the other group companies,” says investor relations chief Chu. He insists that the lingering chaebol influences and practices haven’t led to any noticeable shareholder discontent. “Shareholders are happy with the way we are running things,” he says. The company is also confident that its P/E ratio will improve if its brand recognition continues to climb. When the brand consulting firm Interbrand began to list Samsung in 2000, the company ranked 43rd on the global list, with a brand value of $5.2 billion. By 2004, Samsung’s brand value had soared to $12.6 billion, and the company had moved up to 21st place among the world’s most recognizable brands, just behind Sony (20th) -- though Intel (sixth) and Nokia (eighth) were still far ahead.
Samsung executives assert that rising brand recognition has also quelled pressure from analysts and shareholders who only a few years ago were urging the company to spin off its most profitable divisions, especially semiconductors and mobile handsets.
“We think more consumers are walking away saying, ‘I love my new cell phone so much that the next time I buy a TV or a printer, it will be a Samsung,’” says Peter Weedfald, senior vice president of strategic marketing for Samsung Electronics North America. According to Good Morning Shinhan analyst Shin, shareholders have stopped calling for spin-offs, because of the evident benefits of closer cooperation among Samsung divisions. “You see this particularly with handsets, which are increasingly dependent on memory chips,” he says.
Handsets are the products most responsible for the company’s rising brand recognition. In 1999, Samsung sold 10 million cell phones, giving it a 6.2 percent market share. Since then unit sales have grown between 40 and 50 percent annually, with exports accounting for 90 percent of revenues. In 2004, Samsung sold an estimated 86 million handsets abroad and gained a 14 percent market share, second behind global leader Nokia’s 31 percent.
From the beginning of the export drive, “we have focused on the middle and high ends of the market,” says Daniel Chung, vice president of marketing in the handset division. While Nokia, Motorola and Sony Ericsson Mobile Communications emphasized cost reduction in recent years, Samsung accentuated new functions and got customers to pay a premium for its handsets. In 2002, for example, the company created the industry model in color display phones, and in the past two years, it got off the starting block faster than rivals in camera-function handsets.
Now analysts wonder whether the same strategy will continue to be as effective in a slowing market shaped by new forces. Last year worldwide sales of handsets grew by an estimated 30 percent over 2003. But both Nokia and Samsung project that the market will expand by no more than 10 percent in 2005. Competition in the mid-to-high-end segment favored by Samsung is fierce, and competitors are offering phones with many of the same functions. “People won’t be willing to pay a $50 or $100 premium for a Samsung handset anymore,” predicts Bonjun Koo, a Citigroup Smith Barney analyst in Seoul. Moreover, Samsung is losing its operating profit margin lead over its rivals. In the third quarter of 2004, margins in the handset and telecom equipment business fell to 13 percent from 20 percent the year before. That compares with Nokia’s 13.4 percent margin and Motorola’s 10 percent.
Though Samsung insists it will stick to its R&D-driven approach to entice new clients, the company has to contend with the rising power of cell phone carriers. The handset market is increasingly driven by the carriers, who sell their service contracts along with subsidized cell phones. In the U.S. such carriers as Verizon Wireless and Cingular Wireless are not only insisting on steep discounts from makers of handsets but are also pushing for equal prominence in the labeling of these phones. “The carriers don’t want Nokia or Samsung to be the brand -- they want to be the brand,” says Peter Firstbrook, Ontario-based program director at Meta Group, a technology research consulting firm. Vodafone, in the U.K., is going even further, pressuring handset makers to install the carrier’s software in the cell phones it buys from them.
What gives the carriers such chutzpah is their growing share of the handset market. In China and most of Asia, handset makers continue to sell the bulk of their phones directly to consumers. But in North America and Europe, more than 60 percent of cell phones are sold through carrier service contracts, and the carriers don’t hesitate to wield a whip. A major factor in Nokia’s sales slowdown in the past couple of years was its failure to comply with carriers’ requests on phone models and prices. “Nokia got a little too big for its britches, and the carriers turned to other makers,” says Firstbrook.
Samsung officials acknowledge the ascendancy of the carriers. “We must accommodate their requirements -- that’s very clear,” says marketing vice president Chung. But that doesn’t mean accepting carrier demands requiring only their own brands on Samsung phones. “Some handset companies are agreeing to do so, but we will be very stubborn,” Chung insists.
One way for Samsung to gain leverage with carriers is to continue its efforts to improve its brand recognition. Motorola has shown the way. After several dismal sales years, the company began engaging in guerrilla marketing, giving away its handsets to hip-hop artists and other celebrities and getting good placement of its phone models in movies. That helped the company stage a comeback in the past two years, regaining its cachet among younger clients, who tend to purchase new handsets annually, and thus inducing carriers to offer Motorola phones along with service contracts. The lesson isn’t lost on Samsung. “At the end of the day, even for the carriers, it’s about satisfying consumers who are looking for particular handsets,” says investor relations chief Chu. “Carriers will be satisfied because Samsung is generating business for them.”
Samsung is engaging in its own style of guerrilla marketing by placing the company logo alongside cutting-edge events that draw younger, high-tech customers. For example, it sponsors the annual World Cyber Games, staged in San Francisco in 2004, where “e-athletes” from more than 50 nations compete for prize money and medals in video and online games (see box).
Even as the company tries to maintain momentum with its handsets, it is struggling to keep up profits in another major business: LCDs, the liquid crystal display flat panels used for computer monitors and television sets. Samsung is the industry leader, with just an eyelash more than the 22 percent share of global flat panel sales claimed by LG.Philips LCD Co., a South KoreanDutch joint venture. Taiwan’s AU Optronics Corp. is in third place with a 12 percent market share. In early 2004 the three makers announced plans for new factories, and almost all analysts were bullish on the industry. “Now analysts are telling investors the market has maxed out and it’s time to pull out,” says David Steel, vice president of Samsung’s digital media business, the division that produces LCD television sets.
Samsung has ridden the industry’s recent profit trend downward. LG.Philips posted a 66.8 percent drop in operating profits in the third quarter from the previous quarter. AU Optronics fell 72.5 percent and predicted a loss for the fourth quarter. Samsung’s operating profits tumbled 72 percent from the previous quarter, to $215 million. While AU Optronics and LG.Philips reported operating margins of 18 percent, Samsung’s was 12 percent. “With LCDs, we think Samsung’s global position may actually be contracting,” says Merrill Lynch’s Woo. But Samsung is heeding its own advice and waiting out the bearish LCD market, adds Steel.
The decline in margins reflects a world glut in LCD panel production. At the end of 2004, prices had fallen by more than 20 percent from a year earlier, and they could drop a further 15 percent by mid-2005, according to analysts. Samsung executives insist this isn’t a bad thing, because LCD television sets -- about five times as costly as ordinary sets -- are beyond the reach of most consumers for now. “Demand will only increase with more price reduction,” says investor relations chief Chu.
The market potential is enormous. Global sales of LCD televisions reached about 7.5 million sets in 2004 -- out of a total of 140 million sets sold -- and are expected to double this year. But the risks are high enough to persuade Samsung to abandon the confident, go-it-alone strategy of its handset and semiconductor businesses and instead opt for a partner. In October 2003, Samsung formed a 50-50 joint venture with Sony, called S-LCD Corp., to build a $2 billion factory some 60 miles south of Seoul and share its production, beginning in May, of up to 60,000 panels a month. “This is a way for us to spread the financial costs and also, more importantly, to have a partner who can help us grow the market,” says Steel.
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Samsung ranks as the world’s largest memory chip maker -- its 30 percent overall share is twice that of Micron Technology, the No. 2 company. Samsung’s market share is growing and will remain uncontested for the foreseeable future because the company is expanding its dominance in cutting-edge semiconductors. Take, for example, NANDs, the flash memory chips that are replacing older-generation chips in MP3 players and digital cameras to store data after power in those devices has been switched off. Samsung accounted for two thirds of the estimated $6 billion in global NAND sales in 2004.
In the market for computer memory chips, Samsung is seeking to maintain its dominance by forging ahead with new products with much larger data storage and processing capacity. The latest, with the forbidding acronym DDR2 SDRAM, “will be the next mainstream DRAM technology in PCs,” says Richard Gordon, a Boston-based analyst with Gartner Dataquest. “The market will be huge.”
DDR2 SDRAMs are expected to rise from their current 15 percent of the total DRAM market to more than 50 percent by the end of 2005, and Samsung predicts it will sell half of these advanced chips. Up to now the computer has been the driver for a majority of semiconductor sales. That should change in the next few years, says Kim Ilhung, vice president for marketing in Samsung’s semiconductor division, when “the total of memory chips consumed by the mobile phone market will exceed the total used by the PC industry.” The speed of this shift is startling even by IT-era standards. In 2002 the PC industry absorbed seven times as many memory chips as cell phones did. By next year in Japan, semiconductors in new handsets will outstrip the total used by PCs. According to Kim, the same will happen worldwide by 2008.
Without its semiconductor earnings, Samsung’s recent financial results would look a lot more down-to-earth. Semiconductor sales for the third quarter reached $4.54 billion and produced an operating profit of $1.86 billion, or 71 percent of the company’s overall operating profit for the period. Even if profits continue to decelerate in the LCD and cell phone businesses, semiconductors will ensure that 2004 was Samsung’s most profitable year ever.
But with company officials forecasting a decline in DRAM prices next year, pressure will mount on Samsung to move from memory chips into the more lucrative “logic” semiconductor market segment dominated by Intel. Comparisons to Intel annoy Samsung executives. “We are completely different players in different market segments,” says Kim. The trouble is, Samsung
hasn’t been able to make any significant inroads into Intel’s very profitable market segment -- microprocessors. “It’s a problem of patents, not technology,” says Lim, Samsung’s research chief. “And Intel has all the patents.” But companies with smaller resources than Samsung’s are working on their own microprocessor patents. Whatever the reasons, Samsung’s revenue split between memory chips and more-sophisticated, nonmemory or logic devices is four to one, a huge imbalance. “Clearly, to diversify away from memory devices and broaden their product portfolio is something they have to do,” says Gartner Dataquest’s Gordon.
Samsung believes the alternative is to produce increasingly higher-tech and more profitable memory devices that multiply the functions of electronic consumer products -- part of what the company calls “digital convergence.” For example, beginning in 2005 new Samsung television models will have memory card slots. “When you are done with your camcorder or digital camera, you pull out the card, stick it straight into the TV and enjoy a slide, photo or video show on television,” says Steel. “The television has moved from being just a broadcast display device to usurping the role that the PC had.”
With its enormous semiconductor capabilities, Samsung is also betting that the transition from analog to digital products can improve the performance of its consumer electronics division. In the third quarter of 2004, the division accounted for only 13.6 percent of sales and 0.2 percent of operating profits. Samsung officials point out that those results cover only “parent company” figures, which reflect the stagnant South Korean market. Because 80 percent of Samsung consumer electronic products are manufactured and sold outside of the country, the consolidated results for the division, which are only released at year’s end, are in fact much higher. In 2003, for example, the consumer electronics division reported parent company sales of 7.7 trillion won and operating income of 145 billion won -- and consolidated sales of 15.6 trillion won and operating income of 567 billion won.
Even under the consolidated results, consumer electronics accounts for only about 10 percent of Samsung’s earnings. But company officials and investors say there is currently no pressure to spin off the division. Part of the reason is the promise of the digital age. Television is a potential gold mine. Companies that have led in the manufacture of analog or tube televisions are not necessarily equipped to dominate a new world of digital, flat panel televisions. “Success in television is all about being able to build a brand, and the digital era will give us a real opportunity,” says Steel. And even if Samsung doesn’t emerge as a leading, new-generation television maker, it stands to make a windfall from selling its semiconductors to rivals. “If you look at television today, there are no memory semiconductors in almost any set,” says Kim. “But once the migration from analog to digital TV is complete, semiconductors will account for up to 30 percent of total production costs.”
At Samsung’s annual investor road show, held last year in Shanghai in deference to China’s spectacular economic growth, CEO Yun unveiled his vision of how his company will evolve over the next few years if digital convergence becomes a reality. He evoked homes where air conditioners, dishwashers, ovens, refrigerators, lighting and security are operated by a single Samsung control device; such a system has been tested for a year in select apartments in Seoul. He spoke of Samsung handsets that allow executives to conduct business outside the office by giving them wireless access to databases, a system already in place at more than 100 institutions in South Korea, including universities, hotels, factories and office complexes. Yun also promised to expand Samsung’s portfolio of top-selling global products from nine currently to 20 in five years’ time; these would include such items as digital televisions, laser printers and 3G mobile handsets that carry video as well as voice.
Such big ambitions mean that Yun’s “sense of crisis” is bound to continue for Samsung employees. The same may be said for the company’s competitors.
