Samsung Electronics Co., Ltd.

FOUNDED: 1969

Contact Information:

HEADQUARTERS: Samsung Main Bldg.
250-2 ga, Taepyung-ro
Chung-gu
Seoul, Korea
PHONE: 82-2-727-7114
FAX: 82-2-727-7985
URL: http://www.sec.samsung.co.kr

OVERVIEW

Samsung Electronics, a key subsidiary of the Sam-sung Group, is one of the largest electronics producers in the world. The Samsung Group is one of Korea's chaebol, which are huge conglomerates with operations in an extraordinary range of businesses—chemicals, cars, fashion, hotels, insurance, and others. The operations of Sam-sung Electronics can be divided into four areas: semiconductors; consumer electronics; information and computer systems; and telecommunications. Manufacturing home appliances such as refrigerators and washing machines, televisions and audio equipment, phones and fax machines, and semiconductors and computer memory chips, the company had 20 plants in 15 countries in the late 1990s. In addition, holding an 18-percent market share, Samsung is the world's second largest producer of microwave ovens.

COMPANY FINANCES

From 1995 through 1997 total sales for Samsung Electronics Co., Ltd. have decreased. In 1995 the company had a net income of $2.9 billion on sales of $24.2 billion, for 1996 net income was $130.4 million on sales of $23.6 billion, and in 1997 net income was $77.2 million on sales of $11.5 billion.

In 1998, the problems of the Korean economy were forcing the country's chaebol to reform their financial practices. Samsung Group and other Korean conglomerates announced plans to adopt consolidated financial statements, so their accounts would be more "transparent" (in other words, it would be easier to see how the group as a whole performed). Samsung Group said it would reduce its debts to 150 percent of its equity from a level of 270 percent. (Equity is capital provided by shareholders, while debt is capital provided by third parties.) Samsung Electronics also said it would attempt to list its shares on the New York Stock Exchange within five years.

HISTORY

The Samsung Group was founded in 1938 by Byung-Chull Lee. (The name Samsung means "three stars" in Korean.) The company began as a small trading firm with 40 employees and enjoyed moderate growth in the 1940s. In the early 1950s the Korean War nearly destroyed the company, but Lee managed to recover quickly. In 1953 he built a sugar refinery, which was the first significant manufacturing facility constructed in Korea after the war. Lee entered other commodity businesses, such as wool, and eventually moved into heavy manufacturing. In the 1960s, Samsung Group entered various service industries, including insurance, broadcasting, securities, and retailing.

In 1969 Samsung Electronics was established as a member of the Samsung Group. The company grew rapidly, and by the 1980s it was shipping a wide range of appliance and electronic products around the world. Samsung Electronics became an important player in the semiconductor business in the late 1980s and 1990s. In the mid-1990s Samsung Electronics was the world's leading producer of four-megabit chips.

STRATEGY

In 1995 Samsung Electronics generated almost $3 billion in profits from its semiconductor operations. At the same time, South Korea was being forced to lower the barriers that protected local companies from foreign competition. Hun-hee Lee, the chairman of the Samsung Group, devised a strategy that would use the profits from Samsung Electronics to prepare the entire chaebol for the new economic environment. First, he would create innovative new products, instead of merely trying to gain market share at any price. Second, he would make Samsung Group a true multinational that would no longer be dependent on the small South Korean market. Third, he would only operate in industries where Samsung could rank first or second in the business. As part of this overall strategy, he wanted the Samsung name to become a premium brand that would command higher prices.

A key part of Lee's plan was to shift the business focus of Samsung Electronics from semiconductors to multimedia systems. According to Electronic Business Today, Samsung Electronics was to spend $6 billion to become a top multimedia company. The money to transform the company was to come from semiconductor profits and bank borrowings.

The strategy was changed in 1997 for two reasons. First, semiconductor prices—and profits—collapsed in 1996 and remained depressed in 1997. Second, the financial difficulties of other Korean chaebol and a downturn in the Korean economy made it harder to borrow money. The $6-billion spending program was cut to less than $2 billion ($770 million for multimedia and __BODY__.1 billion in communications). The company still intended to increase its international presence, shifting its emphasis away from South Korea operations. It also wanted to expand its multimedia operations. But the financial pressures the company faced required the implementation of a tough cost-cutting program. In short, lower profits from semiconductors and tougher borrowing requirements were making it difficult for the company to achieve its strategic objectives.

In late 1997 Samsung Electronics announced that it would scale back its investment plans for 1998 by 30 percent or more. A planned expansion of the company's operations in the United Kingdom was postponed. Samsung Electronics was reviewing additions to its manufacturing operations in China. It also postponed plans to enlarge its wafer (semiconductor) fabrication plant in Austin, Texas.

INFLUENCES

Following its establishment in 1969, Samsung Electronics received significant help from the Korean government. The country's political leaders instituted economic policies that were especially helpful to Korea's chaebol, including Samsung Electronics. Important foreign competitors, including Japanese companies, were forbidden entry to such domestic markets as consumer electronics, which were considered essential for Korea's economic growth. So Samsung Electronics was able to expand its offerings of televisions, household appliances, etc. with little foreign competition. The company also used its political and business connections to strengthen its operations.

It would be wrong, however, to dismiss the success of Samsung Electronics as simply the result of protectionism and good connections. Byung-Chull Lee, founder of the Samsung Group, was confident that his company could succeed in the electronics business and become a world-class competitor. He invested heavily in these operations and was also able to coax technology out of foreign investors. Rapid growth and savvy management allowed Samsung Electronics to expand the range of its electronics offerings and the geographic markets in which it operated.

Indeed, the ability of Samsung Electronics to become a leader in the semiconductor industry is one of the great business success stories of the twentieth century. In 1975 Samsung Electronics was barely involved in the business. Twenty years later it was the world's largest maker of dynamic random access memory (DRAM) chips and the seventh-largest semiconductor manufacturer. A turning point came in 1983, when Samsung began production of very large scale integrated (VLSI) circuit. The task force that helped the company produce a VLSI 64K chip worked around the clock to make it a success. As Dr. Sang-Joon Lee, a team leader at Sam-sung Electronics, told the California Management Review, "I was so immersed in working on the 64K DRAM that I stopped smoking and drinking. I hardly slept more than three or four hours a day for six months."

Besides hard work, several other factors enabled Samsung Electronics to become a world-class semiconductor company. When large multinationals refused to license technology to Samsung Electronics, the company acquired the technology it needed from small, troubled semiconductor firms. As semiconductors became increasingly powerful and sophisticated in the 1980s and 1990s, the company continually used the knowledge obtained in developing the last generation of integrated circuit technologies to develop the next one. The firm also successfully partnered with foreign companies to expand into new markets. These strengths allowed Samsung Electronics to introduce the four-megabit DRAM in 1994, which by 1995 made it the leading producer of DRAM chips.

CURRENT TRENDS

A severe slump in the semiconductor industry in 1996 was a significant setback to Samsung Electronics. In the first five months of that year, prices on four-megabit and 16-megabit DRAMs dropped by more than 50 percent. The company's profits fell to $130 million, from $2.9 billion in 1995. The company's AST Research division, which makes desktop computers, was also performing badly. Samsung Electronics had succeeded in the DRAM business by rushing to build new plants to maintain its position of leadership. The decline in profitability put pressure on the company's expansion plans, since the cost of building a new DRAM plant was more than __BODY__ billion.

In addition, Samsung Electronics wanted to build more sophisticated semiconductors, such as microprocessors, application-specific chips, and other non-memory chips. Maintaining its top spot in DRAMs while expanding into these so-called logic chips required tremendous amounts of cash. In 1997, lack of profits was forcing the company to rethink its future. In late 1997 the company attempted to float a 100 billion won (South Korea's currency) bond issue, but found no buyers.

Still, it was important to remember just how much Samsung Electronics had accomplished. To give just a few examples: It held an 18-percent share of the worldwide market for microwave ovens, second among all manufacturers. It was the number-one seller of TVs in the Confederation of Independent States (CIS), selling 1.2 million units a year. It was a top manufacturer of computer monitors and VCRs. It was a leader in CDMA (code division multiple access), a key technology for wireless telecommunication. And, of course, it was a top semiconductor company. While Samsung Electronics was experiencing difficulties in the late 1990s, it remained one of the leading electronics companies in the world.

PRODUCTS

Samsung Electronics continually introduces new products in the semiconductor, consumer electronics, telecommunication, and computer areas. One interesting offering planned for the late 1990s was an identity card that would replace the ID tags on the baggage of airline passengers. The cards will have FRAMs (ferroelectric random-access memory chips) that can be read at a distance and retain data without recharging. Another intriguing product is a home system for online commerce that would be marketed by banks to consumers. It works through a box that sits on a TV set and allows the user to surf the Internet. The boxes have smart cards inside to enable payment for Internet products and services. The set-top boxes were expected to be introduced in 1998.

CORPORATE CITIZENSHIP

Samsung participates in a wide variety of charitable enterprises. Many of these activities are related to some aspect of Korean culture and society. For example, the company supports Korean language programs at major universities, such as Harvard. In 1992 it opened the Sam-sung Gallery of Korean Art at the Victoria and Albert Museum in London. The company is also trying to save the Jindo dog and other Korean breeds from extinction. In addition to these Korea-related activities, Samsung Electronics supports a variety of sporting, environmental, and educational causes around the world.

SOURCES OF INFORMATION

Bibliography

Brull, Steven. "Fewer Excuses for Lost Luggage." Business Week, 9 June 1997.

Brull, Steven. "Samsung's $8 Billion Gamble on Upscale Chips." Business Week, 2 June 1997.

Cho, Namju. "Samsung to Sell Units and Focus on Core Industries." Wall Street Journal, 22 January 1998.

"How Samsung Electronics Will Reduce Investment." Electronic News, 8 December 1997.

Kim, Linsu. "The Dynamics of Samsung's Technological Learning in Semiconductors." California Management Review, Spring 1997.

Lee, Catherine Keumhyun. "Samsung: Not Just the Chips Are Down." Business Week, 29 July 1996.

Lee, Charles S. "Chips with Everything." Far Eastern Economic Review, 27 June 1996.

Nakarmi, Laxmi. "Look Out, World—Samsung Is Coming."Business Week, 10 July 1995.

Power, Carol. "Device to Combine Internet, TV, Smart Cards." American Banker, 16 May 1997.

Remick, Norman, Jr. "Samsung: A Global Vision." Appliance Manufacturer, February 1997.

Schuman, Michael. "Korea's Mighty Conglomerates Vow Cutbacks for Tough Times." Wall Street Journal, 28 November 1997.

Young, Lewis. "Work Slows on Samsung's Big Picture." Electronic Business Today, September 1997.

Young-Ju, Sohn. "New Players in the Information Revolution." Business Korea, December 1996.

For an annual report:

on the Internet at: http://www.sec.samsung.co.kr/insidesec/company/annual/index.html

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Samsung's primary SICs are:

3571 Electronic Computers

3577 Computer Peripheral Equipment, NEC

3579 Office Machines, NEC

3674 Semiconductors & Related Devices