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wevans_006_samsung_110711

wevans_006_samsung_110711 - Memo Date To Chairman Kun Hee...

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Memo Date: 08/01/2005 To: Chairman Kun Hee Lee CC: Vice Chairman and CEO Jong Yong Yun From: 1160-006 RE: Threat of Chinese entrants Executive Summary: When faced with the problem of changing strategies, given the alternatives of partnering with a Chinese firm or to increase investments in cutting edge memory products for niche markets, one must first conduct a strategic management analysis. First, I analyzed a few of the main products DRAM, SDRAM, and Flash memory. I focused in on how you have higher operating profit margins now because we are able to attain discounts for raw materials due to high volume purchases. Adversely, how Chinese labor is cheaper, and how with new entrants and a declining market may reduce your market share thus eliminating these large volume discounts leaving you with lower margins than your competitors. Then I weighed the alternatives against each other, I saw some positives and negatives in both. So in the end, I suggest that you use a combination of both alternatives, and continue to create new technology, while partnering with the Chinese to produce your lower end more standardized products. When challenged with the question should Samsung change their strategy, and given the options should they collaborate with a Chinese partner or to increase investment in cutting edge memory products for niche markets, one first must do a strategic management analysis. First, I will examine the various types of products that Samsung produces. After that, I will evaluate the
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alternative solutions. Finally after reviewing all of the previous information I will give my suggestion on the best alternative. The first item we must look at is the cyclical downturn of DRAM, which from 1998 to 2002 decreased from 78% to 27% of line sharing. This is also shown in the constant decline in the selling price history in the past five years and which is expected to continue to decline over the next five as well. Although, there is new technology in this area being developed, it is mostly just adding more Gbits of memory. Even with the declining prices and the slowing growth of demand for this technology, there is still a huge market for it due to computer technology now being used in cell phones and other handheld devices. This is shown by the 1.2 trillion dollar operating income in 2003. These products are in the mature stage of the product life cycle, so while there is still some growth in this area it is expected to slow down over the next ten years or so. You can see in exhibit 1 that there is still some growth potential for DRAM products but, it will not be rapid as it was throughout the 90’s and early 2000’s. Another thing to look at is the average selling price for Samsung DRAM has been constantly higher than your competitors, which shows that your products must be seen as superior by your customers. This is due to the high quality standards you have set in place. At the same time you also have the lowest fully loaded costs for the DRAM.
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