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MBA 290G Fall ‘07 Prof Charles Wu TEAM 9 Alex Mehr, Bindiya Jadhwani, Kerem Tutuncu, Lucian Popa, Rodrigo Fonseca, Uttara Parikh
Types of Memory
– DRAM: Dynamic RAM
– SRAM: Static RAM
• Higher density, lower cost, power hungry • Lower density, higher cost, 2-4X faster than DRAM
– New technologies: ZRAM (Hynix, AMD), TTRAM (Renesas)
– Flash – PCM (PRAM) - Most promising new technology
• High growth market (mobile, digital music and imaging) • Slow to write, degrades over time • Fast, long lasting • Prototypes by Samsung (512Mb), Intel/STM, Sep 2006
Sources: Introduction to Memory Types http://www.netrino.com/Publications/Glossary/MemoryTypes.php Samsung Sep 11,2006 Press release and http://www.eweek.com/article2/0,1895,2021822,00.asp
http://www. significant price plunge (by 39%) 2 • • • 1.com/showArticle.Memory Industry • Global Memory Chip Industry – Approx $250 billion in 2006 (10% growth) – $227. prices were rising (revenue had 10% growth) 1 – 2007 was a bad year.infoworld.com/article/06/05/31/78779_HNchipforecast_1.html http://www.informationweek.0 billion in 2004 Segmentation – DRAM ( over 50% of this market) – SRAM (10%) – Flash (32%) Asia-Pacific projected to be the largest and fastest growing market Cyclic industry with massive swings – 2006 was a good year.5 billion in 2005 from $213.jhtml?articleID=201201654 . 2.
Cyclic Structure of Semiconductor Industry Factors : – Rapid Technical Progress – High Sunk Costs and Large Lag Times • $1.5-2 billion for a fab. ready in 1-2 years – Steep Learning Curves → higher variations of price – Large R&D investments – Periodic Technology Shocks .
DRAM Sector • • (Source: Dataquest.Global Market Share by Countries.american. May 2001) www.edu .
switches.Products Breakdown • DRAM : . hubs .Traditionally in PC’s ( 80% of DRAM shipments in 1990.Telecommunications and consumer electronic markets are growing consumers : mobile phones.declined to 67% by 2003) .2008 Prediction: TV’s. set top boxes and game devices to represent 7% of this DRAM market .
Value Chain • Powerful players .only 2 or 3 main dominating players • Price conscious customers – End user is not aware of DRAM brand – Customers were fragmented – No single OEM controlled more than 20% of the global PC market • OEMS negotiated high on price .
Porter Analyses .
Porter’s Diamond Model for Samsung/Korea • Factor Conditions Location – Ports. HR policies Government – policies for trade. education • Related/Supported Industries LCD. experience . Major markets Labor – High concentration of skilled engineers. Mobile Phone and PC industries • Demand Conditions Korea has early adopters Demand in east Asia is high • Strategy and Structure High internal competition – Hynix Technology know-how.
China Rivalry • Small no.Porter’s five forces for DRAM New entrants • Guarded by economies of scale • Significant capital costs • Learning Curve • Threat of retaliation • Little brand identity significance • Government Policy –e.g. of competitors • Significant exit barriers • Cyclic Industry growth Substitute products • Danger of future substitutes given rapid changes • Probable little switch cost Suppliers • No significant differentiation of inputs • Suppliers not concentrated • No threat of forward integration Customers • No significant buyers by volume • Buyers are very price sensitive • Price limited by other memory substitutes • Little threat of backward integration? .
2 billion) in 2000 to 21st in the world ( $12.Samsung History • Established in 1969 to manufacture black and white TV sets • Purchased a Korea Semiconductor Business in 1974 • In 1980 dedicated most of its resources to semiconductor business and built its first manufacturing facility.6 billion) in 2004 and 20th in 2006 (16. was amongst the industry’s top contenders • Brand value rank grew from 43rd in the world ($ 5. and $78.5 billion.1 billion) • Ahead of many brands such as Pepsi.7 billion in 2006 . • By early 1990’s. and Siemens • Total net revenue in 2004 was $78. Google.
Samsung Structure • Spans 58 countries • Samsung Electronics has 5 business divisions : – Semiconductor – Digital Media – Telecommunications – LCD – Digital Appliances .
dailytech.Samsung DRAM Facts • 2nd Largest chipmaker worldwide (2006) 1 • Market leader in DRAM ‘92 .’07 2 – Total DRAM Volume 896. www.4M units (2003) – Over 1200 DRAM products – “Frontier ” to legacy products – Specialty and customized products – Versus competitors (1Q00-1Q04): – Average price premium: 34% – Average operating margin difference: +53% 1. 2.com Samsung 2006 Annual Report .
DRAM Operating Profits 7 6 5 4 3 2 1 0 SG&A R&D Depreciation Labor Raw Materials Price M ic fin Sa m In H SM IC ro n su ng eo n yn i x .
Samsung Performance • Cost Advantages – – – – – – – Lowest raw materials cost (volume) Lowest depreciation Labor and SG&A not high Shared core designs Lower cost fabs (12%) Flexible production lines Higher yields (because of process quality) • Highest Price – Highest reliability in industry: >$1 premium .
5 0 0 200 400 600 800 1000 Prod. Volume 256Mbit equiv (M Units) .5 Cost of Raw Materials ($) SMIC Hynix Micron Infineon 1.Cost of Materials DRAM Cost of Materials vs Volume (2003) 2.5 Samsung 2 1 0.
Kun-Hee Lee Chairman & CEO SAMSUNG STRATEGY .
because of the unique ecosystem created around it.Generic Competitive Strategies • Two dimensions of competitive strategy – Competitive advantage .broad vs. differentiated play – Target Market .low cost vs. niche play • Samsung. has successfully spread its product line across both of these dimensions .
Generic Competitive Strategies Lower Cost Overall Low-Cost Provider Strategy (Commodity DRAM) Differentiation Broad Differentiation Strategy (Cutting Edge DRAM) Target Market Broad Range of Buyers Best-Cost Provider Strategy (Samsung’s Strategy) Narrow Buyer Segment or Niche Focused Low-Cost Strategy (Low cost flash memory) Focused Differentiation Strategy (Rambus DRAM) .
and too undifferentiated to command the price premium gained by the differentiated firm A variety of internal and external factors have helped Samsung achieve this desirable position .Combined low-cost/differentiated strategy is difficult to achieve • Difficult to implement • Firms aiming to do this are often stuck in the middle • Firm’s products are too costly to compete with low costs provider’s product.
Samsung’s Combined Lowcost/Differentiated Strategy Samsung’s success has been due to a variety of factors: – Successfully customize products around a core design – Large product portfolio (occupy the entire spectrum for a broad market play) – Collocation of fab and R&D facilities (internal conversation among engineers to decrease time to market) .
Samsung’s Combined Lowcost/Differentiated Strategy (cont’d) – Easy access to Asian market – Combination of educated guessing and pure luck (e. from 1983 to 1985 during recession of semiconductor industry. stack design vs trench design) – Talent pool strategy: Access to local talents. sponsoring employees for PhD and MBA education) – Availability of capital: E.g.g. Samsung allocated significant capital to build capacity .
CHINESE THREAT .
Emerging Competitors Elpida Japan’s only remaining DRAM producer Hynix Infineon Has many financial problems Major DRAM player with 25 R&D locations all over the globe Micron Technology Investing in next generation DRAM technology with a $500 million investment from Intel Nanya Technology Producing 256 Mbit DRAM in a Joint Venture with Infineon SMIC The only Chinese DRAM manufacturer. It is China’s most advanced producer and a major competitor for Samsung .
Chinese Environment Regulatory A zero tariff rate for importing semi-conductors Tax rebates to domestically produced semiconductors (avail in 2003 but stopped since April 2004) Other preferential policies although not announced in detail. are in the pipeline to encourage investment in semiconductors Market Access issues still exist China lacks the critical infrastructure necessary to support a cutting –edge semi-conductor industry The US and Taiwan governments have forbidden shipment of cutting edge production technology to China. abundant land. tax incentives to anyone who was willing to partner with a Chinese company China still enjoys an advantage in labor intensive activities Technology Alliances Labor . So China went to other countries Chinese government provided cheap credit. cheap utilities. engineering talent.
designs – Sell at low prices to gain market share. increase volume .Chinese Advantages • Ample access to capital • Low cost of labor and administration • Government incentives – Cheap credit. utilities – Tax incentives • Engineering talent • Strategy – Licence technology. land.
Search for a new technology • .Options (1) 1. Focus only on cutting edge high-end products • – C. Do not cooperate with the Chinese • Save the current ecosystem in Korea Cost reduction on low end DRAM: reduce from a margin of 24% close to zero with the extra benefit of reliability incurring significant losses to Chinese companies (already at -9%) For how long can both sustain the war? Chinese gain in workforce and capital whereas Samsung in volume Danger in the future that Chinese might learn and overtake (just as Samsung did in the past) Will it appear in time? – A. Try to suppress the Chinese firms • • – B.
Build a fab in China • • • • • Benefit the long term cost reduction in salaries and SG&A Keep under control the Chinese firms Pay an initial potentially large cost of entry A large part needs to be controlled by Chinese local partner Could also lose sensitive information. Collaborate with Chinese firms • Lose the local ecosystem and increase some costs • Lose perhaps on quality. Cooperate as Infineon by providing technology • Not clear what the benefit is since they currently produce at a lower cost and by partnering could create a future competitor .e. helping competition – B. i.Options (2) 2. reliability • Easier to penetrate the Chinese Market – A.
it is not yet viable to move to China • current prices are higher.Recommendation • Do not Open a fab in China for now – Currently. consider building a fab there with the low-end Samsung technology • Focus on R&D to maintain technological lead • Try to suppress the Chinese companies by price reduction on low end DRAMs – Do not allow them to gain market share – Also affect Infineon and Micron which provide them with the initial design – Samsung is a large company that can afford to have lower margins in one segment (lower end DRAM) – Not even the Chinese can afford to lose a lot of money on long term . potential decrease in quality might even affect other Samsung products. – If future prices of the Chinese products will be lower. extra cost of a new fab.
BACKUP SLIDES .
newly created Infineon memory division spin off.first time among top 10 (+32%.5B) • Elpida 20th (+89%. 12th • Micron.8B) • Qimonda AG.+2B) • Hynix.6B) .Largest Chip Manufacturers 2006 DRAM Competitors • Samsung. 8th. +1. 13th (+10. +1. 2nd (+11%.8%. +.
• Because of this refresh requirement. the information eventually fades unless the capacitor charge is refreshed periodically.What makes DRAM special? • Type of RAM that stores each bit of data in a separate capacitor within an integrated circuit • Since real capacitors leak charge. it is a dynamic memory as opposed to SRAM and other static memory. • Its advantage over SRAM is its structural simplicity • This allows DRAM to reach very high density .
ahead of Japanese rivals in both size and profits • In 2005.Major Players • Samsung is the market leader. large scale entry by Chinese firms – Easy access to money from local and international forces – Were willing to sacrifice profits for market share. • In 2004 – Samsung announced sharp drop in market prices due to increase in industry capacity and partly due to cyclic downturn .
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