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Samsung Electronics Co., Ltd. is the chief subsidiary of South Korea's giant Samsung Group and the largest electronics producer in Asia. Samsung Electronics operates four main divisions including Digital Media, Semiconductors, Information & Communications, and Home Appliances. The company sells televisions, video, and audio equipment; computers and related products; phones, cellular phones, and fax machines; home appliances; semiconductors; network-related products; factory automation products; fiberoptics products; closed circuit security products; motors and compressors; and solar energy systems. In 2000, Samsung Electronics held the leading market position in the code division multiple access (CDMA) Handset, DRAM, SRAM, and color monitor markets.
Early History of Samsung Group
Samsung Electronics was created in 1969 as a division of the mammoth Korean chaebol Samsung Group. The unit was established as a means of getting Samsung into the burgeoning television and consumer electronics industry. The division's first product was a small and simple black-and-white television that it began selling in the early 1970s. From that product, Samsung Electronics gradually developed a diverse line of consumer electronics that it first sold domestically, and later began exporting. The company also began branching out into color televisions, and later into a variety of consumer electronics and appliances. By the 1980s, Samsung was manufacturing, shipping, and selling a wide range of appliances and electronic products throughout the world.
Although the rapid growth of Samsung Electronics during the 1970s and early 1980s was impressive, it did not surprise observers who were familiar with the Samsung Group, which was founded in 1938 by Byung-Chull Lee, a celebrated Korean entrepreneur. Lee started a small trading company with a $2,000 nest egg and 40 employees. He called it Samsung, which means 'three stars' in Korean. The company enjoyed moderate growth before the Communist invasion in 1950 forced Lee to abandon his operations in Seoul. Looting soldiers and politicians on both sides of the conflict diminished his inventories to almost nothing. With savings contributed by one of his managers, Lee started over in 1951 and within one year had grown his company's assets 20-fold.
Lee established a sugar refinery in 1953, a move that was criticized at the time because sugar could be easily obtained through American aid. But for Lee, the act was important because it was the first manufacturing facility built in South Korea after the Korean War. From sugar, wool, and other commodity businesses, Lee moved into heavier manufacturing. The company prospered under Lee's philosophy of making Samsung the leader in each industry he entered.
From manufacturing, Samsung moved into various service businesses during the 1960s, including insurance, broadcasting, securities, and even a department store. Lee experienced several major setbacks during the period. For example, in the late 1960s, shortly before Samsung Electronics was created, Lee was charged with an illegal sale of about $50,000 worth of goods. The charges turned out to be the fabrication of a disgruntled government official to whom Lee had refused to pay a bribe. Nevertheless, one of Lee's sons was arrested and Lee was forced to donate a fertilizer plant to the government to win his release. Despite that and other problems, Samsung continued to flourish. Indeed, by the end of the 1960s the conglomerate was generating more than $100 million in annual revenues.
Shortly after Lee's son was arrested, Lee decided to break into the mass communication industry by launching a radio and television station, as well as by manufacturing televisions and electronic components through the Samsung Electronics division. The industry was dominated at the time by several U.S. and European manufacturers, and some Japanese companies were beginning to enter the industry. Nevertheless, Lee was confident that Samsung could stake its claim on the local market and eventually become a global contender. During the early 1970s, the company invested heavily, borrowed and coaxed technology from foreign competitors, and drew on its business and political connections to begin carving out a niche in the consumer electronics industry. In addition to televisions, Samsung branched out into other consumer electronics products and appliances.
Government Involvement During the 1970s
Samsung Electronics' gains during the 1970s were achieved with the assistance of the national government. During the 1950s and 1960s, Samsung and other Korean conglomerates struggled as the Rhee Sungman administration increasingly resorted to favoritism and corruption to maintain power. Student revolts in the 1960s finally forced Rhee into exile. The ruling party that emerged from the ensuing political fray was headed by military leader Park Chung-Hee. His regime during the 1960s and 1970s was characterized by increasing centralization of power, both political and industrial, as his government was obsessed with economic growth and development. So, while Park was widely criticized for his authoritarian style, his government is credited with laying the foundation for South Korea's economic renaissance.
To develop the economy rapidly, Park identified key industries and large, profitable companies within them. The government worked with the companies, providing protection from competition and financial assistance as part of a series of five-year national economic growth plans. By concentrating power in the hands of a few giant companies (the chaebols), Park reasoned, roadblocks would be minimized and efficiencies would result. Between 1960 and 1980, South Korea's annual exports surged from $33 million to more than $17 billion.
Samsung Electronics and the entire Samsung chaebol were beneficiaries of Rhee's policies. Several countries, including Japan, were barred from selling consumer electronics in South Korea, eliminating significant competition for Samsung. Furthermore, although Samsung Electronics was free to invest in overseas companies, foreign investors were forbidden to buy into Samsung. As a result, Samsung was able to quickly develop a thriving television and electronics division that controlled niches of the domestic market and even had an edge in some export arenas.
During the 1970s and 1980s, Samsung Group created a number of electronics-related divisions, several of which were later grouped into a single entity known as Samsung Electronics Co., Ltd. Samsung Electron Devices Co. manufactured picture tubes, display monitors, and related parts. Samsung Electro-Mechanics Co. made VHF and UHF tuners, condensers, speakers, and other gear. Samsung Corning Co. produced television glass bulbs, computer displays, and other components. Finally, Samsung Semiconductor & Telecommunications Co. represented Samsung in the high-tech microchip industry. Rapid growth in those industries, combined with savvy management, allowed the combined Samsung Electronics Co., Ltd., to become Samsung Group's chief subsidiary by the end of the 1980s.
Entering the Semiconductor Market: Late 1970s to Early 1980s
Samsung's entry into the semiconductor business was pivotal for the company. Lee had determined in the mid-1970s that high-tech electronics was the growth industry of the future, and that Samsung was to be a major player. To that end, he formed Samsung Semiconductor and Telecommunications Co. in 1978. To make up for a lack of technological expertise in South Korea, the South Korean government effectively required foreign telecommunications equipment manufacturers to hand over advanced semiconductor technology in return for access to the Korean market. This proved crucial for Samsung, which obtained proprietary technology from Micron of the United States and Sharp of Japan in 1983. Utilizing its newly acquired knowledge, Samsung became the first Korean manufacturer of low-cost, relatively low-tech, 64-kilobit dynamic random access memory (DRAM) chips.
Shortly after introducing its 64K chip, Samsung teamed up with some Korean competitors in a research project that was coordinated by the government Electronics and Telecommunications Research Institute. The result was a 1-megabit DRAM (and later a 4-megabit DRAM) chip. During the middle and late 1980s, Samsung parlayed knowledge from the venture to become a significant supplier of low-cost, commodity-like DRAM chips to computer and electronics manufacturers throughout the world. Meanwhile, its other electronics operations continued to grow, both domestically and abroad. Samsung opened a television assembly plant in Portugal in 1982 to supply the European market with 300,000 units annually. In 1984, it built a $25 million plant in New York that could manufacture one million televisions and 400,000 microwave ovens per year. Then, in 1987, it opened another $25 million facility in England with capacity for 400,000 color televisions, 300,000 VCRs, and 300,000 microwave ovens.
Between 1977 and 1987, Samsung Group's annual revenues surged from $1.3 billion to $24 billion (or about 20 percent of South Korea's entire gross domestic product). Much of that growth was attributable to Samsung Electronics. Byung-Chull Lee died in 1987 and was succeeded by his son, Kun-Hee Lee. Kun-Hee Lee recognized the importance of the electronics division and moved quickly to make it the centerpiece of the Samsung Group. To that end, he consolidated many of the Group's divisions and eliminated some operations. He also introduced various initiatives designed to improve employee motivation and product quality. Kun-Hee Lee was credited with stepping up Samsung Electronics's partnering efforts with foreign companies as part of his goal to put Samsung at the forefront of semiconductor technology.
Focus on Electronics and Research and Development: Late 1980s to Early 1990s
Sales at Samsung Group grew more than 2.5 times between 1987 and 1992. More important, Samsung drew from potential profit gains to more than double research and development investments as part of Kun-Hee Lee's aggressive bid to make Samsung a technological leader in the electronics, semiconductor, and communications industries. Besides partnering with U.S. and Japanese electronics companies, Samsung Electronics acquired firms that possessed important technology, including Harris Microwave Semiconductors and Integrated Telecom Technologies. In 1993, Kun-Hee Lee sold off ten of Samsung Group's subsidiaries, downsized the company, and merged other operations to concentrate on three industries: electronics, engineering, and chemicals.
Under the leadership of chief executive Kim Kwang-Ho, Samsung Electronics took the microchip world by storm when it introduced its 4-megabit DRAM chip in 1994. Sales of that chip helped to push Samsung's sales from $10.77 billion in 1993 to $14.94 billion in 1994. Profits, moreover, spiraled from $173,000 to nearly $1.3 billion. In addition, Samsung had staged a bold grab for domestic market share in 1995 by slashing prices for consumer electronics and home appliances by as much as 16 percent and had wowed industry insiders when it unveiled an advanced thin-film-transistor liquid-crystal display (TFT-LCD) screen--used for laptop computers--at a world trade show in Japan.
Samsung Electronics' rapid rise and technical achievements put the company in the spotlight in the semiconductor industry. Its 4-megabit chip, in fact, had made it the leading global producer of DRAM chips by early 1995. Furthermore, Samsung Electronics was increasing its investment in development still further, as evidenced by a $2.5 billion outlay to develop a 64-megabit DRAM chip by 1998. In December of 1995, development on the world's first 1-gigabit synchronous DRAM chip was also in the works. Exports for the year increased to more than $10 billion.
Restructuring Under the Leadership of Yun Jong-Yong: Late 1990s
In just one short year, however, the market for the company's largest revenue producer became unstable. In 1996, DRAM prices fell drastically because of oversupply in the industry. While the company's telecommunications equipment and computer segment showed substantial growth, Samsung's semiconductor-related sales fell by 31.8 percent. In response, the firm implemented a new management structure that focused on increasing efficiency by implementing a new business strategy. The initiative included reforming price management to better recognize growth markets, improving communication between company managers, increasing overseas management support, implementing a new marketing strategy, and focusing on growth in telecommunications, microprocessors, and other non-memory products. Yun Jong-Yong was named CEO in January 1997 to oversee the new strategy.
As part of the firm's new focus, Samsung continued to pare down its dependency on memory chips. It developed new technologies and quickly made a name for itself in the telecommunications and cellular phone market. In May 1997, the company was named the official Olympic partner for wireless communications equipment for the 1998 Winter Games and the 2000 Sydney Games. The firm also established a telephone switching system in Ecuador, entered the Chinese wireless market by teaming up with Shanghai Great Wall Mobile Communications Co., and began selling its cellular phones to AT & T in the United States.
A crisis hit the Asian economy in the fall of 1997, and by early 1998, the Korean won--the nation's currency--was valued at 1,800 won to the dollar, which was less than half of its value just one year earlier. Samsung was forced to drastically change the way it had operated in the past and it began selling off segments that were not related to its core business. In addition, it cut 26 percent of its domestic workforce and 33 percent of its international workforce, and it slowed production.
While many Asian-based companies faltered, Samsung continued to forge ahead. The company established U.S.-based subsidiary Alpha Processor Inc. to oversee sales and marketing for its 64-bit Alpha processor product line. The firm also secured the top position in the TFT-LCD global market by capturing 18 percent of the market. In August of 1998, the firm developed a flat-screen television. Despite the trying economic times, Samsung recorded a greater than eight percent increase in gross sales. In January 1999, Forbes Global Business & Finance recognized the firm as the world's premiere consumer goods and services company.
Under the leadership of Yun, Samsung had successfully diversified its product line from dependence on memory chips despite the trying economic times. By the end of 1999, the chips accounted for 20 percent of sales--in 1995 they had secured 90 percent of profits and half of total sales. The company divested more than 57 of its businesses and decreased long-term debt by $10.8 billion. In addition, all of its product groups were able to secure profits during the year. Samsung also held a strong share of the cellular phone market and was one of the six top manufacturers of wireless phones and the leading producer of computer monitors. Sales for the year increased 24 percent to $22 billion while profits reached $2.4 billion. The firm's stock also rose dramatically, increasing by 233 percent to $227 a share.
Alliances for the New Millennium
Yun's successful leadership of the company during its restructuring and the Asian crisis was noted throughout the industry. In January 2000, Fortune magazine named Yun Asia's Businessman of the Year. The firm, which had adopted the phrase 'Leading the Digital Convergence Revolution' for the new millennium, continued to develop new technologies and seek growth in high-margin markets. The company partnered with Yahoo! to utilize its network to sell its products on-line. It also teamed up with Microsoft to design and develop a line of cellular phones. At the same time, Samsung's exports of cellular phones increased in Kazakhstan, Mexico, Central Asia, and Central and South America. By this time, it was operating as the fourth largest producer of such phones.
Samsung's positive results continued in 2000 as the firm secured $26 billion in sales and $4.7 billion in net profits. Memory chips accounted for 38 percent of sales, information and telecommunications equipment secured 22 percent, digital media took 27 percent, and home appliances accounted for 8 percent of sales. The company looked to strategic partnerships, research and development, and growth, to maintain its positive financial record. In March 2001, it teamed up with Dell Computer Corporation in a $16 billion technology and research and development agreement. In addition, the company was selected by China to provide CDMA cellular phone networks in its four major cities.
Sales figures did decrease slightly in the first part of 2001, however, due to a slowdown in the personal computer market, an oversupply of LCDs, and a slowdown in the cellular market. Nevertheless, Samsung management continued to focus on remaining a leader in the electronics industry.
Principal Subsidiaries: Samsung Electronics America Inc.; Alpha Processor Inc.
Principal Competitors: LG Group; Matsushita Electric Industrial Co. Ltd.; NEC Corporation.