[Company analysis] Samsung Electronics (삼성전자)

「Samsung Electronics (삼성전자)」is the largest company in South Korea that mainly manufactures electronic products. It has the largest scaled company in the Samsung group and is ranked 15th in the 2019 Fortune 500. In terms of operating income, it is said that this company  even surpass「Toyota Motor(トヨタ自動車)」. Globally, the smartphone and semiconductor businesses are well known, but they have world-class home appliances business such as TVs and the display business, too. The number of connected employees is approximately 105,257.

 

1. Company Profile

2. Summary and Features

3. Major Business

4. Financial Information

 

 

 

1. Company Profile

 

※Unit is KRW 10 million, as of 2019

Company name	Samsung Electronics Co., Ltd.
Company name (Japanese)	サムスン電子
Date of establishment	Monday, January 13, 1969
Headquarters location	경기도 수원시 영통구 삼성로 129
Capital	897,513
Consolidated sales	23,040,088
Consolidated operating profit	2,776,851
Consolidated total assets	35,256,450
Consolidated capital	28,878,173
Capital adequacy ratio	81.9%
Consolidated number of employees	105,257

 

 

 

2. Summary and Features

 

Establishment of 「Samsung Electronics」 

「Samsung」 was founded in 1936 by Lee Byung-chul(이병철), under the name “Hyeop-dong rice mill(협동정미소)”. Although there were several accidents caused by Korean War, this company still continued sound management thoroughly, except for the real estate business. In 1953, they established「Cheil Jedang Corporation(제일제당)」and established「Cheil Industries(제일모직)」in 1954, in order to expand the scale. Then, in 1968, it declared a foray into the electronics industry. At that time,「Samsung」owned「Tongyang Broadcasting Company(동양방송)」, which covers areas such as Seoul and Busan with the intention of creating synergistic effects by producing electronic products such as TVs and radios.

At this time, Samsung established「Samsung-Sanyo Electronics(삼성산요전기)」in 1969 as a joint venture with 「SANYO Electric(三洋電機)」. Sanyo agreed to enter into a joint venture with Samsung, in order to enter the Korean market. However, in the process of the approval of establishment, existing Korean electronic product makers strongly opposed. So, the government has issued a permit on condition that all products manufactured by 「Samsung Sanyo Electric」are must exported. Naturally, the Sanyo strongly objected to the decision. But, as a result,「Samsung Sanyo Electric」was launched under the condition that the factory to be newly established will be reduced to halved size and the production and sales rights will be transferred to Sanyo. 

 

Therefore, even at the time of its establishment,「Samsung Electornis」confronted a huge risk. At first,「Samsung」 does not have any experience in manufacturing electronic products. And all the products that they produce, must be exported overesas. In order words, they were suddenly exposed to international competition without any foundation. Of course, in order to export, not only price competitiveness but also quality are required. So, from the begining「Samsung Electronics」will devote itself to thorough cost reduction and quality improvement. (However, the condition from goverment became eased from the end of the 70th year. So, some domestic sales were allowed.)

This company actively worked on technology introduction from「Sanyo Denki」, which had a cooperative relationship. In addition,「Samsung」established a joint venture company with「NEC Corporation(日本電気)」in January 1970, and made technology introduction contract with「Casio Computer(カシオ計算機)」in May 1971. Then,「Samsung」 launched「Samsung Corning」in collaboration with「Corning」in the United States from  1973, and started production of parts for CRT TVs. This kind of movement caused friction with「SANYO」. In the case of 「Sanyo Electric」, they decided to expand Sanyo electronic products such as refrigerators, washing machines, and air conditioners into the Korean market through a technical tie-up with「Hanil Electric(한일 전기)」 separately from 「Samsung-Sanyo Electronics」. As a result, the relationship with both companies was ended by the Samsung's acquisition of「Samsung Sanyo Electric」in 1977.

However, the introduction of technology, cost reduction, and quality control efforts were successful. In the 1970s, a government-led quality improvement policy was implemented in South Korea, at that time「Samsung Electronics」 was listed as a role model of quality improvement, which means they acheived the highest level of technology and quality in Korean companies at the time. Based on this, they were able to maintain their superior domestic market share even during the oil crisis of 1973. However,「Samsung」still has their biggest competitor, 「LG Electronics」that was the No.1 company in Korean electronics market. However, in 1977,「Samsung Electronics」launched Korea's first color TV. And In the 1980s, along with the spread of color TV, and the positions of both companies became reversed.

 

How「Samsung Electronics」 became an industry giant

Since 1987, 「Samsung Electronics」has become the largest electronics manufacturer in Korea. However,「LG Electronics」did not accepted the lose easily. So, both companies continued competition by aggressively and rapidly introducing new technology in the 1990s and 2000s. And this kind of competition enhanced the ability of reading global trends, and eventually, this became the driving force that they overcome Japanese rivals. In fact, even until the era of CRT TV in the 90's, Japanese companies such as「Sony(ソニー)」,「Sharp(シャープ)」, and 「Panasonic(パナソニック)」had the highest market share in the world. Furthermore, in the LCD TV technology, the most advanced company in the world was「Sharp」and Japanese companies held 80% of the world's LCD production in 1997.

However, at that time there was a definite difference between Japanese companies and「Samsung Electronics」and 「LG Electronics」, which was the investment decision strategy. In the case of Japanese companies, there was a high tendency to decide the investment scale for the next year, based on the results of the previous year. On the other hand, Korean companies tended to invest aggressively in anticipation of future market conditions, even though the results of the previous year were poor, in order to respond to new technologies as quickly as possible.

For example, if the market situation in 2001 was good, Japanese companies will decide to make a large investment in 2002. Then, in 2003, the market will be overproduced , and all the related companies become in the red. Then, the following 2004, Japanese companies will abandon their investment. On the other hand, Korean companies will invest in that timing. Then, in 2005, when the overproduction situation disappears and the economy is recovered, Korean companies will acheive significant profits. Then, Japanese companies will think market codition is good, they conducts invested in 2006. Then again, the market will be overproduced... This cycle was repeated.

In fact, as for the business results of 6 Japanese companies and 2 Korean companies from 1998 to 2002, in the case of 6 Japanese companies, the sales are 41679 billion yen, which is a very high level, but the operating profit was in the red with 19.1 billion yen. On the other hand, in the case of two Korean companies, net sales are ¥ 211.2 billion, which is rather low, but operating income is extremely high at ¥ 439.3 billion. In this way, Japanese companies were unable to make a profit, so they became reluctant to invest in LCDs. And as soon as LCD TVs finally overwhelmed the CRT TVs,「Samsung」and「LG」dominated the global TV market.

The pattern above repeats exactly the same in the semiconductor business. In the early 2000s,「Samsung Electronics」drastically increased its capital investment when their competitors like「Toshiba」forfeited the investment due to the deterioration of profitability. And as the business situation changed, 「Samsung Electronics」seized the market. The decisive event was that「Samsung Electronics」launched the smartphone business very aggressively immediately after「Apple」released the "iPhone". In 2009, this company announced the "Galaxy" lineup, and by the third quarter of 2011, they finally surpass「Apple」and acheived the largest sales in world smartphone market. However, at present, it has been overtaken by「Apple」.

Strengths and weaknesses of 「Samsung Electronics」 

The cases above indicate that the greatest strength of「Samsung Electronics」is, the ability to turn crisis into opportunity. In fact, at the time of the 1997 East Asian economic crisis,「Samsung Electronics」was almost driven into bankruptcy. At this time, this company thoroughly conducted company restructuring. As a result, they established the solid foundation for growth as a global company. As of 2009, sales of「Samsung Electronics」 surpassed those of「Siemens」and「Hewlett-Packard」.

Currently,「Samsung Electronics」handles a very wide range of electronic product such as memory semiconductors, LCDs, mobile phone TVs, etc., in addition to domestic appliances. However, in terms of sales, there is high dependency on the semiconductor and LCD businesses. So relatively, the business performance of「Samsung Electronics」could be easily effected by market condtion of specific item. Also, in the "Mass production technology" , this company is the one of the best company in the world. But it is evaluated that securing source technology is insufficient compared to its scale. Most of all,「Samsung Electronics」is said to lack the ability to create a market, or creativity.

 

 

 

 

3. Major Business

 

■ Consumer Electronics business 
This is the business for home appliances such as TVs, monitors, refrigerators, washing machines, air conditioners, medical equipment, etc. Usually, they are competing with「LG Electronics」in the global TV, air conditioner and consumer electronics markets. In the monitor market, they have 5th largest market share in the world. In addition, 「Samsung Electronics」manufactures diagnostic imaging equipment such as X-ray, CT and MRI, and ultrasonic diagnostic equipment, but its market share is relatively lower than「GE」,「Simens」 and「Phillips」.

■ IT & Mobile communications
This business mainly handle small and medium-sized home appliances such as smartphones and laptops. Peaking in 2013, smartphone sales are declining. However, in the flagship smartphone market,「Samsung Electronics」has the second highest level of profitability after「Apple」. In the tablet market, it has the second largest world share after「Apple」. Recently, they entered wearable device market by launching "Samsung Galaxy Wearable". 

■ Semiconductor business
It is one of the representative businesses of「Samsung Electronics」. They mainly handle DRAM, NAND Flash, mobile phone AP, etc. Since 1993, this comapny has maintained the top market share in the world in the memory semiconductor field. Also, for SSD products and eMMC products, they have won the overwhelming No. 1 global market share by utilizing Samsung's unique "Mass production technology." From 2017, 「Samsung Electronics」started to strengthen the foundry field. As a result, they acheived the world's second largest foundry sales in the world after「TSMC」.

■ Display business
「Samsung Display」, one of the core subsidiary of「Samsung Electronics」, handles displays pannel such as TFT-LCD and OLED. In this field, they are competing with「LG Electronics」for the top world market share. Specifically, in the small display OLED,「Samsung Electronics」acheived the overwhelming position. Instead,「LG Electronics」possess the highest market share in large OLEDs for TVs.

 

■ Harman business
Through「Harman」, which「Samsung Electronics」acquired in November 2019, they handle various audio equipment.

 

 

 

4. Financial information

 

※Unit is KRW 10 million

		2017	2018	2019
Consolidated sales		23,957,538	24,377,142	23,040,088
Consolidated operating profit		5,364,504	5,888,667	2,776,851
Consolidated total assets		30,175,209	33,935,724	35,256,450
Consolidated net assets		23,457,698	27,027,573	28,878,173
Breakdown of sales	CE business	4,460,135	4,210,741	4,475,623
		180,203	202,323	260,631
	IM business	10,666,832	10,067,768	10,726,616
		1,182,732	1,017,201	927,247
	Semiconductor business	7,425,560	8,629,096	6,493,905
		3,520,414	4,457,389	1,401,630
	DP business	3,446,536	3,246,502	3,105,393
		539,840	261,980	158,133
	Harman business	710,263	884,374	1,007,710
		5,742	16,171	32,233
	Adjustments	-2,751,788	-2,661,339	-2,769,159