12.Samsung's strategy deals heavy blow to competitors

At Samsung Electronics Co. Ltd, executives speak little about boosting depressed average selling price.
That goal, which they admit will benefit the entire memory component market and is critical to profitability in the embattled sector, will come later.
"We plan to make massive investments and try to expand our market share through implementation of aggressive investment plans and migration into advanced geometry," said Yeongho Kang, VP of the semiconductor business at Samsung in a presentation to the investment community following the release of the company's Q1 results.
"We will accelerate our efforts to strengthen our competitive edge and continue to widen the gap with our competitors to achieve further growth and profitability," added Kang.
Playing catch upAside from the normal pricing as well as demand and supply imbalance that the memory market has always had problems dealing with, Samsung is also the main reason its main DRAM rivals appear so disorganized in their response to the industry's most challenging profit problems.
That's because the company's margins remain positive while the rest of the field is selling products well below cost. The overall impression is that Samsung has not only managed the crisis better but is also able to benefit from the discomfort of rival memory manufacturers.
It's not that Samsung is not hurting. In Q1, for instance, Samsung reported operating margin of 4 percent, down sharply from 9 percent in the preceding quarter and 12 percent in the comparable 2007 quarter.
Though disappointing, the results were vastly better than figures reported by rivals, including fellow Korean Hynix Semiconductor, which said gross margins slid to minus 11 percent and operating profit margin was negative 30 percent for the quarter.
The situation was only mildly better at Micron Technology Inc. The company reported gross profit margin of -3 percent for its latest quarter ended February 28. Operating profit margin during the same period fell to -57 percent, worse than at Hynix.
This pattern is forecast to continue in Q2 with some relief coming perhaps in the second half of the year when back-to-school sales and a snapback in demand is expected to improve prospects for higher pricing.
Until then, Samsung is going to pile on the pressure through a combination of technology initiatives, product differentiation and a willingness to absorb more body blows related to lower pricing, according to Woosik Chu, VP of investor relations at Samsung. "In the second quarter, we expect weakness to continue and any meaningful improvement would have to wait until the second half of the year," Chu said. "In particular the memory market is expected to continue to experience difficulties due to lack of demand and supply overhang."
With the problem so clearly defined, it would seem obvious that Samsung would work towards reducing supply—for instance by reducing production—and insisting on firmer pricing at OEM customers.
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