The Secrets of Samsung's Success

Let others worry about tough times in semiconductors. Hwang Chang Gyu, president of Samsung Electronics Co.'s memory-chip unit, is pumping $2 billion into a new factory to crank out memory for everything from PCs to cell phones to game consoles. "We are different," says Hwang. "We are living a nomadic life. We move on if other companies catch up."

So far, the nomadic life has paid off. This year, Samsung expects memory-chip sales of $7.1 billion--more than the next three players combined. And while those other companies--Micron Technology (MU ), Hynix Semiconductor, and Infineon Technologies (IFX )--were all in the red, Samsung's memory-chip business will likely produce $2 billion in profits, according to Hyundai Securities Co.

Samsung's secret? While others have tried to sell horsepower for the mass-PC market, Hwang has focused on niches commanding higher prices and fatter margins. Some 70% of Samsung's memory revenues come from specialty products, including graphics chips for game consoles such as Microsoft Corp.'s (MSFT ) X-box; high-density memory modules for ultrapowerful servers from IBM, Sun Microsystems, and others; and flash memory chips for handheld computers, cell phones, and camcorders. "It's like Samsung is operating a department store while other memory makers are running a discount store," says Choi Suk Po, a semiconductor analyst at Woori Securities in Seoul.

Hwang's biggest bet is on flash memory, which can hold data even when electric power is turned off. The company says its sales of flash chips will skyrocket to $1.2 billion this year, from $350 million in 2001. After its new plant starts operating next year, Samsung hopes to boost flash memory sales to $4.2 billion annually by 2005.

Some analysts question whether Samsung can increase its flash sales so dramatically, but Hwang is confident. Samsung's current advantages--relentless spending on research, heavy investment in new facilities, and its blue-chip client base--will continue to pay dividends for a couple more years at least. "The influence of other companies will be limited," says Hwang. Still, observers both inside and outside the company say cost-efficient chip foundries, such as Taiwan Semiconductor Manufacturing Co. (TSM ), could emerge as strong rivals if they decide to move into the memory business--particularly in alliance with manufacturers in China. "In the long term, China can always pose a threat," admits a senior Samsung manager. For now, though, this nomad's path to profits looks like the right road to travel.

By Moon Ihlwan in Seoul

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