Flooring The Research Engine

Samsung is first with WiBro phones and aims to unseat Intel as No. 1 in chips

Asia-Pacific Economic Cooperation summit meetings generally are dull affairs where leaders posture and pontificate on trade, tariffs, and investment. But at November's conclave in the Korean port city of Busan, tuning out the blather couldn't have been easier. Each of the 21 delegations was issued three mobile video phones using a high-speed wireless technology known as WiBro.

Tired of that speech on exchange rates? No problem. You can click in a CNN newsfeed on the 2.2-inch screen, check the dinner menu on an APEC Web site, or join a quick videoconference with your colleagues.

APEC conference delegates can thank Samsung Electronics Co. for breaking the monotony. The Korean giant joined up with the state-run Electronics & Telecommunications Research Institute (ETRI) in developing WiBro. And soon regular Koreans will benefit, too. By next spring, Korea expects to be the first country to adopt WiBro, which is eight times as fast as 3G cellular technology and much cheaper.

Samsung is hoping to get in early on more nascent technologies -- and is devoting big bucks to help make that happen. On Nov. 8, Samsung Group, Korea's largest conglomerate, or chaebol, said it would lay out $45 billion for research and development over the next five years. At Samsung Electronics alone, R&D spending this year is likely to top $5.2 billion, up from $2.3 billion in 2001. As a percentage of sales, that still lags behind Intel Corp., but it's better than such research powerhouses as IBM, Motorola, Sony, and Canon. By 2010, the chaebol expects annual earnings of $28.6 billion on sales of $257 billion, up from profits of $18.1 billion and revenues of $129 billion last year. "We want to lead the evolution to the next generation of technology," says Lee Ki Tae, president of Samsung's telecom division.


That marks a big shift for Samsung. While the company hasn't exactly been a slouch in coming up with new products in recent years, executives say their primary focus in the past was on making manufacturing more efficient and improving design. Now, Samsung wants to rival the likes of IBM and Intel as a leader in innovation. With its strong position in chips, displays, and wireless technologies, Samsung thinks it has an edge in rolling out new handsets and consumer gizmos. The goal is to cement that advantage. "Our future will be determined by excellence in R&D," says Lee Yoon Woo, Samsung's vice-chairman for corporate technology.

If Samsung succeeds, it will be because of its engineering staff. The company employs 28,000 research engineers -- 24% of its total workforce -- and by 2010 expects nearly to double that number to 52,000, or 32% of all workers. Since October, more than 5,000 of them have been housed in a new, 36-story R&D building adjacent to Samsung's primary consumer-electronics factory in Suwon, 40 km south of Seoul. The rest work at five other centers in Korea and 10 more overseas.

While few would doubt Samsung's commitment, some say the company may be overreaching. The plan is to continue to build on its strengths in digital TVs and mobile gadgets, but also to break into the top ranks in laser printers and appliances with new machines that are more energy-efficient and quieter than today's models. "I have no doubt Samsung will be a trendsetter in chips, displays, and mobile phones," says Merrill Lynch & Co. (MER ) analyst Simon Woo. "But I'm not sure if it will find a really meaningful growth engine in printers and air conditioners."

How grand are Samsung's ambitions? For starters, it aims to overtake Intel as the world's biggest chipmaker. Samsung is already No. 2 and is king in memory. Now, its 8,000 memory researchers are working on next-generation chips that offer faster speeds and need less power. "Samsung will continue to pull away from the rest of the pack in memory," says Hwang Chang Gyu, who runs Samsung's chip division.

But to catch up with Intel, Samsung needs to move beyond memory into logic chips -- the heart of every modern gizmo, from PCs and TVs to cell phones and MP3 players. So this year it boosted its chip research budget by 14%, to $2.3 billion, and plans to devote as much as 15% of its sales to chip R&D for the foreseeable future. In September, the company announced a $33 billion investment plan to create the world's largest semiconductor factory, occupying 300 hectares south of Seoul, with 24 fabrication lines and six R&D lines. Although Samsung's chip sales this year are likely to be just a bit more than half of Intel's $34 billion, Samsung has been growing four times as fast as its U.S. rival and hopes to have semiconductor revenues of $61 billion by 2012.

Other big fields for research are wireless systems and new display technologies. The company spends about a third of its R&D budget on wireless, which has led to the WiBro standard. Now, many of the unit's 8,100 researchers are working on the next generation of cell phone service, dubbed 4G, which may be based on WiBro. And in displays, Samsung has hundreds of researchers working on organic light-emitting diodes (OLEDS), which use less power than liquid-crystal displays and can be paper-thin. In May, Samsung unveiled a 40-inch OLED TV panel.

But Samsung isn't giving up on other TV technologies. On the fifth floor of the new R&D center, some 300 machines constantly send out TV signals for 100 programs in 20 different broadcasting formats used around the world. This allows engineers to fine-tune the sound and video quality of Samsung's plasma, LCD, and rear-projection TVs and home theater systems without resorting to field tests in dozens of countries. At the same time, dozens more researchers are working on improved software to create better remote controls that make it easier for users to find and display digital content such as photos, videos, and music.

If Samsung does meet its goals, the next time APEC meets in Korea, its speechmakers might face even more competition for the attention of conference-goers.

By Moon Ihlwan

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