Samsung’s faltering status as undisputed industry leader fuels talk of crisis

Posted on : 2023-11-01 16:38 KST Modified on : 2023-11-01 16:38 KST
There’s been a conspicuous absence of messaging or plans from Lee Jae-yong regarding Samsung’s apparent decline
Samsung Electronics Chairperson Lee Jae-yong inspects the construction site of a semiconductor R&D complex at Samsung’s campus in Giheung on Oct. 19. (courtesy of Samsung Electronics)
Samsung Electronics Chairperson Lee Jae-yong inspects the construction site of a semiconductor R&D complex at Samsung’s campus in Giheung on Oct. 19. (courtesy of Samsung Electronics)

When Lee Jae-yong became the chairperson of Samsung Electronics last October, the semiconductor cycle was heading into a steep decline. In a sense, the industry outlook at the time foreshadowed how rocky Lee’s first year as chairperson would be.

But what’s more troubling is that Samsung’s status as an indubitable leader in many of its core industries is being threatened. Although many are suggesting Samsung is heading toward a crisis, Lee has yet to put forward decisive messages and plans.

SK Hynix, the “eternal runner-up” in the memory industry, vowed to become the “No. 1 leader in high bandwidth memory (HBM)” during its performance briefing during the second quarter of this year. For the past 20 years, Samsung has not once lost its lead to its competitors in micro-process and yield, indicators of competitiveness in the memory industry.

Nvidia, a world leader in the AI chip market, chose Hynix as its top-priority partner.

This is a textbook example showcasing why Samsung is receiving harsh market assessments that it is not only failing to predict the market but also lagging behind in terms of technological innovation.

“During memory downcycles, Samsung always strategically expanded investments to widen the gap with its competitors,” commented Lee Seung-woo, the director of the research center at Eugene Investment and Securities. “However, although production investments were expanded due to rapid increases in memory demand during the COVID-19 pandemic, inventory piled up due to stagnating demand after the endemic phase. At this juncture, timely investments weren’t made in other sectors [like HBM], bringing about the current situation.”

When it comes to smartphones, another one of Samsung’s cash cows, the company hasn’t been able to escape being sandwiched between Apple and Chinese companies. In the premium market, Samsung smartphones fall far behind iPhones, while in the mid-to-low-end market, Chinese companies are hot on its trail.

According to market research firm Counterpoint, Apple boasted a market share of 75% in the US$600+ premium smartphone market last year while Samsung only enjoyed 16%. Meanwhile, China’s Xiaomi, Oppo, and Vivo, whose focus is on low-end smartphones, have improved their market share to 30% during the second quarter of this year based on domestic demand and price competitiveness, surpassing Samsung’s 22%. In the Indian market, where demand is growing fast, China’s market share (55%) greatly outstrips Samsung’s (18%).

In other words, Samsung’s stature in “technology” and “price” — the two axes of product competitiveness — appears to have weakened.

A researcher at an investment company who spoke on the condition of anonymity remarked, “Samsung executives’ assessment of reality amounts to dismissing young consumers’ preference for iPhones as ‘vague idealization.’ Watching the company blame its 10 trillion won deficit during the first half of this year alone caused by failure to predict memory demand on poor industry outlook, I sense a complacency in Samsung I never felt before.”

In the system semiconductor sector, which has been noted as a weak point for Samsung, the company is seeing results by expanding foundries. Considering that its share of the foundry market was negligible only 10 years ago, the fact that the figure has increased to 11.7% as of the second quarter of this year is definitely a noteworthy achievement.

However, there’s still a long way to go until the goal Lee proposed in 2019: becoming the industry leader of the sector by 2030. TSMC, which Samsung is trailing, still dominates more than half of the market (56.4%), and competitors like Intel’s reentry into foundries herald even fiercer competition.

An executive in charge of strategy at a top four Korean conglomerate said, “Samsung is an organization that sees results better than anyone when a concrete goal is set, but this is not currently what’s being done, whether willingly or not.”

Samsung subsidiaries in non-core sectors are also struggling. Samsung SDI, which makes EV batteries, hasn’t been able to surpass LG Energy Solution in the domestic market while being outstripped by China’s CATL and BYD abroad. Samsung C&T, which centers around construction and trading, is also experiencing a prolonged slowdown in business performance. Even Samsung Life Insurance, the leader in the life insurance industry based on insurance premiums, has fallen behind Kyobo Life Insurance in initial premiums since last year.

Although Samsung’s status as the undisputed leader in many of its core and non-core industries has been made vulnerable, there’s been a conspicuous absence of messaging or plans regarding this from Lee.

“With market competition becoming unprecedentedly complicated due to reasons such as the hegemonic competition between the US and China, it is difficult to evaluate Samsung with standards of the past,” shared a high-ranking Samsung executive. “We will proactively target markets according to environmental shifts and boost investments in order to do so.”

Another Samsung executive commented, “Soon, management will put out messaging that will inspire tension within the organization.”

By Ock Kee-won, staff reporter; Kim Hoe-seung, senior staff writer

Please direct questions or comments to [english@hani.co.kr]

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