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Tuesday, October 04, 2005

Samsung Group's Internal Power Struggle

10/4/05- Korea Times:
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Samsung Electronics seems to be increasingly adopting the principle of competition, distancing itself from its usual practice of giving special treatment to sister companies or other business divisions within the corporation.

The latest case in point is the decision by the semiconductor division of Samsung Electronics to give big volume discounts on NAND flash memory to Apple Computer of the U.S. at the expense of sales by the electronics firm’s MP3 player business unit. Apple’s decision to ditch its hugely popular hard disk drive-based iPod mini to make way for the NAND flash-based iPod nano allowed the U.S. portable digital jukebox vendor to significantly shave production costs.

The agreement is forecast to deal a direct blow to the sales and profitability of smaller MP3 player makers worldwide and Samsung Electronics’ MP3 player unit is no exception. Earlier this year, the company announced its bold vision to beef up its MP3 player business.

Therefore, the semiconductor division’s sweet flash supply deal is expected to boomerang on Samsung Electronics itself in a bitter sales loss by the digital media division’s MP3 players. Apple is believed to have signed a deal to purchase 40 percent of Samsung’s 2- and 4-gigabyte flash memory output.

The electronics stalwart has also waged a power struggle against its sister company Samsung SDI, the world’s biggest plasma display panel (PDP) module maker, over the rights to develop and commercialize the next-generation display organic light emitting diode (OLED).

The digital media division also encroached upon other business divisions’ territories, single-handedly producing 37-inch liquid crystal display (LCD) TVs currently on sale in Europe. Samsung’s LCD operation does not produce 37-inch LCD modules and is unhappy about the digital media operation’s arbitrary decision.

Moreover, the digital media division recently rolled out the Miniket VP-MS15 digital camcorder, which has strengthened the digital still-shot function, and this may chip away the digital camera sales of Samsung Techwin.

Such profit-first business decisions sometimes result in considerable financial sacrifices from other business divisions within the company or sister firms, triggering concerns that the solidarity of the Samsung Group may be disrupted.

It remains to be seen whether the overheated competition is a result of Samsung Group’s decision to single out the most profitable business operations and discard less profitable ones aimed at re-streamlining its business portfolio through the "survival of the fittest" scheme or whether it is just a consequence of the conglomerate’s profit-related-bonus system by business division.

Regarding the inefficiency of the overlapping investments in specific items within Samsung Group, a Samsung Electronics official said "such intra-company competition is inevitable due to the accelerating digital convergence trend and competition will continue to increase in the future.’’

By: Korea Times


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