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By Zhang Xiaowang
Source: Alphabet (ID: wujicaijing)
Li Jianxi’s death has brought Samsung back to the Chinese public’s view, after Samsung’s mobile phone’s existence in the domestic market has already dropped to the freezing point.
The explosion door incident in 2016 caused Samsung to plummet in the Chinese market, with less than 1% market share today. In October 2019, Samsung closed its last smartphone factory in Huizhou, meaning to withdraw from the Chinese market.
However, the mobile phone business encountered “Waterloo” in the Chinese market, which does not prevent Samsung from continuing its voyage. Samsung had been the world’s top smartphone manufacturer for nearly 10 years before Huawei overtook it in March this year, and Samsung regained that position in August – given Huawei’s current experience, it may be difficult for it to compete with Samsung in global mobile phone sales.
Nowadays, when people use non Samsung mobile phone brands such as iPhone, Huawei and Xiaomi to obtain information and entertainment, they are already consumers of Samsung (Electronics): from chip foundry to memory to display panel, Samsung almost controls the lifeblood of the global mobile phone industry chain, as a supplier, everywhere.
In the display panel field, according to the strategy analytics report, in the first half of the year, Samsung display led the smartphone display panel market with 50% revenue share, and BOE and Tianma microelectronics ranked second and third accounted for only 15% and 8%.
In the global market of NAND flash memory chips for smart phones, Samsung remained the first in both shipment and revenue in the first half of the year, accounting for 43% of the global revenue share, more than double that of its second competitor.
In the field of chip OEM, according to market research firm trendforce, Samsung is expected to occupy 17.4% of the global OEM market in the third quarter of this year, while TSMC still dominates, with a market share of 53.9%.
In the semiconductor market, Samsung’s revenue share in the first half of the year was 49%, while that of SK Hynix and micron technologies was 24% and 20%, respectively. Earlier, in 2017, Samsung ended Intel’s 25 year dominance and became the world’s largest semiconductor company.
With Samsung’s influence, some mobile phone companies can even go against the tide. After Samsung decided not to supply AMOLED screens to Xiaomi in 2015, Xiaomi fell into a supply chain crisis, which delayed the release of Xiaomi note 2 for nearly a year. In 2016, the annual sales of Xiaomi mobile phones dropped by 36%.
It is Li Jianxi, the second generation leader, who shaped Samsung’s position as the “overlord” in the global mobile phone industry chain. In 1974, Li Jianxi led Samsung into the semiconductor field with memory (DRAM) technology. After nearly 20 years of continuous losses, it finally ushered in a strong rise.
Semiconductor business has become the biggest revenue source of Samsung Electronics. In the second quarter, Samsung’s semiconductor business revenue exceeded $15 billion, of which more than 80% of its revenue came from the memory chip field.
At present, Samsung still maintains a high penetration into the global mobile phone industry, just like hydropower coal, which has become the infrastructure supplier of mobile phone industry. However, Samsung’s position is being challenged by domestic panel manufacturers BOE and TSMC. Mobile phone manufacturers are finding alternative solutions in the upstream supply chain.
The burden is on the shoulders of Li Zairong, the successor.
A smart phone contains about 1800 components, including the main chip, screen, camera sensor, memory and flash memory. These key components often account for more than 50% of the cost.
Samsung has been at the top of the food chain of the mobile phone industry for a long time because of its excellent market share in these key components.
According to the China Economic Industry Research Institute, in the first half of 2020, the global smartphone panel shipment volume was about 804 million pieces, of which BOE shipped about 180 million pieces, ranking the first in the industry, followed by Samsung with about 150 million pieces. However, in AMOLED panel shipment, Samsung is the best. According to stone partners, Samsung shipped 61.6 million OLED screens in the first quarter of this year, with a market share of 90.2%.
It is worth noting that Samsung AMOLED screen is now the flagship standard of major mobile phone brands. In the recent iPhone 12 series, except for the 6.1 inch iPhone 12 screen supplied by LG display, the other three products are supplied by Samsung display.
As mentioned above, Samsung accounts for 43% of the global revenue in the NAND flash memory chip market of smart phones, and is the second largest chip foundry outside TSMC.
Moreover, according to techno systems research, a Japanese research firm, Sony accounted for 49.1% of the image sensor market in 2019, and Samsung ranked second with 17.9%.
“Big and fine” can’t be more appropriate to describe Samsung Electronics. After all, it can make the mobile phone business the first in the global market share. At the same time, it has layout in the most profitable core components and has broken into the market high position. At present, only Samsung has achieved this goal.
Samsung has been increasing its capital investment since the 1970s. According to the report of Chinese business strategy, reviewing the development history of Samsung in the semiconductor industry, it has been losing money in investment memory for 13 years and LCD panel for 7 years.
At the expense of heavy money, what we have accumulated is the technical barriers that competitors are hard to catch up with. Once this kind of barrier is formed, it is very difficult to break down.
At present, Samsung is the world’s best supplier of AMOLED screens, and also the only three suppliers with high-end process chip OEM capability. The other two are TSMC and Intel. As for the memory market, Samsung has occupied half of the industry for a long time, and its position is hard to shake.
However, in recent two years, due to the impact of trade friction between Japan and South Korea and competition from Chinese manufacturers, Samsung began to significantly slow down.
In the whole year of 2019, the revenue of Samsung Electronics was 230.4 trillion won, about 195.6 billion US dollars, a year-on-year decrease of 5.5%; the net profit was 21.74 trillion won, about 18.5 billion US dollars, a year-on-year decline of 51%.
The semiconductor business, which accounts for nearly 70% of Samsung Electronics’s revenue, made an operating profit of 14.02 trillion won in this year, nearly 70% lower than that of won 44.57 trillion in 2018.
According to the market report, from 2017 to 2018, due to the expansion of data center construction demand and other factors, the semiconductor industry has appeared a “super cycle” boom period, but the blind increase of production by companies has led to the deterioration of market conditions. This has further led to excessive inventory of semiconductor manufacturers in 2019, but the demand for smart phones and memory chips is slowing down, and the oversupply leads to a decline in prices.
In July 2019, Japan announced that it would strictly review semiconductor materials in order to strengthen export control to South Korea.
This is a big blow to Samsung: from January to May of 2019, 94% of incubation polyimides, 92% of photoresist and 44% of hydrogen fluoride in South Korea came from Japan, and Samsung’s most important OLED screen production line also relies heavily on equipment provided by Japanese suppliers.
On the other hand, Chinese panel companies such as BOE, csot and Tianma are also challenging Samsung.
In 2019, the profit of Samsung’s display panel business dropped by 39.69% year-on-year. In this regard, Samsung explained that: first, the price of LCD panel fell more than expected due to factors such as the expansion of Chinese competitors’ capacity; second, the demand for flexible OLED display screen used for high-end smart phones dropped sharply, and the slowdown in demand for smart phone market was also one of the main reasons affecting its panel business.
What is Samsung’s core competitiveness?
When Samsung launched 64KB DRAM in 1984, the price of memory chips plummeted from $4 per chip to 30 cents per chip. At that time, Samsung’s production cost was $1.30 per piece, which became a loss making business. Then, Sony, Toshiba and other Japanese enterprises cut production again and again. After six consecutive quarters of losses, intel was forced to withdraw from the field of memory chips.
Li Jianxi remained unmoved. Even though by the end of 1986, Samsung Semiconductor had accumulated losses of more than $300 million, he was still investing in this bottomless hole. At that time, an executive of Samsung advised Li Bingzhe: “since the semiconductor production line was put into operation, Samsung Group has lost money for three consecutive years, with a deficit of hundreds of billions of won. If it goes on, it won’t be long before it goes bankrupt. ”
In 1987, Samsung ushered in a turning point in its industry. The United States launched an anti-dumping lawsuit against Japanese semiconductor enterprises, and the two sides reached an export restriction agreement. Immediately after DRAM price rebounded, Samsung made profits after years of losses. What’s more, at this time, Samsung’s huge investment has been transformed into an intangible asset of technology.
In 1992, Samsung took the lead in launching the world’s first 64M DRAM and surpassed NEC in Japan to become the world’s largest DRAM manufacturer. Two years later, Samsung launched another 256M DRAM.
In the downward cycle of the industry, in the face of continuous huge losses, it is no different from a gamble for Samsung. Fortunately, after the dark time, Li Jianxi led Samsung Electronics out of a smooth road.
However, Li Jianxi was not satisfied with this. After winning the battle of memory chip, he devoted himself to the new battle of LCD panel with the same courage. This kind of commercial means of “violating the industry cycle” has even evolved into Samsung’s business model: when the price is low, it will defeat its competitors by expanding its production capacity, and then use its monopoly position to raise its price and profit.
In 1991, Samsung set up the panel division and built the first trial production line. But this year, the industry ushered in the first recession. In the following seven years, Samsung lost money continuously, from 1991 to 1994, the annual loss reached 100 million US dollars.
By 1995 and 1996, the LCD industry was once again in recession. However, Samsung bucked the trend and was willing to endure huge losses for many years. By 1998, Samsung completed its 3.5-generation line, which was already ahead of Japanese enterprises. In the same year, Samsung surpassed sharp to become the world’s largest panel enterprise.
It is worth noting that Samsung’s success is inseparable from the support of the South Korean government. In fact, from that time on, the complex relationship between Samsung and the power of the Qing wa Tai has been formed.
From 1983 to 1987, South Korea implemented the “semiconductor industry revitalization plan” and put forward the goal of localization of semiconductor production. In order to achieve this goal, South Korea promotes the “government + big consortia” mode, privatizes and distributes large aviation, steel and other giant enterprises to large consortia, and provides preferential measures to large consortia. According to reports, in order to support Samsung to develop the memory chip industry, the South Korean government even spared no effort to use the war reparations provided by Japan to South Korea during the establishment of diplomatic relations.
The economist has also revealed the secret of Samsung’s success: its huge resources are concentrated in a small number of consortia. They can quickly enter the capital intensive semiconductor industry, overcome the huge financial losses in the initial stage of production and finally make profits.
However, looking back on Samsung’s growth in the semiconductor industry, the support of the South Korean government is of course very important. However, the core of Samsung’s success lies in Li Jianxi’s determination and determination in the face of the downward cycle of the industry, the unremitting pursuit of core technologies, and the almost cost free innovation investment.
This can be seen from Li Jianxi’s desire for talents. According to the report of Chinese business strategy, in 2002, Li Jianxi said in front of many presidents: “in the past, hundreds of thousands of people supported a monarch; today, it is a day to support 200000 people.”
He even had the idea of TSMC founder Zhang Zhongmou, who revealed that Li Jianxi had offered him olive branches when he visited Taiwan in 1989 for business inspection, which he declined. What Li didn’t know at that time was that Zhang Zhongmou founded TSMC in 1987. Now in the field of chip OEM, TSMC has become Samsung’s biggest competitor.
After Li Jianxi’s death, an associated press article said: “it was under his administration that Samsung Electronics (a subsidiary of Samsung Group) developed from a small TV producer to a global consumer electronics giant.”.
In the minds of most ordinary readers, until Li Jianxi’s death, the name of the founder of SamSung group was far less than that of jobs. What’s more, people only know Samsung, but they don’t hear about Li Jianxi.
In terms of influence, jobs almost led the entire smartphone market revolution by himself. However, when we focus on the enterprise itself, Li Jianxi’s influence on Samsung Group is no less than that of jobs on apple.
In 1987, when Li Jianxi took over the mantle from his father, Li Bingzhe, Samsung’s debt ratio was as high as 300% due to excessive expansion. The more troublesome problem is that in the situation of Family Entrepreneurs gathered, Samsung people seemed to have lost their fighting spirit and fell into complacency and conservatism.
In the spring of 1988, at the 50th anniversary meeting of SamSung group, Li Jianxi said that “we should build Samsung into a world-class super class”, but it did not cause much response. In the eyes of Samsung people, Samsung was already one of the few enterprises in South Korea at that time. They did not realize and didn’t care about the crisis described by Li Jianxi.
Since the beginning of 1993, Li Jianxi frequently inspected the markets of the United States, Japan and Germany. During the inspection, Li Jianxi witnessed Samsung’s products abandoned in the remote corner of the shopping mall, learned about the disadvantages of Samsung’s shoddy production and realized the gap between Samsung’s products and Sony and other popular products in the market at that time.
The situation that Li Jianxi faced at that time is reminiscent of Haier and Zhang Ruimin in 1985.
Among the 400 refrigerators, 76 had defects. Such a high rate of “substandard products” touched Zhang Ruimin’s nerves. With a wave of his hand, all 76 refrigerators were smashed. Little did not know, this smash, hit the bottom of Haier people’s enthusiasm, set off a quality revolution in Haier.
One month after the “smashing the refrigerator” incident, Zhang Ruimin launched and presided over a number of meetings, with the focus on “how to start with me and improve product quality”. Three years later, Haier won the first national quality gold award in China’s refrigerator industry.
According to Tencent technology, less than two months after returning from Frankfurt, Li Jianxi made 48 speeches to various departments of Samsung, totaling more than 350 hours, and compiled a book for distribution, thus spreading the atmosphere of reform to the whole Samsung.
It was at that time that Li Jianxi called out that “everything will change except wife and children!” It shows its determination to change Samsung.
Li Jianxi, who is far away on the other side of the ocean, may have heard the news that Zhang Ruimin smashed the refrigerator. He also showed his determination: there was a quality problem in the phone, so he ordered the bulldozer to crush 15000 poor quality wireless phones into pieces, and ordered the person in charge to be present to watch; three star mobile phone was complained by customers, and he ordered the destruction of $50 million worth of mobile phones in stock.
Looking back, this “new operation” movement launched by Li Jianxi is a key turning point of Samsung’s transformation from quantity management to quality revolution. In this process, various business changes, such as personnel reform, brand strategy implementation and technology priority, are also carried out at Samsung.
As a result, Samsung began to enter the global market from a Korean company. There is no doubt that Li Jianxi is Samsung’s “key man.”. Li Jianxi to Samsung may be just like Zhang Ruimin to Haier. He helps the enterprise to get out of the fog at the critical moment and lead the enterprise to greatness through reform.
Looking back on today’s Samsung, whether this giant ship can continue to sail normally under the rule of Li Zai Rong is a matter of great concern to the outside world.
What Li Jianxi left behind for Li Zairong is an empire of mobile phone industry, but this empire is not stable now. Surrounded by powerful enemies, complicated geopolitical situation, and intensified contradictions between chaebol forces and qingwatai, etc., are the biggest stumbling blocks for Samsung.
Can Li zaireng lead Samsung to a higher level with the courage of reform, just like his father did in those days?
1. “Shadow of Samsung empire under the epidemic situation: the biggest consortium in South Korea is in a profit crisis”, market sector;
2. One article to understand Li Jianxi’s life: a key figure in bringing Samsung from the second class factory to the Empire, Tencent technology;
3. The death of Samsung Godfather Li Jianxi: compared with jobs, it was also controversial;
4. Past events of Semiconductors: the killing of Three Kingdoms by China, Japan and South Korea, notes on economic history;
5. Terrible Samsung Semiconductor, semiconductor industry observation;
6. The legend of Li Jianxi, the strategy of Chinese businessmen;
(statement: This article only represents the author’s point of view, not Sina’s position.)