Discussion Questions for Samsung Electronics: 1. What are the characteristics of the DRAM industry? What is the profit potential of the industry? What are the KSF? 2. What recommendation would you make Chairman Lee regarding Samsung’s response to the threat of large scale Chinese entry? Should Samsung invest in China? 3. What were the sources of Samsung’s cost advantage in DRAMs in 2003? Make sure that you can derive the $1. 39 cost advantage in Table 7a based on the tables 7b to 7k.
What are the underpinning factors that result in these cost advantages? Note: You need to run the numbers to assess the relative importance of each activity.
Note: Analysts historically had a difficult time comparing cost structure across competitors in this industry. The difficulty stemmed from the fact that each company offered a different mix of product architectures. To remedy this problem industry analysts settled on a common approach for comparing companies’ overall cost competitiveness.
This approach, used to crate Table 7a, can be used to answer this question.
Note: To create Table 7a the company’s total sales and production costs were weighted by memory generation. The 64Mbit generation was given a weight of 0. 25, the 128Mbit generation a weight of 0. 50, the 256Mbit generation a weight of 1. 0, and the more advanced 512Mbit generation a weight of 2. 0. 4. What were the sources of Samsung’s price premium in DRAMs in 2003? Make sure that you can derive the $0. 72 differentiation advantage in Table 7a from tables 7b to 7k.
Note: Again, you will want to run the numbers to analyze the relative importance of each potential factor. To quantify the sources of Samsung’s price premium, try to identify individually premiums for the following: producing legacy products, producing specialty niche products, producing frontier/advanced-generation products, reliability; and customization and other unexplained sources. In the real world, this calculation would be complicated by the fact that some products are both frontier and specialty or legacy and specialty.
Here, to help students arrive at reasonable estimates quickly, we use the following definitions. Legacy products include 64Mbit-generation products. Specialty niche products include DDR2 SDRAM and Rambus DRAM for 128Mbit-and 25Mbit-geneartion products. Frontier and advanced-generation products include all 512Mbit-generation products. 5. Are Samsung’s cost and differentiation advantages sustainable? transferable? 6. Combining 3&4, can you derive Samsung’s DRAM wining strategy?
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