Giheung: Where Samsung’s Golden Touch Starts
By Kim Yoo-chul
Staff Reporter
GIHEUNG, Gyeonggi Province ― Now, Samsung Electronics now truly a leader, at least in the global memory chip market. Behind the success were the decisive and bold decisions by its founder Lee Byung-chull and his son Lee Kun-hee.
As of the end of the second quarter of 2009, its shares in DRAMs and NAND flash memories reached 34.1 percent and 42.6 percent, respectively, according to data from iSuppli, a market research firm.
The chip supplier, which has Apple, Dell and Hewlett-Packard as clients, aims to reap $25.5 billion in revenue amid rising demand for high-end electronic products.
Considering its ability to raise capital at the right time and its technological edge in memory chips, some analysts say Samsung could overtake chip giant Intel in the near future.
``We've reached the position to control pricing and shipments of memory chips onto the global market,'' a spokesman at Samsung's semiconductor compound, told The Korea Times, Monday.
Giheung: Where Samsung Develops
Samsung started its chip business in 1974 after acquiring a smaller bankrupt local chipmaker. Its original target was to produce non-memory chips, but this failed to reap tangible results by 1983.
In that year, founder Lee changed strategy and moved toward memory chips at a time when Japanese chipmakers dominated.
``Lee believed that electronics was a value-added industry that required technology and skilled manpower and had great growth potential both at home and abroad,'' according to the spokesman.
``The chairman determined that the electronics industry was just what South Korea needed at that stage of its economic development.''
Controversy over Lee's decision was rampant as Samsung didn't have the capital, qualified technicians nor key technology. But with a clear perception, Lee ordered the construction of the first chip line in the provincial city, some 30 kilometers south of Seoul.
``The decision was a gamble. But Samsung didn't have a choice,'' the spokesman said.
As expected, Samsung took a painful path ― it was at least five years behind its Japanese rivals.
In the beginning, the company bought semiconductor technology from Intel and Sharp, but executives acknowledged that some of their advances came from ``reverse engineering,'' the fruits of other companies' R&D efforts.
As the company played catch-up with Japanese competitors, much of the technology came from engineers in rival U.S. companies who quietly ``moonlighted'' for Samsung.
At the same time, the company began luring home Korean-born engineers who were working in the United States, often using financial incentives provided by the South Korean government.
The first big win for Samsung came in the latter half of 1983 when it produced its first chip ever sold in the United States ― a 64-kilobit chip (able to hold 64,000 bits of data).
It debuted three years after those of the other industry players. But just three years later, Samsung created the world's first one-megabit chip, a jump that should have taken six years, given the industry's usual pace.
``Samsung had to decide on the construction of a third line in Giheung to churn out one-megabit computer memory chips. Lee urged decision making. But his call faced severe criticism,'' another Samsung executive said.
``At that time, Samsung suffered from massive operating losses as a result of the construction of the previous two lines. Meanwhile, the new line needed an investment of at least $340 million,'' he said.
Lee Byung-chull died in November 1987. But Samsung executives say ``Line 3'' was the cornerstone for Samsung to put its business onto a global track.
Posting Profit
After Lee Byung-chull died, he was succeeded by his youngest son, the now 67-year-old Lee Kun-hee.
With a steady investment in chip lines in Giheung under his leadership, Samsung Electronics posted its first-ever profit in the memory business in 1988.
In 1988, Lee ordered his workers to adopt a ``stack'' method (vertical expansion) in chip making as opposed to the ``trench'' system (horizontal expansion) for efficiency and to differentiate itself from its Japanese rivals.
In 1993, Samsung undertook the 8-inch wafer manufacturing process at its fifth chip line, by leaping over the industry's mainstream 6-inch wafer producing process at that time.
A bigger wafer means larger memories and higher efficiency. Samsung ranked as the world's biggest memory chip player by overtaking its Japanese and American competitors by the end of that year.
A year later, it developed the world's first 256-megabyte DRAM chip. The result was a massive breakthrough for its corporate name on the global market.
Memory chips, however, were an isolated success. Samsung was faring so poorly in the U.S. market in most businesses that it was considering pulling out entirely. It was mired in low-margin items such as microwave ovens and cheap TVs.
``When he took over, Lee felt that hard work and mass production of cheap goods were no longer good enough. That's why Lee made efforts to diversify semiconductor products. We took some bold gambles. But they paid off,'' the spokesman added.
Samsung ranked as the world's biggest flash memory chipmaker in 2002. It successfully developed an advanced PC chip by using a finer 50-nanometer-level processing technology for the first time in the world in 2006.
Thanks to steady technical breakthroughs and massive strategic investments, the firm has kept the lead in the global DRAM and NAND flash memory markets for over a decade.
In line with its chip-making business, Samsung's liquid crystal display (LCD) panel business has rapidly grown.
In technology, chip-making and the flat-screen business have similarities in their manufacturing processes. Samsung's LCD business was ranked as the world's best in 1998, four years after it began producing in 1995.
Samsung executives say the accumulated chip-making technologies and massive investment made the company's current success possible.
Samsung is the leader in the global flat-panel industry _ it supplies components to most of the world's TV set makers including Japan's Sony. Since 2004, it has been running a joint venture called ``S-LCD.''
LCD panels are used in everything from televisions, laptops, mobile phones and other electronic devices.
Giheung Prepares for Next Step
Samsung's 420,000-square-meter Giheung compound is being prepared for the next step. The historic first production line is used for research and development (R&D) purposes.
One of the company's affiliates, Samsung LED, is producing chips from the third line. The light-emitting diode (LED) business is a rising cash-cow in its mobile phone and television businesses.
The company aims to set a global consumer trend with its mobile phones equipped with AM OLED panels and through sales of LED television sets. Currently, it is the pathfinder for both products.
``It's a huge improvement. Samsung is preparing the new chapters in both memory chips and flat-screens at a time when green technology is sweeping the global consumer electronics industry,'' the spokesman said.