By Cho Jin-seo
Staff Reporter
Finding themselves unable to match Samsung Electronics in volume, Hynix Semiconductor
and LG. Philips LCD are shifting to more practical strategies, yielding the king’s
thrones to Samsung and focusing on improving their profit margins instead.
The two firms have stopped competitions against Samsung for nominal titles such as
the ``world’s largest,’’ “world’s best’’ or ``world’s first.’’ Instead,
like a cyclist avoiding a head wind by riding behind other riders, they have begun to
let the giant do all the laborious work at the front such as adopting new
technologies and establishing new market sectors, and to follow in the path Samsung
has paved.
``In the TV business, it is not fun to become the first company to do something,’’
said Kwon Young-soo, the new CEO of LG. Philips, meeting the press last week. ``There
is no reason to engage in bloody, and ruinous battles anymore. We will watch others
fighting and wait until the market stabilizes. Then we will go into it smoothly.’’
Until recently, LG. Philips had tried to pace Samsung, purchasing up-to-date
equipment and enlarging its manufacturing facilities with a strong sense of rivalry.
The two companies gave press releases almost every month insisting that they were
ahead of each other in developing, mass-producing, or selling certain type of LCD
panels that ordinary consumers hardly care about.
While the two Korean companies exert themselves in meaninglessly chasing the ``No. 1
’’ title, their Taiwanese competitors have reaped all the benefit as they were able
to purchase the same equipments and raw materials at lower prices only a few months
later, Kwon says. The result was costly. LG. Philips recorded 200 billion won of
operating losses in the first three months of this year. Samsung also lost two thirds
of its profit during the period.
For LG. Philips, it is better late then never to change, Kwon believes.
``A leader has leader’s responsibilities, and Samsung should take them. We don’t
want to become the No. 1 company in terms of sales anymore. We want to be the No. 1
in profit margins,’’ he said.
Such a ``bigger not always better’’ policy has been successfully implemented at
Hynix, Samsung’s foe in the semiconductor sector. Emerging from a workout program
earlier this decade, Hynix steadily widened its market share and silently closed up
to Samsung Electronics in terms of profits.
Still, Hynix’ new CEO Kim Jong-kap made it clear that he has no objection to Samsung
’s hold on the leadership.
``How can I dare to compare myself with man like Hwang?’’ he said, referring to
Samsung Electronics’ Hwang Chang-gyu, the president of its semiconductor division.
He even used the most honorific suffixes available in the Korean language. ``I will
just uphold his desires, for the good of the entire industry.’’
Though it might sound a bit odd, the modest remark reflected that Hynix is pleased
with its current situation behind Samsung. The company posted a record-high 2
trillion won in net profit last year. Though it was far short from Samsung in terms
of sales volume, Hynix was superior to Samsung in profit rate.
Samsung last week posted a 68-percent drop in its quarterly operating profit due to
falling memory chip prices, but Hynix is likely to see only a 30-percent decrease.
Hynix could minimize the damage by swiftly converting some of its flash memory
manufacturing lines to DRAM chips, where the price decline was slimmer.
Both Hynix and LG. Philips are in no hurry to make investments as well. The latter’s
CEO Kwon said that he will take his time before deciding whether to invest in
building a cutting-edge eighth-generation manufacturing line, or in building another
low-cost 5.5-generation factory. On the contrary, Samsung announced last week that it
will advance the opening of its eighth-generation manufacturing line from October to
July, in order to predominate the growing LCD TV market.
Kwon says that a CEOs’ personal background may have some influence on firms’
strategies. In the industry circle, Kwon is considered to value profitability over
technology as he served as CFO of LG Electronics until last year. Hynix’ CEO Kim is
also recognized as a seasoned expert in administration and management, having retired
as the vice minister of commerce, industry and energy. On the contrary, Samsung’s
Hwang and Lee Sang-wan, president of its LCD division, are respected as engineering-
oriented CEOs, as well as is Yun Jong-yong, its vice chairman.