Electronics industry looking up

Samsung, LG, Hynix are top engines for Korea Inc.

By Kim Yoo-chul

Korea's electronics industry is the main engine for Korea Inc.

Samsung Electronics is going head-to-head with Apple in smartphones, and leading panel production. LG is also strong in a wide range of areas.

Predicting the future of Samsung, LG and other Korean electronics firms, may be hard considering the cyclic trap and their sensitivity to global economic situations but they are on a growth path.

In business-to-business (B2B) sectors, the world’s No. 2 computer chipmaker Hynix Semiconductor, and LG Display were also boasting of ``bargaining power’’ with their clients, and technological advancements amid their rivals chronic struggles in the cyclical and volatile sectors.

``In the consumer electronics business, where players are involved in head-to-head fights for market share, Samsung and LG’s tactics have so far paid off as they used `fast-follower strategies’ especially in products,’’ said Jeong Ho-sung, a researcher at Samsung Economic Research Institute (SERI), the nation’s leading private think-tank.

``But that’s more about their steady investment for better supply-chain management (SCM) structures,’’ he added.

For products and brand-building, these firms are forced to extend their reach geographically, which makes SCM more complex.

In order to match increasing demand, their focus on production volume also increases. Inadequate logistics and improper SCM could create huge problems.

``Wal-Mart’s recent incentives to makes its SCM green represents a good example of how one firm’s sustainability initiatives could affect thousands of other businesses,’’ Jeong said.

Samsung, which sells a wide range of consumer electronics goods, believes its advanced SCM structure will make it even stronger in effectively handling inventory and costs.

``Samsung's has been ranked No. 7 in SCM for four straight quarters. Its supply chain team persists in applying the best practices to build market share and profits in notoriously competitive markets such as mobile devices, flat-panel televisions and memory chips,’’ said market research firm AMR Research in a recent analysis.

The consultancy added Samsung’s plans to invest some $23 billion in production expansion and R&D also shows its confidence in its ability to get products to market quickly and cost-effectively in ``super-short life cycle industries.’’

``We are seeing that that vertical integration, which many observers think is passe in high-tech industries, may be a smart strategy after all,’’ said AMR Research.

A Samsung spokeswoman Chae Su-yeon said the outfit has increased its budget for enhanced SCM, though she declined to unveil the amount spent.

Samsung is not alone in allocating more for SCM. Local rival LG Electronics is set to raise the efficacy of its business management with an upgraded SCM structure.

LG is preparing a comeback into markets after heavy operating losses last year. It is rolling out more competitive products, such as 3D TVs with film-type patterned retarder (FPR) technology.

It also aims expand its shares in tablet computers and smartphones as the world’s third-biggest handset maker is ready to introduce products from the latter half of the year.

``Selling products doesn’t mean everything. To better respond to demand from consumers, LG has completed building up its internal management system,’’ said LG spokesman Yoon Won-il.

According to LG, the ``Global Demand Management Innovation” (GDMI) is the result of spending some 10 billion won, led by LG’s logistics affiliate LG CNS.

LG's supply chain system was poor. A former foreign LG executive inherited over 10 warehouse management systems, five transportation operations and four PC systems to monitor the movement of parts and products for end-users.

Yoon said the latest GDMI structure is enabled for better predictions in demand according to region, of customers such as BestBuy, Circuit City and Sears, and product models, helping it to lower inventories and respond to consumer demand.

In B2B segments, Korean technology leaders are gaining bigger market shares on the back of integrated SCM systems.

Hynix and LG Display, whose businesses are highly volatile and cyclical, as their cash-revenue sources are commoditizing chips and LCDs, told The Korea Times that the development of their SCM systems is one reason they are ahead of their rivals.

``Hynix has realized an integration of SCM that combines chip-design, sales, management and technology to actively respond to changing market calls,’’ said Son Kyung-bae, a Hynix spokesman.

Hynix, along with market leader Samsung have the capability to handle 40-nanometer chip-making in the global DRAM industry.

Chip companies are hoping for a rapid migration in production as thinner chips see customers pay more and helps the firms secure their bottom line.

The quake in Japan is expected to provide good momentum for parts such as chips and LCDs because Samsung, LG Display and Hynix will be better positioned to supply more to big firms such as Apple, Dell and Hewlett-Packard (HP) as the big buyers are interested in quality and cost-cutting components.

SERI expects lasting potential for South Korean firms.

``In the long term, diversification of parts and materials supply channels, and re-examination of Korea’s global production network should be promoted to better cope with future crises,’’ it said in a recent report.

Leadership in products

Korean electronics-related representatives are also making inroads internationally.

Samsung, the leader in global flat-screen TVs, is pushing its highly-advanced televisions that could provide consumers with Internet-accessibility and 3D-experience.

Despite the lack of content and higher prices, Samsung is hoping to find another breakthrough in televisions with its new models.

``3D and Internet-enabled TVs are the market that Samsung wants to lead amid flattening demand, however, more time will be needed for it to yield visible returns from the sector, though it is potentially lucrative,’’ said Lee Ka-keun, an analyst at HanaDaetoo Securities.

Samsung has cut the price of its battery-powered 3D glasses with an aim for faster proliferation of the new TV area and its rival LG Electronics has been launching big promotional campaigns for its in-house developed Cinema 3D TVs.

In smartphones, Samsung hopes its upgraded Galaxy S will outperform its rivals. Sources say Samsung has sold some 14 million smartphones during the first quarter of this year.

Samsung is now involved in legal disputes with iPhone maker Apple, having been sued over allegations the Korean firm copied Apple's technology, user-interface and innovative style for Samsung’s Galaxy-branded gadgets.

``One good thing is Apple’s apparently upset, partly due to Samsung’s rises in smartphones and tablets. That’s quite good at least for Samsung as the suit comes as it is ready to launch a new smartphone next month. Apple’s legal attack is considered as a way to steal some of Samsung’s thunder,’’ said James Song, an analyst at Daewoo Securities.

``It’s quite threatening to see how quickly Samsung plays catch-up, and Apple may have felt a strong pinch to put a brake on its march ahead of its new iPhone,’’ added Song.

LG Electronics expects the first quarter will be its worst in terms of profit. LG expects to see a turnaround helped by improved margins in its television business.

`` LG is gradually returning to normal. From the second quarter, LG’s profit will rise as it is preparing to launch new smartphones and tablets,’’ said Song at Daewoo.

An LG spokesman Oh Sea-chun confirmed that it will see a ``small amount of profit’’ in the latest quarter. But Oh declined to unveil exact numbers.

LG’s share in the global smartphone market is expected to rise around 5 percent this year, which is a significant jump from the below 2 percent that it had last year, according to market research firms.

Hynix and LG Display are also said to be boosting their production of advanced computer memory chips and value-added flat-screens at the requests of foreign companies.

Although analysts agree that the impact on the global electronics supply chain could be devastating if the quake in Japan persists, the leading parts makers are receiving more product orders in the short-term as their bigger Japanese rivals are now facing disruptions.