Technology AG and Hynix Semiconductor, Inc. (page 5) served to further amplify this effect. Considering the industry was relatively large and the leading actors were based in different locations, however, these companies did not have to face direct competition for profits. Moreover, as outlined in Exhibit 1, Samsung generated exponentially larger net revenues than its rivals in a consistent basis. It is also interesting to note that Samsung promoted inter-firm rivalry (page 7). By establishing two different teams and tasking them with the same assignment, for instance, Samsung became the forefront company in terms of innovation in the industry. Consequently, rivalry with other firms was not excessively burdensome. In terms of buyer power,
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(SMIC), headquartered in Shanghai. Founded in 2000, SMIC is China’s largest foundry, manufacturing logic and memory chips such as DRAM based on pre-existing blueprints. To acquire said designs, the company established a partnership with Infineon, Elpida, and Microsoft. As stated previously, the subsidies of the Chinese government took a great part in the formation of the firm. For instance, it is likely that these companies decided to engage in a partnership to save on production costs with cheaper labor, obtain funds with relatively cheaper credit, save capital through tax incentives, and take advantage of abundant land that would house critical infrastructure (page 5). With the knowledge acquired from the experienced companies and the aid of the Chinese government, SMIC gained a supply-side advantage: they can utilize proprietary technology and processes, as well as excessive financing, to supply chips at a cheaper cost. Furthermore, considering the company is relatively new and seeks to gain market share, it is highly likely they will endure losses initially as a means of nurturing their market …show more content…
Primarily, while Samsung does not have the financial backing akin to that of SMIC’s, the firm was able to successfully achieve economies of scale. As shown in the Exhibit 3, the company has an average operating margin of 44% relative to Micron or Infineon, with -13% and 6% respectively. In other words, Samsung benefits, or generate profits, from the fixed costs of production. Due to the company’s immense market share, Samsung can spread fixed costs and the costs of research and development over several customers. This is exemplified in Exhibit 7c, which shows the cost of producing a 128Mbit DRAM for Samsung was $3.89 while the industry average was significantly higher at $5.40. Moreover, as an established incumbent, Samsung has a significant advantage in terms of DRAM production, including greater
(SMIC), headquartered in Shanghai. Founded in 2000, SMIC is China’s largest foundry, manufacturing logic and memory chips such as DRAM based on pre-existing blueprints. To acquire said designs, the company established a partnership with Infineon, Elpida, and Microsoft. As stated previously, the subsidies of the Chinese government took a great part in the formation of the firm. For instance, it is likely that these companies decided to engage in a partnership to save on production costs with cheaper labor, obtain funds with relatively cheaper credit, save capital through tax incentives, and take advantage of abundant land that would house critical infrastructure (page 5). With the knowledge acquired from the experienced companies and the aid of the Chinese government, SMIC gained a supply-side advantage: they can utilize proprietary technology and processes, as well as excessive financing, to supply chips at a cheaper cost. Furthermore, considering the company is relatively new and seeks to gain market share, it is highly likely they will endure losses initially as a means of nurturing their market …show more content…
Primarily, while Samsung does not have the financial backing akin to that of SMIC’s, the firm was able to successfully achieve economies of scale. As shown in the Exhibit 3, the company has an average operating margin of 44% relative to Micron or Infineon, with -13% and 6% respectively. In other words, Samsung benefits, or generate profits, from the fixed costs of production. Due to the company’s immense market share, Samsung can spread fixed costs and the costs of research and development over several customers. This is exemplified in Exhibit 7c, which shows the cost of producing a 128Mbit DRAM for Samsung was $3.89 while the industry average was significantly higher at $5.40. Moreover, as an established incumbent, Samsung has a significant advantage in terms of DRAM production, including greater