[The Editors' Verdict] Does Samsung Electronics Have a Customer Mindset?

The striking point in the apology letter recently released by Samsung Electronics Vice Chairman Jeon Young-hyun along with the preliminary results for the third quarter was the word ‘customer.’ In his statement, Vice Chairman Jeon declared his determination to start anew, including employees, investors, and customers as the targets of this commitment.

The reason for paying close attention to the word ‘customer’ was largely influenced by a crisis diagnosis from a domestic university professor specializing in semiconductors, whom I met in private before the earnings announcement. This professor judged that Samsung Electronics had already entered a crisis and cited two main causes: ‘customer neglect’ and ‘closedness.’ He evaluated that Samsung’s unique closed culture, such as ‘building its own ecosystem,’ and its failure to meet customer demands were the essence of Samsung’s crisis.

His evaluation stemmed from experiences gained while serving as a member of Samsung Electronics’ Technical Advisory Group last year. He currently plays a role in listening to difficult technical process issues faced by the company and seeking solutions together as part of the advisory group. During this process, he felt that the understanding of customers was lower than expected. When he proposed solutions from the customer’s perspective, Samsung Electronics participants responded with a dismissive attitude, saying, “Customers might think that way.” The professor shook his head, calling it “the most disappointing answer about Samsung Electronics.” In his view, this symbolized Samsung’s overconfidence in its own technology rather than a customer perspective.

Samsung Electronics’ self-assessed semiconductor technology seems small compared to customer issues. Rather, Samsung attracted attention by successfully mass-producing the world’s first 3nm (1nm = one billionth of a meter) foundry using GAA (Gate-All-Around) technology in 2022. GAA is cutting-edge technology that surpasses the limits of process miniaturization.

However, Samsung lags behind its competitor, Taiwan’s TSMC, in attracting 3nm customers. In the fourth quarter of last year, TSMC’s 3nm revenue share more than doubled from the previous quarter to 15%. Meanwhile, Samsung Electronics’ 3nm process revenue share during the same period was below 10% of total processes. The decisive reason was the failure to secure major customers like Apple, largely due to a lack of understanding of customers.

Careful examination of Vice Chairman Jeon’s apology letter shows that while ‘customers’ are mentioned, there is no concrete content about what will be done for them. For investors, it states, “We will actively communicate whenever there is an opportunity.” The part about “rebuilding a culture of trust and communication” seems aimed at employees. The mention that “technology and quality are Samsung Electronics’ pride that can never be compromised” is also difficult to interpret from a customer perspective.

The semiconductor market landscape is shifting from a supplier-centered to a demand-centered structure. Makers who listen closely to their customers’ voices and excel at so-called ‘customizing’ have become more advantageous for survival. Market research firm TrendForce evaluated the foundry market share in the second quarter of this year as TSMC 62.3% and Samsung Electronics 11.5%. The analysis that flexibility in producing products desired by customers created this gap is gaining credibility.

No matter how advanced the technology is, if customers turn away, that technology inevitably loses its vitality as a product. Lisa Su, CEO of AMD, recently stated at the unveiling of the next-generation artificial intelligence (AI) chip, “We have no plans to use any chip manufacturer other than TSMC for producing the latest chips.” It is important to keep in mind that the moment customers turned their backs marked the beginning of Samsung Electronics’ crisis.