"I Want to Fail Like Samsung Electronics" [Opinion]

Operating Profit of 9.18 Trillion Won in Q3
The Key Question: Can They Shift from Super Gap to Eul?

These days, Samsung Electronics is in crisis; in fact, people often say it seems like it might go bankrupt. There is even talk that if Samsung Electronics fails, the country will fail too. At such times, I say, "I wish you could experience going bankrupt like Samsung Electronics." The company's operating profit for the third quarter is 9.18 trillion won. In the first quarter of this year, 43.8% of listed companies on the Korean stock market had an interest coverage ratio below 1. Simply put, nearly half of Korea's major companies are not making a net profit. Those companies are truly in crisis. Employees of those companies would probably want to experience a crisis where they earn 9 trillion won in a quarter at least once.

It's not even a matter to worry about for the country. The biggest reason Samsung Electronics is underperforming is that it is not doing well in the currently hot High Bandwidth Memory (HBM) market. Market research firm Transford estimated that this year, SK Hynix holds the number one global market share in HBM at 52.5%. Hynix posted a record operating profit of 7.03 trillion won in the third quarter. Samsung Electronics' estimated share is 42.4%. It's not that Samsung Electronics failed; rather, perennial second-place Hynix did well. The real problem is that Korean companies' market share is excessively high at 94.9%. When combining the operating profits from memory semiconductors of Samsung Electronics and Hynix, it should be seen as if Korea Semiconductor Corporation posted record-high profits.

Looking at research and development (R&D) expenses, the idea that Samsung Electronics is facing a true crisis becomes even less convincing. Last year, Samsung Electronics poured a record 28.3397 trillion won into R&D. By the third quarter of this year, R&D expenses have already reached 25.74 trillion won, surpassing last year's total. If it were truly in crisis, there would be no money to spend on R&D.

The real issue is that the market is changing. Typically, component suppliers are the so-called "Eul" (subordinate party). They make whatever the manufacturing customers want and often give away everything, including their own profit margins. However, the memory semiconductor market, which Samsung Electronics has dominated for 30 years, was different. When producing standardized products, customers buy at standard prices. Samsung Electronics sold the highest quality products at prices basically the same as competitors. Because Samsung Electronics' products had fewer defects and better durability, electronic manufacturers preferred to buy Samsung Electronics products whenever possible. Unless a company was a wealthy large enterprise, it was difficult to even get on Samsung Electronics' customer list. The subordinate component supplier acted like the dominant "Gap" (superior party).

HBM is not such a standardized product. It is a specialized, niche product used by companies like Nintendo for game consoles or NVIDIA for graphics processing units (GPUs). Until a few years ago, HBM accounted for less than 1% of the total memory semiconductor market. From Samsung Electronics' perspective, there was no need to invest time and money to mass-produce it. But SK Hynix thought differently. It was worth challenging. That is why Hynix was able to get ahead of Samsung Electronics in the HBM field. It was a victory of selection and concentration. Now, HBM has become a cash cow product that earns more money than standard products.

The memory semiconductor market, which was centered on standard products, is shifting toward specialized products like HBM. Not only NVIDIA but other companies are also reaching out to memory semiconductor manufacturers, asking them to produce new semiconductors needed for new artificial intelligence (AI) chips. From Samsung Electronics' perspective, it is no longer easy to ignore this. If it stays still, a second HBM incident might occur. So, is Samsung Electronics really in crisis? Not necessarily. The essence of the products is the same.

There are industries where the core product has changed qualitatively, causing traditional leaders to struggle. The automotive industry is one such example. Traditional automakers are in crisis because the core of the car?the engine?is shifting from internal combustion engines to electric motors. Engine technology accumulated over 100 years is suddenly becoming obsolete. From the outside, it is still a car, but the core or essence has changed. However, HBM is somewhat different. Its core is the current mainstream product, DRAM. HBM is a product made by stacking multiple layers of DRAM and enabling them to communicate with each other. Simply put, the exterior and packaging have changed, but the core engine is the same product. As the DRAM leader, Samsung has no reason not to keep up. Of course, there is one concern.

Yoon Boo-keun, an advisor at Samsung Electronics, used to arrive at the office at 4 a.m. during his CEO days and run in the company gym. His direct subordinates ran alongside him. Former Vice Chairman Choi Ji-sung was famous for replying immediately to emails sent at any hour of the morning. Employees were most curious about when the vice chairman slept. At that time, when the word "crisis" was mentioned, Samsung Electronics researchers did not leave work. When presidents locked the doors during holidays to encourage rest, employees worriedly climbed over the walls to come in and work. But now, Samsung Electronics presidents say employees are not working. Employees say management is incompetent. If this situation continues, a real crisis might come.