Samsung exec: Six months' lead is key

Instead of outsourcing its manufacturing work, the Korean giant clings to existing factories and invests large amounts in new ones. Rather than rely on technology partners to provide components, it wants to own the supply chain.

And when other companies have given up on the cyclical semiconductor and memory business, Samsung keeps investing--and keeps making money. It refuses to get into services or software or to become a content provider.

Keeping things on track in this region is Kwang-Soo Kim, chief executive officer and president of Samsung Asia, which oversees Samsung's electronics business in Southeast Asia, India and Australia.

Singapore-based Kim has been with Samsung for 26 years, having served as president of the memory division's sales and marketing team and also as president of Samsung India Electronics. In addition, he has held CEO appointments in Samsung's electronics units in India, Germany and Hungary and was the president of the company's central European operations. He holds a master's degree in business administration as well as a bachelor of science degree in electronic engineering from the Seoul National University.

Today, he is responsible for the operations of Samsung Electronics' consumer electronics, information technology (IT) and telecommunications business in eight markets across Asia.

He spoke to CNETAsia while working on the company's largest social-benefit programs ever outside Korea--called Samsung DigitAll Hope--which will donate $600,000 to organizations supporting the use of technology to improve the lives of young people and help bridge the digital divide. Samsung is launching the program in Australia, Singapore, India, Thailand, Indonesia, Malaysia, Vietnam and the Philippines.

"When we looked at what was being done in our region, on a social level by large corporations, we realized that much more was needed," said Kim.

CNETAsia: What's the outlook for displays in Asia-Pacific?
A: The consumer adoption rate for PDP (plasma display panels) and TFT-LCD (liquid crystal display) TVs is slower here compared with other regions, but in Singapore and Australia, which are more highly developed, there are more early technology adopters.

Currently it's a small market here, and almost every brand is in neck-and-neck competition. In the first tier, almost everyone is on the same level for PDP market share, across all the sizes.

But Samsung is the first company to introduce a 63-inch PDP--the largest one in the market last year--and the largest LCD TV, a 54-inch (model).

Samsung has just invested in a seventh-generation LCD panel plant, which can enable us to have a strong competitive edge in any kind of screen. From each 1870-by-2200-millimeter (glass substrate), we can produce twelve 32-inch panels or even eight 40-inch LCD panels in a very economical way.

LCD TV demand is increasing very rapidly. Last year, it was 1.5 million sets in global demand. But this year, (it) will be 2.5 million in our expectations, and we forecast it will jump to six million by 2006. Also, the demand is growing for bigger screens. Before, in Japan, 70 percent of LCD TVs sold were 15 inches. But now we have 21-, 24-, 34- and 40-inch LCD TVs.

But what's to stop your competitors from making the same investments in scale?
We are No. 1 in the semiconductors and DRAM (memory) businesses. We have kept the No. 1 position in semiconductors since 1992. The LCD production process is quite similar.

The other companies follow us, but they can't catch up with us, because we keep six months to one year ahead. To keep ahead, the cost of production has to be pushed down through economies of scale, to maintain the 10 to 20 percent cost advantage ahead of our competitors.

For example, Samsung adopted the fifth-generation LCD panel size, while LG Philips invested in some other format. And we had invested a little bit earlier than they did. (Editors' note: According to market analysts DisplaySearch, Samsung held the largest share of the 2002 global LCD panel market at 17 percent. LG Philips LCD had second-largest share of the market at 16.6 percent).

Because of the investment, we were more competitive in 15-inch and 17-inch panels compared to them. Their format was not so competitive. They had the wrong bet. So that helped us maintain the No. 1 position in LCD panels. LG Philips is little bit behind us, just because of that decision in panel size.

For PDPs, it is led by the Japanese. Last year they had 60 percent share, and Korea, 40 percent. But Samsung and LG have invested in new plants, and the share will be reversed soon. Maybe the end of next year--it can be very close. Maybe in 2005, it can be reversed.

Samsung will lead in PDP products, because we have companies which are specialized in display products, like affiliate company Samsung SDI. They know the display business.

What new display technology is Samsung working on?
Samsung has focused on PDP, but we are investing in future technology like OLED (organic light-emitting display) and FED (field emission display). OLED is brighter and uses less power, because it needs no backlight. That's a future technology. Now, it's used in handphones or PDAs. Maybe next year, in CeBit Hannover, you will see those.

They are currently about 3 or 5 inches, but we are working on now 10-inch size. I think they can be extended to small monitors, 15 to 17 inches in size.

As LCD displays get larger, how does Samsung divide the market between LCDs and PDPs?
That's a good question! We really want know that and will save a lot on huge investments (laughs).

We have announced that we invested over $16 billion over the next 10 years into LCD panels. Personal computers are changing to LCD monitors. Also, bigger-screen LCD TVs are also getting more popular. The growth will be huge. That's why we are investing such big money. But we can't skip PDPs, so we also made a big investment. We announced in March that we will invest over $300 million in a second line of PDP production.

It's generally said that below 40 inches, LCDs will be more economical, and over 40, PDP will be more economical. But in both, the technology is improving and the cost of it is dropping. So there is competition.

Technologywise, PDP has a lot to improve, and it has been constantly improving, in brightness, power consumption and the heat problem. It's improved a lot. The PDP is very nice, but LCD is also very nice. The larger screen size of LCD is very expensive now, but in two to three years, it will become more affordable.

Samsung has been active in connected, smart homes. How serious is Samsung about this?
Last year, our company changed the names of our divisions. "Semiconductors and LCD" was changed to "Digital Solution Network" division. "Communications Products" was changed to "Telecommunications Network" division. The consumer electronics and computers division we renamed the "Digital Media Network" division. And the last one, focusing on home appliances and white goods, we renamed the "Digital Appliance Network" division.

So we believe the network is the future, and a keyword in our business. Our industry is headed that way. The consumer lifestyle will be geared towards networking, on the home or mobile network.

In Korea, there is a new 65- or 70-story apartment block, with about 2,500 big apartments there. In that complex we installed our digital-life, home-network system, with a home gateway connecting to all major appliances, and also the security system.

Those products we have initiated, and would like to introduce in countries like Singapore. Singapore and Korea are quite similar in technology adoption, Internet use and general lifestyle.

How did Samsung come to be involved in such a large project in Korea?
We own the land, and our Samsung construction company built the apartment block. And a lot of Samsung executives live there. If there is an inconvenience, they will push the developers to fix it (laughs).

What things can residents do in a building like that?
For example, there is remote control through the Internet or mobile phone. You can tell the air conditioner to operate one hour before you arrive home, or operate the rice cooker.

So now we are working with IDA (Singapore's Infocomms Development Authority) on a similar project, working within a consortium. We have nice partners to work with. It's the key to success. We provide the hardware, and the software has to be developed with our partners.

(Editors' note: Other players in the World@Home consortium include IT services company National Computer Systems and property developers The Ascott Group).

What obstacles do you see getting in the way of adoption? Some would say there is a lack of standards, causing interoperability problems.
I don't see any big obstacles. In the hardware world, it doesn't only have to be Samsung products in the connected home. But it's in the early stages now. In an area like Singapore or Hong Kong or Korea, where people will adopt technology earlier than others, I think the acceptance will be very high.

CNETAsia's John Lui reported from Singapore.