The Samsung Electronics Co announced on Friday that it will spend US$500 million to upgrade its only overseas chip plant, in Austin, Texas. Within hours of that announcement, Samsung's stock price dropped 2.4 percent -- North Korean officials had announced that they had the capability to make nuclear bombs.
Such are the gritty challenges that confront Samsung, the largest company in South Korea, a pulsating, high-tech country that shares a peninsula with a militarized, impoverished nation where few people are allowed to have telephones.
In China, Samsung's largest Asian export market, consumer demand is withering as a respiratory virus scares people away from markets and department stores where cell phones, DVD players and flat-screen televisions are languishing on the shelves. Around Asia, prices of computer chips, a major Samsung product, are falling as new American and European tariff barriers against Hynix, a rival company supported by the Korean government, are expected to cause excess Korean-made chips to flood the region.
Samsung sales in South Korea dropped by 28 percent this past quarter over the same quarter last year. The decline seems to be a result of potential customers' soaring credit card debt over the last year. About 500,000 South Koreans in their 20s, or about one in 15, are facing bankruptcy.
Last week, Samsung announced a 41 percent drop in profits for the quarter ended March 31, to US$1.1 billion in operating profit. In response, Samsung increased its already aggressive investment budget to US$5.65 billion, nearly two-thirds higher than last year's.
Since 1996, Samsung has been run by Yun Jong Yong, a soft-spoken engineer who believes that a good dose of crisis and chaos will keep South Korea's No. 1 company agile and resourceful, fighting as if it were No. 3.
A mass producer of cheap electronics only a decade ago, Samsung is now the world's largest producer of memory chips and flat screens. Its market capitalization is now bigger than that of its Japanese rival Sony Corp. Last year, Samsung was the world's third most profitable electronics company, after General Electric Co and Microsoft.
"Some people think that Samsung is a Japanese company. We don't care about that," Chang Il-Hyung, Samsung's top spokesman, said, gliding over 1,000 years of Korean-Japanese rivalry. "Nationality is not that important to us. We are focusing on making Samsung a global market player."
Sony's sales volumes still dwarf those of Samsung, but Sony's profitability is far lower. During the first quarter of this year, Samsung Electronics earned US$942 million in net profit on US$8 billion in sales. By comparison, Sony earned a similar amount, US$963 million for the full fiscal year ended March 31, but that was on US$62.3 billion in sales. On Thursday, Sony announced a 1.5 percent profit on sales for the fiscal year, compared to 17.5 percent for Samsung last year.
In a reversal from a decade ago, when Japan dominated the world chip market, the nearly US$500 million in profits recorded during the first quarter of this year by Samsung's semiconductor division is about equal to the forecasted combined profits for Japan's five largest chipmakers -- Toshiba, NEC Corp, Hitachi, Mitsubishi Electric Corp and Fujitsu Ltd.
And Samsung has said it plans to invest about US$3.4 billion in new chip plants and equipment this year. By contrast, the investment plans of Japan's five largest chipmakers add up to about US$2 billion.
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