Why is Samsung in a dilemma over Russia and Ukraine?


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Although multinational companies have come out of the Russian market to deal with the Ukrainian problem, Samsung Electronics has not yet taken an expressed position on the matter

While multinational companies are stepping out of the Russian market in response to the Ukraine issue, Samsung Electronics has yet to take a clear stance on the matter, possibly because it fears giving up some of its smartphone and TV market share to rivals from China.

Asked last month whether to pull out of the Russian market, CEO Han Jong-hee said only that the company “will monitor the situation and react, while minimizing the impact on our business.

But the South Korean electronics maker has been less proactive than other companies in alienating Russia, pointing to external factors in its decision and not explicitly stating its position on the war itself.

This vague stance underscores the challenges it faces as a multinational giant.

Samsung’s annual sales in Russia are now about 4 trillion won ($3.3 billion). Although this market accounts for only about 3 percent of its smartphone and appliance sales, the company operates a TV production plant outside Moscow.

Samsung entered the Russian market early after the collapse of the Soviet Union, seeing the promise of its rich natural resources. It invested heavily in marketing cell phones, TVs, and appliances, and a TV factory that opened in 2007 helped it build further market share. Samsung is hardly in a position to recoup its investment in Russia and leave the Russian market.

Competition from Chinese rivals may also be a factor for Samsung not to leave the Russian market.

According to the latest data from market research firm IDC, Samsung leads the Russian smartphone market with a 34 percent share, followed by Xiaomi with 26 percent and Apple with 15 percent. Apple has stopped selling its products in Russia, and if Samsung follows suit, it could risk ceding the market to Xiaomi.

In the TV segment, competitors such as TCL and Hisense are hoping to undercut Samsung’s market share with cost-effective products. Samsung fears that this will free up space for Chinese players once it exits the market.

Meanwhile, Samsung faces increasing scrutiny from the U.S. government and overseas investors. The company plans to build a semiconductor plant in Texas, but the government may not have incentives for the plant, and continuing to operate a factory in Russia could affect and brand image in the U.S. Other South Korean companies are facing a dilemma in Russia.

LG Electronics operates an appliance factory near Moscow and competes with Samsung for the largest market share in the Russian market in refrigerators, washing machines, and TVs. Although LG Electronics has suspended its operations in the country, citing supply chain disruptions, the Russian market accounts for 3 percent of LG Electronics’ total sales.

Hyundai Motor Group sold 380,000 vehicles in Russia last year, accounting for 6 percent of its total sales. Hyundai has an assembly plant in St. Petersburg and, along with subsidiary Kia, competes with local automaker AvtoVAZ as Russia’s top automaker. Its production and sales in the country have now been suspended.

So far, no major Korean company has announced plans to exit Russia. Most say they are waiting for the storm to pass.
South Korean companies are also taking a different tack in Myanmar than their Western counterparts after the military takeover in February 2021. POSCO International is pushing for additional investments in gas projects in Myanmar, despite the growing number of European and U.S. companies pulling out of the country, in part to recoup their decades-long investments there.

Russia is South Korea’s 10th largest trading partner, with total trade of $27.3 billion in 2021. South Korea mainly exports cars, auto parts, and steel to Russia and imports liquefied natural gas. Given their close economic ties, the South Korean government has chosen not to urge companies to take a clear position in Russia.

Apart from the Russian market, what other impact do Chinese companies have on Samsung?

Samsung said Thursday it expects revenue for the last quarter to reach a record 77 trillion won, equivalent to $63 billion, up 18 percent from a year ago. Operating profit is also expected to rise 50 percent from a year earlier. Both figures are higher than analysts’ general expectations, according to Standard & Poor’s Global Market Intelligence data. Samsung will report its full results later this month.

Production of NAND flash memory used for storage at two factories of Samsung rivals Western Digital and Japan’s Armor Man was disrupted in February due to raw material contamination. As a result of the incident, NAND prices are likely to continue to rise. But overall, inflation and the Russian-Ukrainian issue could hurt sales of consumer electronics. This will weaken the demand for memory chips this year. DRAM memory prices are likely to weaken.

Global memory chip makers are likely to be more comfortable in controlling supply growth than in previous downturns. In theory, this could mean chip prices will eventually fall. However, China is likely to have a larger impact on the market landscape for NAND wrapped up.

China’s Changjiang Storage Technology Co. is increasing its production of 128-layer NAND chips. It lags behind major memory makers like Samsung which are already mass-producing 176-layer NAND chips, but the gap is closing fast. More layers mean more chips stacked on top of each other to provide higher storage density. Apple is considering CK Storage Technology as a new supplier for its iPhone NAND memory chips, Bloomberg reported last week.

Leading manufacturers such as Samsung may also have a cost advantage given the time it takes to ramp up yields. Memory chip manufacturing is a game of scale: the bigger the scale, the more the expense, but that helps keep costs down. According to Counterpoint Research, CK Storage’s market share at the end of last year was less than 1 percent, but the company has been increasing its production capacity.

But in the long run, CK Storage will still have an impact on the global market. The top five NAND makers currently own more than 90 percent of the NAND market, and adding another supplier would give consumers greater bargaining power, which would lower the price of NAND chips. Chinese device makers will also be happy to use CK Storage’s chips if they are technically competent.

For years, the industry has expected the supply of memory chips from China to change the market. If that does happen, the pain for major chipmakers such as Samsung and Western Digital could be significant.

DiskMFR Field Sales Manager - Leo

It’s Leo Zhi. He was born on August 1987. Major in Electronic Engineering & Business English, He is an Enthusiastic professional, a responsible person, and computer hardware & software literate. Proficient in NAND flash products for more than 10 years, critical thinking skills, outstanding leadership, excellent Teamwork, and interpersonal skills.  Understanding customer technical queries and issues, providing initial analysis and solutions. If you have any queries, Please feel free to let me know, Thanks

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