There continues to be rather interesting movements occurring within the high tech and consumer electronics industry segments, movements that are strategically related to supply chain structure and composition. During these past months Supply Chain Matters has commented on the contrasting strategic supply chain activity occurring among certain high tech consumer electronics companies. In a recent posting in March, Will Sony’s supply chain rise to yet another challenge?, I noted that Sony Corporation had cut $3.6 billion USD in costs primarily from supply chain cost reductions, including closing 20% of its owned manufacturing plants, and now transitioning to an outsourced contract manufacturing strategy. At the same time, the television business is rebounding and Sony has established a goal to ramp-up production by 70% in the upcoming fiscal year, while attempting to complete this same transition. Panasonic Corporation, also based in Japan, is also increasing its dependence on external contract manufacturing while planning for increased demand. Rival Vizio, on the other hand, after seven years in the business and practicing a fully outsourced supply and contract manufacturing strategy, has become the second largest U.S. TV brand and is closing in on number one brand Samsung. In our recent Supply Chain Matters commentary on Vizio, we noted how the company is now offering two of its contract manufacturers equity stakes in the company as a means to ensure aligned goal fulfillment.
Overshadowing all of this activity is industry giant Samsung Electronics Co. which of late has made a dramatic presence in global television sales. The key difference, however, is that Samsung is both an OEM and a key component supplier. We previously noted that Samsung expects to dominate the market for the key component of plasma and liquid-crystal (LCD) displays. Beyond being a critical supplier to the digital television market, Samsung is also a dominant supplier in flash memory devices and a strategic supplier to Apple. Samsung has astutely placed itself in the strategic supply chain of many of today’s most popular electronic gadgets.
Within this industry backdrop, Samsung made a dramatic and bold announcement this week, According to a recent Wall Street Journal article, (paid subscription may be required) the company plans to double spending on factories and equipment to a record $15.6 billion USD this year. As noted in the article, most see Samsung positioning to gain a bigger lead in memory chips and flat-screen television components. Samsung will build its first new LCD component factory since 2008, as well as other investments in memory chip and other electronic component production.
The article quotes one Asia-based market analyst as noting that the announcement may be a bit of showmanship on the part of Samsung. I tend to believe otherwise. It is rather an extension of a vertical manufacturing sourcing strategy that could place Samsung in an even more powerful position as both an OEM and a component supplier. I believe that Samsung understands supply chain strategy, coupled with long-term market trends. Its presence as both an OEM and a key supplier of consumer electronics markets is noteworthy, and as the major Japanese based players continue to transition to a more outsourced supply chain, could place Samsung at an ever more strategic presence. To add more evidence, a corresponding Samsung related article appearing in The Financial Times (free preview sign-up required) noted that Samsung’s chairman, Lee Kun-hee, would meet with Sony’s CEO Sir Howard Stringer. While both companies will not elaborate on the subject matters of such a meeting, we can all comfortably speculate that strategic supply may be one agenda item.
Industry inflection points can often result in the recovery phases of major economic downturns. The consumer electronics sector has and will continue to be under the looking glass as t undergoes such inflection changes, and in my view, supply chain strategy and movements will be the key determinant to the end result.
We invite industry participants and other supply chain professionals to share their observations in the Comments section below this posting