If I were the head huncho of Hyundai or Samsung and I am pressed to re-structure my business towards profitability and I have very high interest to pay for my debt, what should I do? First, be more efficient. Maybe, layoff is the the work. Maybe, get rid of some non-strategic, non-profitable business. Should I get rid of ship building, construction, computer, flat panel display, DRAM or HDD? They have been making a lot of money on DRAM in the past. They have the biggest market share there. It is considered their strategic business even though it is a cut throat business now. I don't think that they will ax the computer, flat panel display, construction, etc because they are all their key business.
HDD market share has been small for them. It is a commodity. It is low margin. It requires a lot of design know-how. It will plague you occasionally with yield issue. It has not been a profitable business for them, granted that Maxtor has been gaining market share with some good products. The over-capacity issue may drag Maxtor down and delay their time toward profitability. This HDD business is on the bad list from credit stand point.
It does not seem to make sense at least for Samsung to continue to own HDD busines. Look at all Taiwanese PC companies. Who has HDD business? ACER? no. No one there has it. I think that Taiwanese is more practical and they don't have money to burn becuase their business is funded mostly by private capital. Being profitable is very improtant. They don't borrow money to death like Korean comapnies. Koreans have been too ambitious. They want to be like Japan in less time.
For DRAM business, the supply/demand ballance is very tricky according to my sources. An over supply of 2% will cause severe price erosion because box makers will not order until they are ready to build. An un-der supply of 2% will shoot the price to the roof. The over supply situation there is only less than 5% according to someone.
It is too early to say that Hyundai will dump Maxtor. But, it will be to Samsung's benefit to dump its HDD business.
John |
