The Master of Gadgets
Samsung Electronics CEO Jong-Yong Yun wants to dominate the digital world--inside and out.
By Erick Schonfeld

(Business 2.0) – Less than a decade ago, his company was just another anonymous Asian supplier of commodity parts. Since then, Jong-Yong Yun, the CEO of Samsung Electronics, has seen it become the world's biggest consumer electronics maker, exceeding Sony in both revenues and, more surprisingly, the value of its brand. That stunning transformation came about because Yun realized that as everything from televisions to cell phones to appliances went from analog to digital, his company had a once-in-a-lifetime shot at unseating the dominant players.

Samsung's digital prowess was evident on a recent road show that brought Yun to New York City. On display were the world's biggest plasma TV (102 inches), largest LCD TV (82 inches), and most powerful camera phone (7 megapixels), among dozens of other toys ranging from home entertainment systems to slick photo printers that can download pictures wirelessly from digital cameras via Bluetooth.

But the secret to Samsung's success isn't on the surface. Flashy gadgets ended up on last year's income statement as loss leaders helping to build the brand, while the bulk of Samsung's $10 billion in profits came from churning out some of the world's most advanced digital components, from flash memory chips to LCD screens. Samsung is planning to spend $33 billion and hire 14,000 workers during the next seven years to further its lead in electronic parts. Yun's willingness to make deals with ostensible competitors may prove the key to keeping those factories humming. Samsung's flash memory chips can be found in Apple's new iPod Nano, and the company jointly manufactures LCDs with none other than archrival Sony, which also recently struck a deal with Samsung enabling the two companies to gain access to each other's broad portfolio of patents.

Despite its huge size, Samsung has yet to achieve an iconic hit. But Yun says that misses the point. In the digital age, you can adapt products endlessly, he says. With a translator, he sat down with Business 2.0 in a suite at the Mandarin Oriental to explain just how Samsung is going to stay nimble as it gets even bigger.

• What's the recipe for success in the digital era? The analog age was about accumulating knowledge and technology and applying some diligence. In the digital era, creativity and speed have become the most important factors.

The complete transformation of the electronics industry into the digital era probably started around 2000. It began, of course, in the early 1960s with the development of mainframe computers, and it became more widespread with the development of the PC. As we entered into a more universal digital era, it led to a shift within the electronics industry. This is where Samsung, which was not very strong in the analog era, gained great strength.

• Most of your profits come from semiconductors and cell phones. Are digital electronics just a loss leader for your components business? Semiconductors are very profitable. But when we look at consumer electronics, we are targeting the general consumer. And although it is not a very profitable business, it is very important for Samsung's name to be known to the general consumer through televisions and DVD players and cell phones.

• How does boosting your brand help you sell more chips? Having stronger brand equity does have an influence on selling core components. If you take the example of Intel, the people there invest a lot of money in putting the "Intel Inside" logo on computers. They really don't have to make their brand visible, but nevertheless they make an effort to put this label on the computer. This is what we are talking about.

• You supply Apple with memory chips for its new iPod Nano, even though you sell your own MP3 players. How do you manage the inherent tensions there? That type of relationship is inevitable now and will be even more so in the future. In the past there was no need to collaborate with competitors. You were able to fight on your own. But I think now and in the future that will be impossible because the changes are coming so fast. No one can cope with this alone.

And you can't expect a partner to help only you, either. The relationship has become multifaceted, and we can't help but cooperate to survive in this era. I think this applies to our personal, individual relationships as well. Even famous people, they cannot exist alone. They have to cooperate in order to survive.

For another example, Samsung supplies most of the flash memory used at Nokia. We supply not only Sony's LCDs but also components that go into the Sony PlayStation. Ultimately, Sony and Samsung will compete based on their brands and products. I don't think we can have a relationship where we try to stop ourselves from supplying a certain component to some company just because it is a competitor.

• Apple has the brand, while Intel has a thriving semiconductor business. Which would you rather have? Both, but ultimately, I think being Intel is better than being Apple, because if you have that sort of technological competence, you can always get brand equity.

• The iPod succeeded in part because it was simple and did one thing very well. Do you feel Samsung needs to create that sort of iconic, blockbuster device? I believe in multiple devices and multiple functions. When you have devices that can do everything, and they're easy to use and very beautiful, that's the best choice for customers. I don't mean producing an infinite amount of products, but allowing customers to choose whatever size, function, or feature they like.

• The life cycle for products has gotten a lot shorter in the digital age. How has Samsung structured itself for speed? The faster development of technology means that product development and the supply chain have to be faster in order to respond. We also carried out a program called "value innovation." It's a cooperation between product development, product planning, and marketing from the very beginning, which adds speed overall.

There are many measures we can use to identify how fast we have become, but compared with seven years ago, we have reduced inventory by half and have sped up all our internal processes.

• How else has Samsung changed since 2000? There have been many changes. We wanted to focus more on technology, and we simplified our business processes. Decision-making in our supply chain, for example, got a lot faster. That has added agility to our organization. And our organization has become much more open.

• You recently said, "We stand at the crossroads to becoming a world leader or a major failure." What could sink you? We can never be complacent, even if we are doing a good job at the moment. We feel that we always have to have a sense of crisis. If we don't prepare for the future, if we are complacent, I think that will be the biggest factor in why we lose.