As Demand for Flash Memory Soars, Suppliers No Longer Giving Priority to Affiliates

Apple Computer has recently unveiled a new kind of MP3 player, the “iPod Nano.” It is expected that the iPod Nano will catch on, thanks to its bigger music storage space than other players, reduced size, and cheaper price than existing MP3 players.

The iPod Nano owes its new edge to the Samsung Electronics Corporation (SEC), which provided it with flash memory, a core part of the player, at a low cost on a large scale. The SEC has also secured a reliable supply of parts for Apple.

On the other hand, the business department of Digital Media (DM) that manufactures MP3 players at SEC was put on emergency alert. It is because it forecasted that its rival, Apple Computer, will extend its share of the market.

The burden on DM is all the more immense as it declared its intention to become the world’s number one MP3 player in 2007. The DM business department at SEC has recently requested the SEC to supply it with as much flash memory as it is supplying Apple with, only to hear SEC say, “We will if you buy as much as Apple does.”

This disturbing situation is also applicable to other local small and mid-sized MP3 player manufacturers that have produced MP3 players with SEC’s flash memory. It is because it’s impossible for them to be provided with large amounts of flash memory at a low cost.

A Small-sized enterprise that had manufactured portable storage devices have recently been informed by SEC that they will no longer be supplied with parts from SEC. Regarding the reason for the cancellations, SEC noted that it is even short of materials for Apple.

No More Taking Sides with Affiliates-

LG Telecom buys mobile phones from Casio of Japan because a major mobile phone manufacturer, LG Electronics Corporation, no longer produces new kinds of mobile phones exclusively for LG Telecom.

LG Electronics concluded that its profitability would decrease, even if it gives preferential treatment to LG Telecom by making mobile phones exclusively for LG Telecom’s low mobile telecommunication market share. For that reason, LG Electronics is currently supplying SK Telecom, a holder of more than 50 percent of the market, with its products.

The Information and Communication Division of the SEC uses flash memory, called a Multi Chip Package (MCP), from Hynix Semiconductor, not from the semiconductor division of the SEC.

About 15 percent of all flash memory that goes into LG Electronics mobile phones comes from SEC.

LG Chemical has recently started providing the liquid crystal display (LCD) Division of SEC with the core part of LCDs, the polarizer. So far, the SEC had used polarizer from Japan’s Nitto Corporation.

For a long time, LG Electronics and SEC didn’t exclusively use LCDs or plasma display panels (PDP) that are used for laptop PCs, monitors, and televisions, from their affiliates.

A SEC official said, “Even if some divisions belong to the same company, at a time when each division independently runs, unlimited competition based on profitability as a top priority is inevitable.”

Sang-Rok Lee myzodan@donga.com sanhkim@donga.com