Samsung Moves Upmarket

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Throughout the current global slump, Yun has continued to invest in new processes and research. The company refined its semiconductor and liquid-crystal-display operations so effectively that traditional competition from Tokyo was upended. "Samsung is more cost effective, and its manufacturing technology is better than at companies like Sharp and Hitachi," says Shiro Mikoshiba, a Nomura Securities analyst in Tokyo. "The Japanese stopped competing two years ago."

The next stop in Samsung's digital march is the living room. To that end, the company has worked with Microsoft to develop Home Media Center, designed to control everything from your DVD player to the PC. Last June, Texas Instruments and Samsung signed an agreement to develop ultrathin, large-screen televisions based on TI's digital light-processing technology. In 1999 TI turned down a Samsung partnership offer, thinking it would be better to work with "established" brands. By last year it was clear that TI's initial partners were moving too slowly to get anything to market in good time. With Samsung, it took only a matter of months. The new 50-in. television made its debut in January at the Consumer Electronics Show in Las Vegas, and videophiles like Evan Powell of ProjectorCentral declared it an instant hit.

For all its technical prowess, Samsung faces big-league competition in its quest to dominate the digital home. Microsoft, AOL Time Warner, Apple and Sony are among the heavy hitters that are also betting that someday everything from our alarm clocks to our refrigerators will be linked to a constant stream of information and entertainment from the Internet. (AOL Time Warner has formed partnerships to develop digital hardware with both Samsung and Sony.) Samsung is gambling that it can move faster than its bigger rivals.

Key to Samsung Electronics' future is a listing on a U.S. stock exchange, but first the company will have to convince the sec that its accounting is up to American standards. For the most part, analysts view the firm as a world-class business. Among foreign investors--who own more than 50% of Samsung Electronics' shares--there is some concern that management is still subject to the whims of the Samsung Group's Lee family. Chairman Lee Kun Hee, the founder's son, wields outsize personal influence throughout the Samsung empire. One fear is that Samsung Electronics' profits could be siphoned off to bolster the fortunes of, say, Samsung Life Insurance, one of 24 other companies under the Samsung umbrella. That might not be illegal, but it certainly would not please investors in the electronics unit. "In terms of business, this is a top-notch company," says Jang Ha Sung, Korea's leading advocate for transparency. "But in terms of corporate governance, it is still in the 19th century."

CEO Yun and his top managers have demonstrated a century's worth of catch-up in a very short time. Now the question is whether they can fulfill the new expectations for Samsung's future. --With reporting by Cathy Booth Thomas/Dallas, Daren Fonda/New York, Donald Macintyre/Seoul and Jennifer L. Schenker/Paris