Semiconductors are raking in profits for Samsung Electronics Co., but the company's foray into chips more than 40 years ago didn't come easily.
Lee Kun-hee, now the South Korean conglomerate's incapacitated chairman, faced skepticism from Samsung's leadership about a push into semiconductors. Among the initial doubters was his father, the company founder, according to a person familiar with the matter. At that time, Samsung was known more as a food, textiles and logistics empire that had just started producing black-and-white televisions domestically.
But in 1974, Mr. Lee was so bullish on the potential of chips that he invested his personal money to buy a 50% stake in the financially troubled Korea Semiconductor. Mr. Lee's father eventually was persuaded, too.
"They made a very important decision based on their belief that the future would be in the information-technology world," said E.S. Jung, a Samsung Electronics executive vice president, who oversees its semiconductor research and development center.
In 1980, Samsung's semiconductor unit -- which had started off making chips for wristwatches -- was absorbed into Samsung Electronics.
Mr. Lee's gamble paid off. In 1992, Samsung became the first company to develop a 64-megabit DRAM chip, a key PC component, surging ahead of Japanese competitors.
Samsung now has around 50% global market share in DRAM chips and 37% in storage chips. Samsung is a newer entrant in outsourced manufacturing of high-end semiconductors, a business dominated by Taiwan Semiconductor Manufacturing Co. Despite its small scale, the South Korean company has major clients such as Apple Inc. and Qualcomm Inc.
Samsung also was a pioneer in developing ways to scale up production by using larger pieces of silicon wafer, the foundational material for semiconductors -- and the "silicon" in Silicon Valley. Rivals, lacking Samsung's technology, had to use smaller, disk-shaped wafers, meaning production was less efficient or cost more to make the same number of chips. Samsung was among the first to produce chips on 8-inch and 12-inch wafers.
Industry experts cite the company's aggressive investment in research and development as its main recipe for becoming No. 1 in memory chips.
"We always stay ahead of the curve, so even when the market has a downturn, we've already had production on the lines," said Mr. Jung, who started at Samsung in 1985. "We can sustain above a break-even point even when other competitors are recording losses."
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(END) Dow Jones Newswires
April 26, 2017 10:57 ET (14:57 GMT)