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Samsung embarking on an aggressive expansion in Silicon Valley

South Korean tech giant Samsung's move to broaden its footprint in Silicon Valley signals an escalation of its rivalry with Apple.

February 18, 2013|By Chris O'Brien, Los Angeles Times
  • A rendering shows Samsung's new campus for its semiconductor division in San Jose. The 10-story tower, set to open in 2015, would be a series of two-story buildings stacked on top of each other. The floors in between, where the building would appear to narrow, would be open green spaces.
A rendering shows Samsung's new campus for its semiconductor division… (NBBJ )

Samsung Electronics Co.'s and Apple Inc.'s battle to dominate the world's smartphone markets has mostly been waged from their respective sides of the Pacific.

Now the South Korean tech giant is storming rival Apple's backyard, launching an aggressive expansion into Silicon Valley.

Samsung has opened a new innovation center in Menlo Park, Calif. A research and development lab is planned for San Jose. A start-up incubator is cooking in Palo Alto. And its most audacious undertaking: erecting a massive new semiconductor campus with a distinctive design destined to compete with Apple's proposed spaceship-like campus for the title of Silicon Valley's most distinctive architectural landmark.

The move by Samsung to broaden its footprint in Silicon Valley signals an escalation of its rivalry with Apple, as the two companies compete more directly for the same employees, investments and innovations. Beyond getting in a rival's face, Samsung believes its Silicon Valley expansions are needed to inject more entrepreneurial DNA into the bloodstream of a company known more as an innovation follower than leader.

"This is the epicenter of disruptive forces," said Young Sohn, Samsung's chief strategy officer now based in Silicon Valley. "And I want to make sure we're part of those disruptions."

The relationship between Samsung and Apple is complex, to put it mildly. Samsung has long been one of Apple's main suppliers of components. Samsung has maintained a modest outpost in Silicon Valley for years that included its U.S. semiconductor headquarters, a small R&D lab and a venture capital office.

But in recent years, that partnership became strained as Samsung launched a line of new smartphones, led by the Galaxy, that run on Google's Android operating system. Those phones have made Samsung the world's leading seller of smartphones, though Apple remains No. 1 in the U.S.

Samsung's insurgency has raised anxiety among investors and analysts on Wall Street that the sun is setting on Apple's golden age. Apple has fought back by suing Samsung in courts around the world, contending the company's phones were iPhone rip-offs that violated a number of patents.

Still, the legal and marketing warfare hasn't slowed Samsung's momentum, nor dimmed its ambitions. The company wants to more than double its annual revenue to about $400 billion over the next few years, a target that would put it side by side with the world's largest companies, Exxon Mobil Corp. and Wal-Mart Stores Inc.

To do that, Samsung's leaders believe they must fundamentally transform the company's culture and strategies.

For all its success, the company still lags behind Apple in the perception of which is the more innovative company. Samsung is trying to shed its reputation for being a company that succeeds through a strategy of what Tim Bajarin of Creative Strategies calls "fast following." That is, watching others pioneer new technologies and markets, and then rushing in behind.

"The reason they're doing what they are doing now is that Samsung is in a position of market strength," Bajarin said. "They now are beginning to do the R&D, which will allow them to control their destiny instead of relying on other people to make breakthroughs. But to get the kind of growth they'd like, they have to make the transition from being an innovation follower to an innovation leader."

To make that shift, Samsung wants to shed an insular culture that has focused on developing most technologies and products internally. The company is throwing open the doors, and extending its hand, by partnering and investing in start-ups, supporting other innovators and becoming a more active buyer of other companies.

In other words, it wants to do the things that are the lifeblood of Silicon Valleys' biggest companies.

"Much of our innovation in the past was done in Korea," Sohn said. "We have to reach out to global hot spots. How we tap into global innovation efforts will dictate our success."

Working with Samsung has not always been easy. Samsung makes a greater variety of products than Apple, including appliances and TVs. That size and complexity, combined with its concentration in South Korea, has made the company hard for the valley's entrepreneurs and would-be partners to understand and navigate.

Sohn hopes the company's larger presence in Silicon Valley will breed familiarity and help demystify it. Certainly in the coming years, there will be no shortage of places where the valley's entrepreneurs and engineers can rub shoulders with Samsung.

The scope of Samsung's expansion plans, while massive, hasn't received tremendous buzz in part because they have dribbled out in bits and pieces. But as Samsung has released more details in recent weeks, the ambition of its intentions has come into sharper focus. The expansion plans include:

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