Samsung Widens the Gap with Sony in TV

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But with Samsung taking a 20%-plus share of all flat-panel TV sales worldwide, "TVs will begin to play a key role in improving our brand value," Yoon says.

Yoon sees three factors that will keep his company ahead of the pack. One is a constant stream of innovative models created by six design centers in Asia, the U.S., and Europe. Samsung designers have been asked to come up with TVs that do double duty as a piece of living room furniture—something that looks good even when it's switched off, so customers won't want to hide it in a cabinet. Another initiative is a decade-long effort to improve Samsung's supply chain, so the company can respond quickly to fast-changing market needs and price fluctuations.

The third advantage is that Samsung is the only major player that develops and manufactures its own computer chips for its TV sets. That capability is gaining importance as companies try to let viewers tap the Internet and turn TVs into the centerpiece of home entertainment, for viewing, controlling music players, and reading all sorts of content. "In-house control of the chips will allow us to quickly handle complicated needs," says Yoon.

The Won's Plunge

Samsung's success has been helped by a dizzying fall in the Korean currency—especially when compared with the surging Japanese yen. In 2008 alone, the won lost 41% of its value against the yen, giving Korean companies a huge pricing edge. "The weak won and the high yen make it hard for Japanese companies to match Samsung's aggressive marketing spending," says Lee Hak Moo, an analyst at brokerage Mirae Asset Securities in Seoul. Samsung officials counter that the impact is limited because more than 90% of its LCD TVs are made outside Korea.

Nevertheless, the currency disparity is helping Korean companies weather the global financial storm much better than their Japanese rivals. Samsung, which is also the world's largest memory chip and LCD panel maker and the No. 2 mobile-phone manufacturer, is far healthier than Sony, which is forecasting a $2.7 billion loss for the year ended March. In 2008, Samsung posted a net profit of $4.4 billion and ended the year with cash reserves of $5.3 billion. For this year, Mirae expects Samsung's net profit to fall to roughly $2 billion.

With such ammunition, Samsung is pressing ahead with a fresh marketing blitz, which includes the sheep video. In April it is launching in the U.S. its new generation of high-definition LED-lit TVs. Samsung says this will offer greater energy efficiency (it cuts power consumption some 40% compared with older LCD TVs), a brighter, sharper picture, and a thinner screen.

Some wonder whether the strategy makes sense, given the economic downturn. The LED TVs will cost some $600 more than traditional LCD TVs of similar size. But Samsung believes even in these tough times, customers are ready to pay a premium for the right product. The company hopes that at least 10% of its targeted global sales of 22 million LCD TVs this year will sport the new technology. "We're not at all oblivious to the economic environment," says U.S. consumer electronics chief Baxter. "But we're still seeing consumers trade up, and that has made us confident that this is the time to introduce LED."

Moon is BusinessWeek's Seoul bureau chief. With David Rocks in New York.