Samsung, up 25% so far this year, is still attractive at about 11 times consensus 2006 earnings estimates and its operating profit was up 29% in the third quarter. Despite third quarter net income declining 30%, a strong fourth quarter is expected. There is a shortage of LCD television panels and its flash memory chip global market share exceeds 60%. As prices have come down flash chip sales have gone up 40%.

China IML System Manufacturers But the company is not a terrific play on the South Korean economy. Rather it is a global play on its three key markets and the expected payoff from its extraordinary commitment to R&D. The South Koreans are discontented because the five largest companies are growing outside the country more than in it and at a stage of development where it should be more competitive manufacturing onshore. The challenge is the low cost manufacturing platform with huge economies of scale just next door – the issue is China. Samsung already has already has 29 plants and 50,000 workers in China.

Since China is already starting to manufacture stuff like machine tools that the South Koreans were busily exporting in 2003 and 2004, South Korean planners believe it must quickly transform itself into a finance, communications and transportation hub – akin to the role of Singapore or Switzerland. The question then becomes do they have the right companies, the right skills and what is its competitive advantage?

Together, Samsung, POSCO, KEPCO (Korea Electric Power) and SK Telecom account for almost 50% of South Korean stock market's market capitalization. To use a basketball analogy, the South Korean starting five are strong but its bench is a bit thin and its team has lost the home court advantage. The problem is not Samsung but rather that they need about ten more Samsungs.