The sales erosion has been driven by a weak global economy and by competition, some of it from South Korea, home of Samsung.

The slide has given rise to fears on this export-reliant island of 23 million that Samsung has deliberately focused on Taiwanese companies in a campaign to undermine their competitiveness in markets around the world.

Business Today, the top Taiwanese business magazine, gave voice to those fears last month in an extensive cover story accusing Samsung Electronics of embarking on a “Kill Taiwan” effort aimed at some of the island’s leading high-technology companies, including Taiwan Semiconductor Manufacturing Co., or TSMC, the world’s largest contract maker of chips.

Taiwan’s Fair Trade Commission recently started an investigation into allegations that Samsung had planted unflattering comments about Taiwanese consumer electronics on the Internet to undermine their appeal.

While Taiwanese companies are facing a challenge from Samsung, industry analysts like John Brebeck, an adviser in Taipei for the technology development company Quantum International, says fears that Samsung is trying to crush Taiwan’s lucrative technology industry miss the point.

Samsung is trying to make inroads in specific areas where it sees a big profit potential, he said, and these areas are also where Taiwanese companies have a major stake.

“It’s not Taiwan as much as it’s industry sectors that’s motivating Samsung,” Mr. Brebeck said.

A spokeswoman for Samsung Electronics, Jee Hae-Ryoung, said business strategies like the one described in the “Kill Taiwan” article did not exist at Samsung.

That is all little comfort for the Taiwan technology industry, which knows it must remain nimble and innovative to avoid the downward spiral of Japanese companies like Sony, which have been outrun by competitors including Samsung. Taiwanese high-technology exports totaled $98 billion last year, accounting for about 20 percent of the island’s gross domestic product.

Fearing they will lose more ground, a number of Taiwanese manufacturers are carving out alliances with companies in Japan and the United States that are also competing with Samsung, in an effort to safeguard market share and give a lift to Taiwan’s economy. A noted and longtime Taiwanese collaborator is Apple, which was replaced last year by Samsung as the biggest smartphone maker in the world.

For its part, the Taiwanese government is pressing the island’s technology companies to work more closely with local component suppliers in an effort to achieve the kind of business integration that has helped to make Samsung such a formidable rival.

“We hope the tech companies can work together with their suppliers during the early product developing process, rather than wait till the new components are developed,” said Stephen Su, a marketing analyst with Taiwan’s Industrial Technology Research Institute, a state-funded group that develops cutting-edge technologies and transfers them to the private sector.

Mr. Su said a major pilot project in the integration effort involved the smartphone maker HTC, which is trying to use processors made by local chip designers in its new mobile phones.

Until last year, HTC was one of the biggest smartphone makers, cashing in on its status as the first company to make models using Google’s Android operation system. Now it is struggling as Samsung and Apple smartphones dominate.

Another emerging battlefield in the Taiwan-Samsung rivalry is the semiconductor industry, long a Taiwanese stronghold.

With its seemingly unlimited supply of capital, Samsung has moved from making memory chips, which store data, to more profitable logic chips, which serve as the brains of computers.

It is also increasing its expansion into the foundry business, which fabricates chips, directly challenging TSMC, which provides application chips to companies like Apple and Qualcomm.

The founder of TSMC, Morris Chang, has called Samsung a “formidable rival” but says his company is well prepared to meet the challenge.

Article source: http://www.nytimes.com/2013/04/22/technology/taiwan-tries-to-shore-up-its-defenses-against-samsung.html?partner=rss&emc=rss