SEOUL — The Samsung Group is most widely known these days for its smartphones, which have been outselling those of any other company. But the South Korean technology giant has also been quietly winning business building the telecommunications networks used for its phones as well as those of its competitors.
Unlike established rivals that offer products for all kinds of phone companies, the network business of group company Samsung Electronics has so far focused narrowly on systems for 4G LTE, or fourth-generation Long-Term Evolution, high-speed mobile networks. The company built a foundation in this area through its position supplying equipment for South Korean mobile operators KT and SK Telecom, supported by the government’s determination to make South Korea the first country with nationwide LTE service.
Samsung Electronics has since built on that success to win contracts from operators in Japan, the U.S., India, Ireland, Saudi Arabia and Russia as part of a drive to establish itself as the No. 3 telecom network supplier by 2015.
Secure alternative
It still has a way to go, but its success in at least some of those markets has likely gotten a boost from security concerns about China’s Huawei Technologies, the world’s second-biggest network supplier, and ZTE, another Chinese company in the same business. The rise of these Chinese players has in turn undermined, in some cases fatally, previously strong players, including Nortel Networks, Alcatel-Lucent and Nokia Solutions and Networks.
“It’s harder (for Samsung Electronics) to penetrate other markets,” said Apurva Patel, an analyst with S&P Capital IQ in the U.S. “In China there is already Huawei, and in Europe there’s Ericsson.” The Swedish company is the world’s leading maker of telecom equipment. “Samsung has the R&D talent and manufacturing abilities, and if they see an opportunity, they can get it done.”
Chinese telecom service providers — including China Mobile, the world’s biggest — are preparing to start rolling out 4G networks, so Samsung will be hoping its experience in South Korea opens some doors.
Patel estimates that telecom equipment accounted for 2% of Samsung Electronics’ revenues of 228.7 trillion won ($212.8 billion) last year. The company does not break down results for individual businesses, but Patel says he believes the revenues are evenly split between sales and service.
“Samsung is trying to increase its B2B (business-to-business) market, such as LTE and networks,” said Kim Min-cheol, senior market analyst at IDC Korea. “But the B2C (business-to-consumer) market, such as the Galaxy (smartphone line), is much better than LTE and networks so far. Of course, Samsung is looking for other growth areas.”
The next generation
The next area to explore is eMBMS, or evolved multimedia broadcast multicast services, a technology for improving video and data service over LTE networks. Late last month, Samsung and KT launched the first commercial LTE eMBMS service, and Samsung Electronics said it would begin trying to win business from operators elsewhere as well. KT’s service, which provides high-definition video, is initially available only via Samsung Galaxy Note 3 mobile devices. The launch follows KT’s appointment of Hwang Chang-gyu, former chief of Samsung’s chip business, as its new chief executive.
Samsung Electronics, in turn, last year appointed Simon Beresford-Wylie, former chief executive of Nokia Solutions and Networks, the European telecom equipment maker, as its global executive adviser to guide its growth.
“Samsung will keep investing in mobile networks to boost our recent successes in the global market,” Kim Youngky, executive vice president and head of networks business, said at the time.