re: The Dallas Morning News on Samsung
>> Samsung Gaining On Top Wireless Makers
02/01/2002
Vikas Bajaj
The Dallas Morning News
In a Spartan, brick building blocks from Telecom Corridor's gleaming towers, a small outpost of the South Korean technology conglomerate Samsung Electronics is quietly building a cellular fiefdom. The company has clawed up the wireless hierarchy to become the world's fourth biggest mobile phone maker, and it's knocking on the door of the exclusive club of three dominated for years by industry giants Nokia Oyj, Motorola Inc. and LM Ericsson AB.
While other wireless companies struggled to keep up with Nokia's design savvy and growing marketing clout in the late 1990s, Samsung has carved a niche for itself by building reliable, cheap phones for a technology the industry giants regarded with scorn, experts say.
"Four years ago we were in that group called 'others,' " said Peter Skarzynski, senior vice president of sales and marketing at Samsung Telecommunications America. "Now when people start talking about handsets and they talk about the big three, they will still say Nokia and Motorola, and maybe they will say Samsung."
Samsung, which is publicly traded in South Korea, won't break out earnings and revenue numbers for its mobile phone unit, but says the division has more than $1 billion in U.S. revenue and is profitable.
As the wireless industry gets ready to unleash a slew of phones that include color screens, music players and cameras to go with phone companies' much delayed third-generation networks, Samsung has the opportunity to extend its share, analysts say.
But challenges remain. Moving further up the cellular hierarchy will be tough because Nokia continues to gain market share, Motorola is seen as a stable No. 2 and several Asian and European firms are nipping at Samsung's heels.
"The only thing you can count on is that Nokia will be Number 1 for the foreseeable future, and Motorola is in a comfortable second," said Bryan Prohm, a Gartner Inc. analyst. "And Numbers 3 to 5 are much more up for grabs."
Much of Samsung's success has come from phones it makes for Korean phone companies and Sprint PCS, which use an American-born cellular standard – code division multiple access, or CDMA.
The controversial protocol, which was bitterly opposed by Nokia and Ericsson, opened the door for Samsung.
San Diego-based Qualcomm Inc. developed CDMA in the late 1980s from a communications technology used by the Defense Department. It came at a time when the European firms were pushing their own protocol, the global standard for mobile communications, or GSM.
Though Nokia of Finland makes CDMA phones today, the technology holy war persists. Nokia and Qualcomm are pushing different standards for the next generation of wireless technology expected to arrive later this year.
The companies often take jabs at each other and tout the technical and economic superiority of their preferred protocols.
Early on, Samsung tied its fortunes to Qualcomm. Korea became the first country to use CDMA, and Samsung supplied many of the phones. When Sprint PCS, now the fourth-largest U.S. wireless carrier, began building its CDMA network in the mid-1990s, it was forced to turn to the east for phones because the big phone makers turned down its business, said John Garcia, senior vice president of sales and distribution.
"There weren't many manufacturers willing to take the chance on CDMA," Mr. Garcia said. "We weren't the industry juggernaut. [And] Samsung was only selling handsets in Korea."
The first digital phones Sprint bought from Samsung, Sony Corp. and others were often larger than their analog predecessors and were devoid of style, Mr. Garcia said. "You had to build certain phones first to learn your way."
Those early years of trials and tribulations forged a close bond between the companies, Mr. Garcia said. Sprint engineers and technicians spent months in Korea working with Samsung on software and hardware. Today, Samsung is Sprint's largest phone supplier.
'Breakthrough Product'
Samsung's first major U.S. success came in 1999, when it launched the 3500 phone with Sprint.
Earlier incarnations of the clamshell phone had been introduced in Korea and Europe and received a lukewarm reception, Mr. Skarzynski said. But Sprint and Samsung wouldn't give up hope. They tinkered with the phone, making its screen bigger than other devices on the market. They added more memory so it could better handle e-mail and other data services that Sprint hoped to sell to customers.
Demand was so strong that Sprint "burned through" a three-year, $600 million contract with Samsung in just two years, Mr. Garcia said. "The 3500 was a breakthrough product."
Samsung has also been helped by the notable absence of Nokia phones at Sprint, which has consistently been the nation's fastest-growing cellular company. Sprint has used Nokia phones in the past but doesn't sell any today.
Nokia, which has its U.S. headquarters in Irving, said it plans to sell more CDMA phones. But the company has taken a cautious approach by first selling simpler devices that are not quite as stylish as its GSM lineup.
"We have been in the CDMA game for quite a while," said Keith Nowak, a Nokia spokesman. "We learned the market. We have customers like Verizon Wireless, Qwest Wireless and Leap Wireless. And now we are starting to break our stride."
Just as Nokia aims to take share from it, Samsung hopes to attack Nokia's turf in a bigger way in the coming years.
It recently started selling phones through Verizon and VoiceStream Wireless, a GSM company – both big Nokia customers – and has made inroads in Europe.
Need For Diversity
Analysts say for Samsung to continue growing it has to diversify.
"They've got to continue executing what they are doing," said Brian Modoff, an analyst at Deutsche Banc Alex.Brown.
In the phone business, that has been easier said than done. Both Motorola and Ericsson stumbled in the last few years and lost ground to Nokia, because they couldn't produce devices that drew consumers as cheaply and quickly. In October, Ericsson combined its phone division into a joint venture with Sony.
Price competition is also heating up. Cellular companies constantly demand better prices from phone manufacturers to improve their own bottom lines, said Mark Lowenstein, managing director of Mobile Ecosystem, a wireless consulting firm.
"The handset business is looking more and more like the PC business," Mr. Lowenstein said. "Margins are thin, and carriers try to squeeze as much as they can out."
Samsung has lessened the pain of intense price competition by selling pricier devices with fewer promotions. It aims to keep carriers happy by developing unique devices for each company, Mr. Skarzynski said.
"I am not going to say I won't sell those with other carriers," he said, referring to phones sold to Sprint. "I will end up having slightly different designs for them."
Samsung's approach is in marked contrast to Nokia, which sells similar-looking phones to cellular companies around the world.
Its long-running 5100 and 6100 series phones are sold by many competing carriers. The uniformity of the devices allows Nokia to keep costs low and production efficient.
Mr. Skarzynski said Samsung's philosophy sets it apart and has won carriers' and consumers' praise. "There is always a price you are competing on, but quite frankly we are competing on value," he said. "I really don't want to be known for the zero-dollar phone." <<
- Eric - |
