Samsung’s preliminary results, announced last week, do not yet break out the performance of individual divisions in delivering its 25% year-on-year revenue increase and record Q3 operating profit (see separate item). However, we are confident that, for the first time, its mobile infrastructure unit will be singled out as a relatively small, but rising star. Several other stars in the vendor’s firmament are aligning to boost its chances of being a global force in networks at last ‘ its handset success, its huge IPR assets, its WiMAX expertise, even the activities of its shadowy oil and gas equipment arm, all these could increase the differentiation of the mobile infrastructure business and propel into the top five next year.
Generally, the trend in the mobile networks segment is towards consolidation around a few massive-scale players ‘ even Nokia Solutions and Networks and Alcatel-Lucent are rumored to be engaged in a merger dance. And in a world where survival will increasingly depend on software to drive flexible networks, Samsung’s networking arm has been heavily focused on traditional competitive strategies ‘ developing cutting edge network platforms ahead of the pack. However, we think Samsung may be the outsider which succeeds in getting back into the infrastructure inner circle, thanks to some strong LTE wins, and the support of its entire, broad-ranging business.
Samsung signalled that it was serious about the infrastructure business – where it has been a minor player except in its Korean homeland and in the WiMAX niche ‘ when it set up a new European-focused business unit, Samsung Networks Europe, two years ago, looking to build on its flagship LTE wins with Sprint in the US, KDDI and Japan and the Korean cellcos. Last week it looked set to build up that operation further when it appointed Simon Beresford-Wylie, formerly head of NSN (then Nokia Siemens), as a global executive advisor.
Beresford-Wylie’s remit is to plan and execute a ‘globalization strategy’ for the networks business. He brings the experience, and the scars, of leading the first reorganization of NSN after its difficult merger, and so has intimate knowledge of the challenges of biting at the heels of Ericsson and Huawei. He also brings operator experience, having been recently working as CEO of Digital Mobile Spectrum (DMSL), the non-profit body established by the four UK mobile operators to address possible interference issues in the 800MHz band.
Europe is important to Samsung because of the number of its cellcos, many of which will be in the second or third wave of LTE roll-out, and so present opportunities for contracts well into the next decade. It is also important that the vendor establishes its LTE credentials out of the WiMAX base. Initially, its leadership in that technology stood it in good stead for migration projects, as WiMAX carriers like Yota in Russia moved to TD-LTE, and particularly in the TDD flavour of the technology. However, the larger market for LTE remains unconnected to WiMAX and unpaired spectrum, and this is particularly true for Samsung, ironically enough, given that it did not appear on the list of nine vendors for the world’s largest TD-LTE infrastructure contract, at China Mobile.
By contrast, Samsung has been scoring points in Europe, many with second tier players, but significant enough to boost its credibility and get it invitations to respond to the next round of RFPs and pitches in the region. As European cellcos start to hit the limits of their 3G+ networks ‘ a process that is happening far more slowly than in the US or east Asia ‘ a major new round of contracts will be awarded over the next few years, and Samsung needs to be well positioned. Its flagship customer in western Europe is Hutchison’s 3 Group. It is the exclusive supplier of LTE RAN and packet core equipment for 3UK and 3 Ireland, wins which point to the trend ‘ critical for Samsung and any outsiders ‘ for operators to look beyond their 3G RAN suppliers when they move to LTE. Hutchison’s 3 Sweden unit is also working with a relative minnow, ZTE, for its multimode TDD/FDD roll-out.
Samsung’s most recent infrastructure deal in Europe came from another future LTE hotbed, Russia, where it won a $55m, three-year contract to install more than 3,000 FD-LTE base stations in the north west region of the vast country including St Petersburg.
It will hope to build on this slow but steady stream of deals by establishing itself as a leader in emerging LTE technologies, especially those which will promise improved costs and efficiency, and therefore stimulate operator 4G activity. It was part of the world’s first commercial deployment of some features of LTE-Advanced (3GPP Release 10 and 11), at SK Telecom, highlighting the value to Samsung of its close relationship with the Korean operators ‘ among the most advanced in the world in terms of mobile network advances ‘ and with the huge government-supported R&D programs in its native land.
It is also trying to create a similar position in Europe, as an R&D leader and a close partner in the so-called ‘5G’ research activities of governments, carriers and the EU. In the UK, for instance, it is part of the state-backed 5G program headquartered at the University of Surrey, which also includes Huawei and various operators and research bodies. This year, Samsung has claimed ‘5G’ technology breakthroughs on several occasions. Most of these have amounted to little more than a marketing spin put on some relatively blue-sky R&D, but they are clearly intended to create a perception of Samsung as a technology leader ‘ claims supported by some of its real world roll-outs, including Cloud-RAN and ‘Super Macro’ platforms in Korea and Japan.
Also important to Samsung ‘ by contrast with some rivals, though not the Chinese ‘ is the support of its other business units. Like Nokia and Ericsson in the early 3G era, Samsung is touting the benefits of a tight integration of infrastructure and devices ‘ a benefit the larger suppliers have now lost, but which was clearly visible in WiMAX, when Samsung created smartphones and other gadgets for Korea Telecom well ahead of the merchant market. This angle gained it a place at MetroPCS, which ‘ like most US regional carriers ‘ has had to take an unconventional approach because it cannot compete, in negotiations with the phonemakers, with the big three. MetroPCS has said openly that the tight links between Samsung’s networks and devices were a key advantage when it became the US’s first LTE operator, because the supplier could align the development of both sides of the wireless equation, speeding time to market and reducing testing and interoperability issues.
In addition, Samsung Networks can tap into the group’s overall power in wireless R&D and patents, in key elements of LTE development such as MIMO or ultra-wide channels; and into its lesser known, but heavyweight, stablemates, such as Samsung Engineering. This industrial infrastructure unit recently signed a long term alliance with Arabtec to pursue contracts with the energy sector in the Middle East, and while this mainly focuses on ‘heavy iron’ infrastructure, there will clearly be a place for communications, in a sector which is increasingly being targeted as a growth area for mobile technologies.
Samsung, like Huawei and ZTE, also claims it has inherent advantages, in terms of routes to market, ecosystems and pricing, in emerging economies, and these will come into play when the focus of LTE investment shifts from the US to newer markets, especially Africa. Samsung says it has already deployed LTE for cellco trials and for government projects in Africa and major African economies like South Africa and Nigeria are expected to make far swifter progress towards 3G+ and 4G in the next five years than they did in the previous decade, as the demands for universal internet access rise. Also, many will be highly receptive to some of the new architectures the Korean company is developing, particularly distributed base stations which cover huge, under-populated areas at low cost and power.
‘A large proportion of the African population is comprised of young and ambitious people and Samsung believes that mobile broadband services will play a critical role in realizing their economic development, just like we’ve seen in USA, Japan, South Korea and other Asian markets,’ said Youngky Kim, EVP in charge of Samsung Networks, at a recent conference. ‘We’re confident that Samsung is ready to contribute to this growth with customized LTE solutions for African market by providing enhanced customer value through credibility and accumulated expertise in telecommunications.’