Samsung set to pounce on stalled rival

Moon Ihlwan
14 May 2007
00:00

South Korea's Samsung Electronics is in a predatory mood right now when it comes to gaining ground in the global mobile-phone market. With Motorola (MOT) in the grip of a major earnings stall, Samsung has recently cinched deals with all major U.S. wireless carriers to offer its whiz-bang, feature-laden mobile phones in a market-share grab aimed directly at the industry's No. 2 handset manufacturer on its home turf.

In Europe, Samsung is rolling out its new Ultra Edition II line, the thinnest multimedia phones on the planet, to appeal to fashion-conscious consumers. It's also getting serious about catching up with both Motorola and industry leader Nokia (NOK) in fast-growing emerging markets such as India and China with more modest yet innovative phones in the $50 to $70 range.

The global assault by Samsung, currently the world's third biggest mobile-phone manufacturer, is already translating into impressive numbers. In the first three months of this year, Samsung set an in-house quarterly record by selling 34.8 million phones, up 9.1% from the fourth quarter of last year.

The younger generation

The rest of the top five manufacturers (which include Sony Ericsson [SNE] and LG Electronics reported declines in this period, though the first quarter is traditionally a weak one, reflecting the yearend shopping spree in major markets. More impressively, Samsung's profit margin jumped to 13% from 7.5% in the previous three months (it was 10% a year earlier).

Samsung executives argue the first-quarter success underscores its regained strength. Samsung struggled a bit during the past two years, thanks to the phenomenal popularity of Motorola's svelte RAZR phone line. However, Samsung added nearly 4,000 research and development engineers to prepare for the industry's shift to data-centric third-generation technologies, from voice-oriented second-generation tech.

That move helped spawn Samsung's current product blitz, and has set the stage for a run of very strong performance, the company maintains. 'The momentum for growth has just begun,' declares Vice-President Lee Kyung Ju, in charge of business planning for Samsung's mobile-phone business. 'We expect a record-breaking march to continue.'

Emerging-markets push

Spurring the drive to move up the ladder is Choi Gee Sung, president of Samsung's mobile-phone division, who until this January oversaw the company's digital media business. Choi is a versatile player and cut his teeth as a marketing expert with Samsung's chip business"”which is notoriously vulnerable to price swings. Now, Choi wants Samsung to eclipse Motorola and get within striking distance of Nokia.

At the 3GSM World Congress in Barcelona in February, his first public appearance as the new telecom president, Choi pledged to reshape his division within a year. He said he would continue predecessor Lee Ki Tae's premium strategy of wowing consumers with newfangled phones. But in a key strategic move, he also signaled that Samsung will chase growth in emerging markets, currently the biggest source of industry demand.

In fact, the sales surge this year is thanks largely to Samsung's push into the lower-priced segment. Its introduction of the $57 C140 color LCD phone in India and $70 C188 dual-band color phone in China helped its Asian sales advance 27% to 11.8 million units in the first three months of 2007, up from 9.3 million a quarter earlier.

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