Seizing on Huawei’s troubles, Samsung bets big on network gear

Author: 
Reuters
ID: 
1550213365474045000
Fri, 2019-02-15 06:33

SEOUL: Samsung Electronics is pouring resources into its telecom
network equipment business, aiming to capitalize on the security
fears hobbling China’s Huawei, according to company officials and
other industry executives.
Those efforts include moving high-performing managers and numerous
employees to the network division from its handset unit, two
Samsung sources said.
Potential customers are taking notice of Samsung’s efforts to
reinvent itself as a top-tier supplier for 5G wireless networks and
bridge a big gap with market leader Huawei and industry
heavyweights Ericsson and Nokia.
French carrier Orange’s chief technology officer, Mari-Noëlle
Jégo-Laveissière, visited Japan last year and was impressed with
the pace of 5G preparations using alternative equipment makers
including Samsung, a company representative told Reuters.
Orange, which operates in 27 markets and counts Huawei as its top
equipment supplier, will run its first French 5G tests with Samsung
this year.
“Samsung is doing a big push in Europe at the moment,” one
industry source said, declining to be identified.
Underscoring the growing importance of the business, South Korean
Prime Minister Lee Nak-yeon visited Samsung’s network division in
January. In a closed-door meeting during that visit, Samsung heir
Jay Y. Lee asked for government help with recruiting high-level
engineers.
Huawei is battling allegations by the United States and some other
Western countries that its equipment could enable Chinese spying
and should not be used in 5G networks, which will offer higher
speeds and a host of new services.
Australia and New Zealand have joined the United States in
effectively barring Huawei from 5G, and many other countries,
especially in Europe, are considering a ban. Huawei denies that its
gear presents any security risk.
Its woes have presented Samsung with a rare opportunity. Telecom
firms would ordinarily stick with their 4G providers for 5G
upgrades as they can use existing gear to minimize costs, but many
firms may now be under political pressure to switch.
“We’re bolstering our network business to seize market
opportunities arising at a time when Huawei is the subject of
warnings about security,” said one of the Samsung sources.
The sources, who did not disclose specific figures for the employee
moves, declined to be identified as they were not authorized to
speak on the matter.
Keen to seek new growth, particularly as sales of its mainstay
chips and smartphones have begun to drop, Samsung plans to invest
$22 billion in 5G mobile technology and other fields over three
years. It declined to break down how much will go to 5G and the
other areas — artificial intelligence, biopharma and automotive
electronic parts.
Asked about Samsung’s big push into network equipment, Huawei
said in a statement that it welcomed competition in the market.

INDIA OPPORTUNITY
In India, Samsung is now in talks with Reliance Jio to upgrade its
network to 5G, looking to build on what has perhaps been its
biggest network success — becoming the key supplier for the
upstart carrier.
“We don’t think 5G is far away in India,” a Samsung official
with direct knowledge of the matter told Reuters. He declined to be
named due to the sensitivity of the matter.
Samsung’s clients include US firms AT&T Inc, Verizon
Communications Inc. and Sprint Corp. and it has 5G network
contracts with all three, though it was not clear how extensive
those contracts are. It also sells to South Korean carriers and has
partnered with Japanese mobile carriers to test its 5G
equipment.
In many cases, Samsung supplies only small pieces of networks.
According to market tracker Dell’Oro Group, the South Korean firm
holds just 3 percent of the global telecom infrastructure market
compared with 28 percent for Huawei.
Its network business made 870 billion won ($775 million) in
operating profit last year, according to Eugene Investment &
Securities. Filings show Nokia’s network business made about 1.2
billion euros ($1.4 billion) while Ericsson’s network operations
made 19.4 billion Swedish crowns ($2.1 billion). Figures for Huawei
were not available.

FINDING THE PEOPLE
One major hurdle for Samsung will be attracting talent amid a
dearth of software engineers in South Korea.
“We need more software engineers and want to work with the
government to find that talent,” Lee was quoted as saying by
government officials at his meeting with the prime minister.
Samsung’s network business unit employs roughly 5,000 people,
according to a government official in the southern city of Gumi
where Samsung operates its manufacturing plants.
Kim Young-woo, an analyst at SK Securities, expects Samsung to hire
1,000-1,500 people for 5G network equipment this year. Samsung
declined to comment on network employee levels and hiring
plans.
But Samsung’s bet remains risky as the long-term nature of
telecom network investment means change comes slowly.
Sweden’s Ericsson and Finland’s Nokia, which acquired the
remnants of once-powerful network equipment companies
Alcatel-Lucent and Nortel, have as yet seen little sales growth
from Huawei’s problems, company executives said.
Both are in cost-cutting mode, even in the face of the 5G
opportunity and the problems confronting their biggest rival.
Indeed, some network operators in Europe are warning that a Huawei
ban — now under consideration in France, the UK, Germany and
other countries — could push back deployment of 5G by as much as
three years.
Others warn Samsung may struggle to develop a global sales and
support organization.
“The way telcos purchase products and services from their
suppliers demand a lot of time and resources, which is why Ericsson
and Nokia have around 100,000 employees and Huawei almost twice as
many,” said Bengt Nordstrom, CEO of telecom consultancy
Northstream.
But Samsung is taking the long view. In December, it agreed to
extend its Olympic partnership with the International Olympic
Committee through to 2028 and expand its sponsorship to 5G
technology.
The company did not want to leave its sponsorship spot open to
Chinese rivals, a separate source with knowledge of the matter
said.
“If Samsung dropped the top mobile sponsorship for the Olympic
games beyond 2020, then who would have taken that spot? It would
only have been China, Huawei.”

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Source: *FS – All – Science News Net
Seizing on Huawei’s troubles, Samsung bets big on network gear