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June 15, 2005 8:32 am

Aiming to be first, but best will do nicely too

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For Samsung Electronics, it is not being the world’s biggest mobile phone manufacturer that is important. It is being the most pioneering and the whizziest that counts.

Of course, being the best usually goes hand in hand with being the biggest, but for now the South Korean giant is content with technological prowess.

“Being number one by revenue or quantity is not our goal,” says Choi Chang-soo, senior vice president of worldwide sales in Samsung Electronics’ telecommunications division. “We want to be an admired company in telecommunications, especially in the wireless industry. We have a very consistent message internationally saying that we want to be first, otherwise we want to be the best. We cannot just deliver ‘me too’ or ‘copycat’ products.”

And Samsung, the world’s third largest handset producer, is not the only Korean company shaking up the global market. LG Electronics, virtually unknown until a few years ago, is now the world’s fourth largest handset maker and wants to move into the top three by 2006.

It too is aiming for the top end of the market, but by taking a more targeted approach though, sponsoring action sports to appeal to young consumers, and selling mobile phones loaded with cricketing games in India and “Qibla” phones that point to Mecca in the Muslim world.

Among the new handsets Samsung will be showcasing at CommunicAsia are the SGH-D600, its flagship model for 2005, a compact slide-up phone with a 2-megapixel camera, as well as the SGH-Z700 3-megapixel camera phone with rotating folder.

“We’ve proved ourselves in the market place so many ways,” Mr Choi says, citing Samsung’s move to put LCD screens on the outside of their clamshell phones, enabling caller display without opening the phone. “We also adapted TFT-LCD [screens] into the phones to give true colour and made rotating cameras, and we added MP3 and TV to our phones.”

Such differentiated products have driven Samsung’s growth in the end marketplace. Samsung is the company that introduced the fashion element - mobile phones are not just about communication. And you can do better than just voice calling and short messages,” Mr Choi says.

The group breaks down its potential customer markets into four segments - the fashion market, where people are buying snazzy phones for aspirational purposes; the professional market, which customers want for efficiency and business purposes; the leisure or entertainment market, in which MP3 players or televisions are the main draw; and the basic features market, to which it pays only cursory attention.

Its strategy of focusing on top quality products has made it well placed to take advantage of replacement demand, which now accounts for more than two-thirds of handset sales, as opposed to new subscriptions. High-end, high value handsets are key to the company’s aggressive push into Europe, where it has a relatively low market share. A third of the 24.5m handsets that Samsung sold in the first quarter were in Europe, while 29 per cent were sold in the Americas and the same percentage again in Asia and the Middle East, with the remainder sold in Korea.

That means Europe is this year featuring more prominently in sales - only 28 per cent of Samsung’s handsets were sold there last year, compared with 36 per cent in the Americas.

As part of its drive to increase its share of the European market, the sponsor of the Olympic Games has just signed a contract to support Chelsea, the English football team and premiership champions.

“There are many similarities between Samsung and Chelsea - we both have blue as our colour, we are both fast-growing teams, and we are both very eager to move into new markets,” Mr Choi says.

Samsung’s goal is to sell 100m phones this year - or 300,000 a day, every day - an ambition that requires it to be firing on all cylinders in all territories. “That’s a lot of phones, and that’s why we need to be everywhere,” Mr Choi says. “So we’re trying to be well balanced geographically. From a business point of view, we need to be well balanced geographically as well as technologically between CDMA and GSM.”

While Samsung is already the leader in CDMA markets, GSM technology - used in Europe - is more of a challenge.

“We’ve been number one in CDMA all the time and that means we are leading the technology as well as being in first place,” Mr Choi says. And doing business in the US is relatively straightforward because there are only four operators, he says. Samsung is the number one supplier to Sprint and T-mobile, and is trying to improve its position with Cingular and Verizon.

“On GSM, we are a relative latecomer in the market place but we are growing rapidly. Our average selling price is 30-40 per cent higher than the industry,” Mr Choi says.

Indeed, the European market offers more profitability, analysts say. “Samsung is putting a lot of resources into the European market and they have enjoyed a lot of profit there,” says Yu Chang-eyun, an electronics analyst at BNP Paribas. “It’s more high-end than the US and they can control their handset distribution and sales through retail channels.”

The dynamics of the US market are quite different, Mr Yu says. “In the US, operators control handset distribution and when they promote Samsung handsets they want the company to support the marketing costs, so both prices and margins are lower. The European market makes perfect sense for Samsung,” he says.

While its top-end strategy has paid off handsomely - it earned $10.5bn last year, more than even Microsoft - Samsung faces challenges. Rivals such as Nokia and Motorola are fighting hard and analysts say that there is only so much room to grow at the top end.

“Samsung must make a strategic decision to go into low-end markets such as India if it wants to gain a foothold,” says one Seoul-based analyst. “Then when those markets mature and become more replacement-driven, they will be well placed to make profits.”

But Samsung plans to continue to exploit its niche in the high-end market, taking advantage of rapid changes in technology that will offer carriers the ability to converge communications and broadcasting through high-bandwidth networks.

“Technology is moving very fast - like 3G WCDMA and high-speed wi-fi data - so that’s why we see great opportunities for Samsung. For example, through convergence between technology and satellite [digital media broadcasting] and terrestrial DMB,” Mr Choi says.

To that end Samsung has signed an agreement with T-Systems in Germany for digital mobile television for the 2006 football World Cup.

With deals like this, Samsung is well placed to remain at the top of its own premier league.

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