By Elizabeth Koh
SEOUL -- The Trump administration's campaign pressuring allies
to avoid 5G equipment made by Huawei Technologies Co. always had a
hometown hitch: The U.S. doesn't have a domestic manufacturer to
rival the Chinese company.
The best alternative may be South Korea's Samsung Electronics
Co.
Samsung makes all of its network gear domestically and in India.
That distinguishes it from its European rivals, Ericsson AB and
Nokia Corp., which both have significant manufacturing operations
in China. Beijing has weighed retaliating against Nokia and
Ericsson for any action by European Union members against Huawei by
barring them from sending their Chinese-made products abroad,
according to people familiar with the matter. Were that to happen,
it could slow deliveries by the European companies in an
already-competitive 5G rollout. The Chinese Foreign Ministry has
denied considering that option.
Samsung already has some unique ties with the U.S. beyond the
home appliances filling American homes. The company long ago won
Pentagon clearance for government use of Samsung devices equipped
with its Knox security software, which allows users to safeguard
sensitive data on their phones and for years was overseen by a
former Pentagon chief information officer. Devices with Knox
software are used by military personnel in the U.S., U.K. and
Canada.
The South Korean firm two years ago opened a new, seven-story
office in Washington just a mile from Capitol Hill. Along with
Nokia and Ericsson, Samsung drew an invitation for a planned White
House strategy meeting on 5G in April that has been delayed
indefinitely.
Pushing hard
Samsung is far better known as the world's largest producer of
smartphones and televisions. But the firm is making a big push to
turn its sleepy networks business into a 5G winner. Its
differentiator is its product range, covering all aspects of 5G,
from smartphones to base stations to the underlying chips that make
network connections possible.
Samsung is one of four major 5G players. Huawei controls about a
third of the 5G network market, trailed by Ericsson with a fourth
and Nokia with about a fifth, according to market tracker Dell'Oro.
Samsung has roughly 13%.
After flirting for years with major U.S. telecom carriers with
limited success, Samsung is pushing hard -- and succeeding -- in
its efforts to get a second look with Huawei off the table.
In September, Samsung announced it had signed a $6.65 billion
deal with the largest U.S. wireless carrier, Verizon Communications
Inc., the Korean company's biggest such contract to date. Samsung,
which is a secondary equipment vendor to AT&T Inc. and T-Mobile
US Inc., is also still pursuing bigger deals with those carriers.
Carriers often use multiple vendors for network infrastructure so
they don't rely on a single source of equipment.
But Samsung is still, in part, relying on Ericsson and Nokia
tripping up to bolster its case, says Ryan Koontz, a senior
research analyst for Rosenblatt Securities, a New York-based
brokerage firm.
Nokia, for example, was Verizon's primary equipment vendor
before the Samsung deal, Mr. Koontz says. But several problems --
including a recent stumble with a key computer chip for 5G
deployment -- likely hurt Nokia's relationship with the carrier for
years, he says. Neither Nokia nor Verizon commented for this
article.
Ericsson, meanwhile, is just emerging from a costly yearslong
restructuring, though it has recently returned to
profitability.
"Samsung's timing is perfect," Mr. Koontz says. "The 5G programs
are set up for a banner year."
Samsung's 5G momentum is building just as the U.S. rollout is
expected to hit another gear following Apple Inc.'s recent
introduction of its first-ever lineup of 5G iPhones. The new
iPhones are expected to boost sales of 5G-capable handsets to 20%
of all U.S. phone sales in 2020, according to market tracker
Counterpoint Research. That would mean substantially more
subscribers to motivate the nation's three main carriers to speed
the expansion of their 5G networks. All three have some 5G coverage
now, though some of the fastest service remains limited to certain
cities.
Starting from behind
Samsung ships one out of every five smartphones shipped
globally. The company has sought to leverage its wide base of users
as an asset for its network business, touting its experience
building 5G phones and its devices' ability to interact smoothly
with its end-to-end network offerings. Controlling the network
infrastructure throughout, Samsung says, ensures faster speeds.
The Korean company had set a target back in 2018 to grab 20% of
the 5G network market by next year. But attaining that goal won't
be easy, despite its deep pockets and Huawei being blocked in many
key markets.
Samsung's push to broaden its network business is unprecedented
for the industry, because it has such a small presence for existing
4G LTE and 3G networks globally, industry analysts say. Network
gear traditionally builds on the equipment laid down for previous
wireless standards, meaning bigger players in the network industry
have enjoyed a solid starting advantage.
Even with Huawei forcibly stripped out of the network market,
operators must weigh the significant cost and effort that would be
required to tear out their existing equipment for another company's
new network. In the U.K., backing away from Huawei could delay its
5G rollout for years, and operators could pay billions to replace
their hardware, the British minister in charge of digital issues,
Oliver Dowden, has said.
Should Samsung succeed in making its case in the U.S., the
payoff in the form of a substantial revenue increase likely
wouldn't emerge until late next year, analysts say. But Samsung is
unlikely to see another upstart challenger making a similar case
while the U.S. lags behind in making network equipment at home.
"There's not a lot of choices for some networking equipment,"
says Stan Adams, deputy general counsel at the Washington,
D.C.-based nonprofit Center for Democracy and Technology. "If there
are concerns about security and foreign-made networking equipment,
that's going to be a problem until we change our manufacturing
base."
Ms. Koh is a Wall Street Journal reporter based in Seoul. She
can be reached at elizabeth.koh@wsj.com.
(END) Dow Jones Newswires
November 10, 2020 17:53 ET (22:53 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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