Samsung mounts 5G offensive with Huawei under pressure

People pass by an advertisement of Samsung Electronics' Galaxy S10 5G smartphone at a subway station in Seoul last year.

By Edward White

Financial Times

Oct. 4, 2020 4:55 PM PT

For years Huawei’s biggest rivals in the telecom equipment market — Finnish group Nokia and Sweden’s Ericsson — were based far away from the Shenzhen group.

But now a credible challenger looking to tap into the global race to deploy 5G has emerged closer to home: Samsung Electronics.

The Seoul group has long lagged behind its global peers when it comes to providing telecom gear. In the minds of investors and analysts, Samsung’s struggling network business has been a distant afterthought to its core revenue drivers of computer chips, smartphones and displays.

However, there are growing signs that the group is finally poised to make meaningful inroads, boosted by the confluence of 5G rollouts across the world and intensifying pressure from governments of U.S. allies to block Huawei, the sector’s biggest player, from their networks.

Samsung’s progress was underscored in September when it picked up its biggest 5G deal to date: a $6.6-billion contract with Verizon Communications to supply 5G radio access network, or RAN, equipment to the U.S. operator until the end of 2025, boosting its credibility as a serious contender in the network business.

“Samsung’s recent win with Verizon could be a game changer,” said Stefan Pongratz, a 5G expert at research company Dell’Oro Group.

Huawei, Ericsson and Nokia still dominate the global network equipment market, collectively holding a 70% to 80% share, according to estimates. But Samsung is gaining ground.

In the overall telecom equipment market, which includes earlier iterations such as 4G, Samsung’s market share has roughly doubled over the last two years to about 3%, according to Dell’Oro. But in the new market of 5G mobile infrastructure, its market share by the middle of this year was in the 10% to 15% range.

Samsung, which declined to comment for this article, is already capitalizing as countries ramp up 5G investment. Outside South Korea, where it is the biggest player in 5G network equipment, it has won deals in the U.S. with Sprint, AT&T and U.S. Cellular, and with KDDI in Japan, Telus and Videotron in Canada and Spark in New Zealand.

The opportunity

The race to deploy 5G — the world’s fifth-generation mobile network, touted as pivotal to advancements in industrial automation, driverless cars and the “internet of things” — is expected to spur annual investment averaging more than $235 billion through 2035, according to IHS Markit. The U.S. and China are each forecast to spend more than $1 trillion for 5G-related infrastructure and research and development over that period.

“We are very much at an early stage in the 5G era,” said Ian Fogg, lead analyst at British research group Opensignal. “There still is a lot to play for.”

Pressure from the Trump administration on Huawei — including moves to limit sales of crucial technology such as chips to the group — has sparked reviews in many countries of their reliance on gear from the Chinese group, both for core networks and the hardware such as base stations and antennas that make up RAN, which connect devices to those networks.

According to Dell’Oro data, telecom operators in at least 14 countries are reassessing or reviewing their reliance on Huawei’s RAN portfolio, including equipment across 2G, 3G and 4G. The countries — which include Australia, Brazil, Germany and Britain — account for about one-third of the global RAN market.

“Ericsson, Nokia and Samsung have all benefited from the escalating geopolitical uncertainty,” Pongratz said.

Given the questions over Huawei’s ability to access key technology and foreign markets, a key selling point for Samsung is its secure supply chain. The group’s 5G business has little exposure to China, instead manufacturing its network equipment in South Korea and Vietnam while producing other key components, such as its 5G modem chip, in the U.S.

Questions over legacy issues

Samsung is accustomed to fighting for the top place in worldwide tech rankings — be it in appliances, computer chips, smartphones or electronic displays — but its telecom business is comparatively small.

While the company has been developing related technology for more than 40 years, several earlier attempts to grow its network business failed after it focused on a series of wireless technologies that quickly became obsolete.

Woojune Kim, the head of global sales at Samsung’s network business, told a British parliamentary committee in July: “You could say that we placed our bet on the wrong horse.”

In recent years, the group has intensified its focus on 5G, spending more on research and taking a keener role in the development of the industry standards and protocols that apply to new network technology. At the start of the year, Samsung trailed only Huawei in declared 5G patents, according to intellectual property group IPlytics. Problems faced by Nokia with the quality of its products in the initial stages of 5G have further buoyed the group, analysts said.

But competition will be fierce as companies compete for trillions of dollars in investment.

Fogg noted that previous changes in network equipment technology — which occur roughly once every 10 years and require sharp increases in capital expenditure — have typically sparked periods of upheaval as telecom groups switch equipment suppliers, companies consolidate and erstwhile incumbents fall by the wayside.

Choosing 5G equipment suppliers “is not a simple equation,” he said. “You have to basically make a judgment call about their future. You have to think about the reliability of the life of the contract.”

Some operators swapping out legacy Huawei equipment might favor Ericsson and Nokia because they, unlike Samsung, are more readily able to supply equipment from 2G through to 5G, analysts suggest. This leaves the European groups “very well positioned” to win opportunities in countries ditching Huawei, Pongratz said.

Last week it was announced that Nokia will become BT’s largest supplier after it won an expanded deal to replace Huawei as a key supplier of 5G equipment to the British company.

Samsung’s counter is that there is little benefit from having a “single RAN,” arguing it is faster and no less secure for network operators to overlay 4G and 5G technology on legacy 2G and 3G networks.

Another criticism leveled by analysts is that Samsung, traditionally focused on manufacturing hardware, has suffered from a weak services offering as part of its network business, hindering its capacity in areas such as network design, testing, optimization and software.

According to people close to the company, it has made moves to remedy this, acquiring TeleWorld Solutions, a Virginia network services provider, in January and launching a hiring spree for its services team.

Huawei: down but not out

So far, Samsung’s 5G business has targeted network operators mostly in advanced economies, particularly in Asia, Western Europe and North America.

The company also believes it is strongly positioned in India, having won an earlier contract to build the 4G network for Reliance Jio, India’s biggest network, despite a broader push by New Delhi to use domestic technology.

These are also mostly markets where there is pressure on governments to block Huawei because of lingering fears over the company’s links to the Chinese government and military, and concerns that its technology could be used for spying. Huawei has denied such allegations.

But that still leaves huge swaths of the global market, including many emerging economies, where governments have shrugged off the U.S. concerns.

Samsung, Nokia and Ericsson face the prospect of competing with the Chinese group in Africa, where Huawei has built a dominant position across much of the continent, according to analysts.

Huawei “already operates at almost every level of internet provision on the continent, from installing undersea cables to selling handsets,” said Cobus van Staden, an expert on China-Africa relations at the South African Institute of International Affairs in Johannesburg.

Pricing is another factor. “In open markets with fairly healthy competition, we don’t believe the prices vary significantly for RAN equipment among the top suppliers,” Pongratz said.

But costs will vary depending on the region and how competitive those looking to build their market share will be, he said.

Samsung has signaled that there are markets where it cannot compete with Huawei.

“They are just a very tough competitor. When you go into bids, we have frequently seen bids that do not seem to make sense in the pricing,” Kim said in July. “We think that a company that was beholden to shareholders and had to make profits could not offer that sort of bid.”

Financial Times staff writers Song Jung-a in Seoul and Stephanie Findlay in New Delhi contributed to this report.