Samsung makes 5G inroads as Huawei loses ground in face of US sanctions

World's largest manufacturer of smartphones and memory chips has been pushing to expand its influence in the 5G market

A man wearing a protective mask walks past the Samsung Electronics Co. signage at the company's D'light flagship store in Seoul, South Korea, on Tuesday, Oct. 6, 2020. Samsung were among a list of global firms that were cleared by India’s Ministry of Electronics and Information Technology that won approval to manufacture products in India under a plan aimed at attracting investment of more than 10.5 trillion rupees ($143 billion) for mobile-phone production over the next five years. Photographer: SeongJoon Cho/Bloomberg
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As the world's key players in fifth-generation wireless technology are grappling to secure a share of the lucrative market, a new contender is fast emerging.

Samsung Electronics bagged its biggest 5G contract yet – a $6.6 billion deal with the US operator Verizon Communications – and is emerging as a strong player in the 5G market, analysts say.

The deal underscores Samsung's 5G ambitions, enabling it to fill the gaps left by the Chinese behemoth Huawei in some markets while giving tough competition to leading European players Ericsson and Nokia, according to experts.

It is already the biggest player for 5G equipment in its home market … the Verizon deal could help it secure more lucrative contracts in future

"If Huawei is not allowed in key markets then Samsung will [benefit] as operators will try to find an alternative ... it has the technology and the Verizon deal shows it is also competitive," Joao Sousa, senior partner at advisory and investment firm Delta Partners, said.

Verizon contract, which was finalised last month and is valid from June 30 through to December 2025, is one of Samsung's most significant 5G contracts outside its home country.

It comes at a time when Huawei is struggling with US trade sanctions and Washington aggressively lobbying its allies to exclude the Chinese company’s equipment from their core networks.

Samsung could pick up “some new business, given the Huawei's current predicament”, Matthew Kendall, chief telecoms analyst at the Economist Intelligence Unit, said.

“It is already the biggest player for 5G equipment in its home market … the Verizon deal could help it secure more lucrative contracts in future. It is also second only to Huawei in terms of 5G patents.”

By November last year, Samsung had more than 2,800 declared 5G patents, second only to Huawei that had 3,325 patents, according to intellectual property group IPlytics.

Besides Verizon, Samsung has won global deals with Sprint, AT&T and US Cellular in the US, KDDI in Japan, Spark in New Zealand and Telus and Videotron in Canada.

Samsung is also flexing its muscles in India – one of the biggest telecom markets in the world. It is working with Reliance Jio, the country’s biggest network, and the government-run Bharat Sanchar Nigam Limited to secure future 4G and 5G deals.

Over the past few years, the world’s largest memory chip and smartphone maker as of the end of 2019, has been looking to expand its presence in the global telecom equipment market.

Despite investing in the sector for nearly a decade, Samsung has not been able to gain much traction, said Neil Campling, co-head of Mirabaud Securities’ Global Thematic Group.

"That could all change with the Huawei ban, especially as one of the other remaining options is also Chinese [ZTE] … Samsung's leadership in smartphones, semiconductors and display technology are all complimentary in the 5G race," Mr Campling said.

Currently, five large vendors – Ericsson, Huawei, Nokia, ZTE and Samsung – are supplying 5G radio network equipment such as base stations of core networks to the telecom operators worldwide.

“If an operator wishes to have a competitive tendering process with a few vendors, then Samsung is likely to be contention if companies from China [Huawei and ZTE] are excluded,” Ian Fogg, vice president, analysis, at UK-based research group Opensignal said.

“Samsung benefits from being based in South Korea that had very early 5G launches on all three operators in April 2019, high average 5G download speeds averaging over 300Mbps as well as high 5G adoption rate,” he added.

A worker uses a remote control system supported by Huawei 5G technology to control a crane located in Hunan province, during the Huawei Connect Conference in Shanghai on September 23, 2020. China OUT
 / AFP / STR
A worker uses a remote control system supported by 5G to control a crane located in Hunan, during the Huawei Connect Conference in Shanghai last month. AFP

A 5G network promises an internet speed of up to 1.2 gigabits per second, which will gradually reach 10Gbps – more than 100 times faster than 4G.

At a cost of $700bn to $900bn, the initial installations of 5G will cover only 25 per cent of the world's population by 2030, or about 2 billion people, according to McKinsey.

The consultancy predicts the coverage will be focused largely in wealthy and developed areas in the US, Europe and China.

Samsung’s total telecom equipment share has roughly doubled over the past three years, now accounting for around 3 per cent of the overall market, according to the US research firm Dell’Oro Group.

Samsung is catching up further as Huawei loses out on new mobile broadband opportunities in Japan, India, Korea and in parts of Europe, Stefan Pongratz, a 5G expert and vice president at Dell'Oro Group, told The National.

Samsung will have to work on its feature competitiveness, lack of scale and ... cost competitiveness to replace Huawei

“Some of this is already showing up in the numbers … with particularly Ericsson, Nokia, and Samsung benefitting in some markets … Huawei’s market share outside of China has stabilised and it is possible these trends might have differed without the US government interference,” he added.

If banned, Huawei will leave a "big gap in key markets" that will have to be bridged by its competitors, Neil Shah, vice president of research at Counterpoint Research, said.

“This has somewhat benefited Samsung in those 5G markets that are less cost competitive such as the US,” Mr Shah said. “However, in other markets Samsung will have to work on its feature competitiveness, lack of scale and ... cost competitiveness to replace Huawei.”

Although Huawei is losing some ground, “it will not be easier to fill its shoes”, Mr Pongratz said.

“Huawei is a technology leader with a very deep and broad mobile infrastructure equipment and services portfolio addressing not just the use cases of today but also of tomorrow,” he said.

Given the length of time that Nokia and Ericsson have been involved in equipment manufacturing, and for the purposes of continuity and compatibility, some operators may be cautious when choosing the European manufacturers, analysts said.

Technicians are roped up as they install 5G antennas. The new network is expected to carry 35 per cent of mobile data traffic globally by 2024, according to Ericsson. Reuters
Technicians are roped up as they install 5G antennas. The new network is expected to carry 35 per cent of mobile data traffic globally by 2024, according to Ericsson. Reuters

Huawei and Ericsson - which have long focused on 5G networks - have also devoted billions of dollars towards research and development. But it is not clear whether Samsung can plough in similar resources to effectively substitute Huawei and its competitors, Mr Kendall said.

“Samsung has a major challenge in terms of capabilities to support operators in network roll-out and operations … operators that are likely to adopt Samsung are the ones that [already] have in-house network deployment and operational capabilities,” said Mr Sousa.

Samsung will have a strong opportunity in South Korea, US, Canada, Australia and in some European markets. However, it could struggle in China, Africa and in some Middle East markets, according to Delta Partners.

Telecom operators in at least 14 countries are currently reassessing their reliance on Huawei’s RAN (radio access networks) portfolio, according to Dell’Oro. These markets include Australia, Brazil, Germany and the UK, that constitute nearly one-third of the global RAN market.

We are still at the beginning of the 5G era, which will likely last for at least ten years, Mr Fogg said, adding that the vendors like Samsung, should focus on meeting long-term market challenges.

“The 5G services we see today are based on early versions and users’ experience will leap forward in the coming years.”

“The race to 5G is a marathon that will last for years to come … vendors must ensure they are ahead in enabling fantastic experiences throughout the 5G era,” he added.