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Huawei’s hang-ups open 5G line for Samsung
[HONG KONG] Hang-ups about Huawei Technologies open a 5G line for Samsung Electronics. The Chinese telecommunications equipment manufacturer is running into mounting political problems overseas. That should help South Korea's US$280 billion titan make a move in the burgeoning market.
Huawei's latest setbacks will shake up the concentrated market for network gear. Because of security concerns related to suspected ties to the Chinese Communist Party, Australian lawmakers last week followed their US counterparts and effectively banned the Shenzhen-based company and its peer ZTE from supplying wireless components for ultrafast 5G service. Japan is also now considering similar restrictions.
The stakes are huge. Mobile infrastructure is forecast to be at least a US$25 billion market by 2022, with nearly half from major 5G networks, according to research outfit IHS. Huawei, ZTE, Stockholm-based Ericsson and Finland's Nokia accounted for over 90 per cent of worldwide sales last year. And Huawei's 28 per cent share dwarfed Samsung's 3 per cent.
The Seoul-based conglomerate set a lofty target earlier this year to grab a fifth of the 5G market by 2020. For now, the networking business barely registers at Samsung. The unit generated only about three trillion won (S$3.7 billion) of the company's 240 trillion won of 2017 annual sales.
Convincing customers to switch will be challenging. With Chinese gear off limits, the likes of US mobile carrier Verizon should welcome an alternative to Nokia and Ericsson. But it is generally costly and inefficient to swap out new equipment, especially when upgrading existing networks.
Samsung's expertise and deep pockets should help. The company is making next-generation chipsets, smartphones and other gadgets; it also claims a share of essential 5G technology patents. It has the power to offer attractive prices too. Critics of Canberra's decision to ban Huawei claim that similar kit from Nokia and Ericsson costs up to 30 per cent more.
For evidence of Samsung's ambition and stamina, consider its declaration last year that it would triple its market share in contract chip manufacturing within five years. California-based GlobalFoundries just dropped out of the costly race to produce next-generation 7 nanometer semiconductors, leaving TSMC to contend for the market against Samsung. The 5G path looks similarly clearer.
Japan's cybersecurity authorities are studying whether to impose tighter regulations on imported telecommunications equipment, including from China, The Wall Street Journal reported on Aug 30.
The Australian government said on Aug 23 it had banned Chinese companies Huawei Technologies and ZTE, without identifying them by name, from providing gear for the country's planned 5G network because of securities concerns.
The authorities cited vendors "likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law". Huawei confirmed the action on Twitter and said rival ZTE also had been banned.
ZTE said on Aug 30 that it expects to generate a profit in the third quarter after recording its worst first-half net loss because of US regulatory action against it that included US$1.4 billion in penalties.
Samsung Electronics surpassed China's ZTE in the first half of 2018 to rank fourth in the global market for mobile network equipment, research firm Dell'Oro said on Aug. 20.
On Aug 28, chipmaker Globalfoundries said it was dropping out of the race to develop next-generation 7 nanometer technology, leaving Taiwan Semiconductor Manufacturing and Samsung as the dominant competitors for the market.