Samsung - Mobile Access

Gubbins, Ed March 25, 2013

Company Assessment (Infrastructure)

Current Analysis Competitive Index

Rating Update Summary

Samsungs Smart LTE platform, tied to its heritage in smartphone-dense Korea, raises its reputation for LTE innovation

Solutions
ST RONG Samsung offers two primary mobile access infrastructure solutions based on a common radio access network (RAN) hardware platform. Samsung MBS (formerly called SmartMBS) is aimed at multistandard networks and supports GSM, HSPA+, W CDMA, CDMA and LTE. Smart LTE Networks, launched in 2011, is optimized for LTE and includes an integrated IT server. Samsung also offers LTE small cells, W iMAX base station platforms (including mobile W iMAX, since 2006) and core solutions including an Evolved Packet Core, SGSN, GGSN, W GW /W SS and IMS solutions. (Incidentally, the vendor launched GSM capabilities in 2012 at the request of a European customer, making Samsung perhaps the newest major entrant to the GSM base station market.) Unlike some of its competitors, the company does not offer its own backhaul solutions (typically partnering with others for those functions) nor has it publicly put forth a service provider W iFi offering commensurate with RAN/W iFi convergence trends. Separately, it is one of the most successful and influential providers of smartphones and other mobile devices in the world.

Products/Roadmap
VERY ST RONG Samsung has introduced an impressive range of capabilities for its LTE base station platform that promise improvements to network efficiency and user experience. It introduced multicarrier LTE and VoLTE to commercial service in mid-2012 and promises carrier aggregation (an LTE-Advanced feature) in Q3 2013. The vendor also evolved its offerings by integrating an IT server in its base stations, allowing

it to offer a range of innovative capabilities, including caching (planned for availability in Q3 2013), coordinated scheduling and more. Another example of these capabilities is Smart Push, commercialized in 2012 and marketed in collaboration with Korean operator SK Telecom, which offers more intelligent decisions in the communications between devices and application servers, streamlining them through a single TCP connection, reducing signaling traffic, which promises better use of network resources and device battery power.

Service/Support
COMPET IT IVE Samsungs infrastructure services organization, Samsung SNS (formerly Samsung Network Services), employs far fewer people than any of the top five mobile access infrastructure vendors (though it doesnt publicly disclose the groups headcount number or the number of dedicated services personnel it says are outside of SNS. The organization has nine offices in Korea and 11 elsewhere, split roughly evenly between the U.S. and Europe. It formed a European network operations unit in 2011 (now called Samsung Networks Europe), which the vendor says contributed to its first major European infrastructure win in mid-2012 but whose structural organization and headcount Samsung wont describe in public. Samsung provides professional services and project management services for operators. It has historically offered managed services as well and continues to provide it for customers that request it (and it continues to serve its existing managed services customers, most of whom are W iMAX operators), but in general, Samsung does not proactively market managed services.

Strategy Execution
ST RONG Samsungs infrastructure strategy relies in part on leveraging the well-established presence of the larger Samsung Electronics Corp. It harnesses the high regard of its devices brand among mobile operators (the companys Galaxy smartphones have been among the most acclaimed in the market). It builds upon the existing regional presence of its other businesses to scale quickly when needed (for example, with its North America subsidiary). And it applies its technological understanding of devices to its networking solutions (and vice-versa), as in its argument that its Smart LTE solution is designed to handle heavy smartphone use. At the same time, while Samsung has historically suffered from the perception that its infrastructure business was an afterthought to devices, that perception is changing. Samsung has shown an increased devotion and attention to its infrastructure business in recent months and a greater degree of transparency and communication that signify a readiness to transform and to advance on the global stage. The sizeable booth for Samsungs networks business at Mobile W orld Congress 2013 - wholly separate from its devices presence - was a significant shift from a year earlier (when the networks business was a small space within its devices booth) and sends a clear message that Samsung intends to scale its networks business independently.

Momentum/Traction
ST RONG Samsung doesnt report the financials for its infrastructure business separately, but the division that contains it (Information Technology & Mobile Communications, which also includes computers) reported roughly $146 billion in revenue for the first nine months of 2012 (up nearly 68% from the year before) and nearly $13 billion in operating profit (up 152%). Separately, the companys Samsung Telecommunications America subsidiary (which includes both infrastructure and devices) reported nearly $8.8 billion in revenue during that period (up nearly 40%) and about $48 million in net income (reversing a loss from the previous year). However, Samsungs tally of announced customers is less impressive. Lacking its competitors broad base of 2G and 3G deployments, Samsung is also far behind its rivals in terms of LTE contract wins. As of March 2013, it reported 18 LTE contract wins (three of which were for small cells) far fewer than any of the top five LTE vendors, including Alcatel-Lucent, which reported 25 in mid-2012. Though the company announced a win in Q1 2013 with Telefonica Chile, Samsungs first significant European network win didnt come until mid-2012, and its absence from the list of vendors selected for the 2012 expansion of China Mobiles TD-LTE trial (which Samsung calls its business decision to step back temporarily from the trial) was a black mark for the company, as all five top LTE vendors were included. Still, Samsungs aspirations in TD-LTE may be aided by its ability to leverage its extensive share of the maturing W iMAX market.

Perspective

POSIT IVE W e are taking a positive stance on Samsung in the wireless infrastructure space. The company has earned a reputation for innovation in LTE. Its Smart LTE platform was designed to be optimized for the rigorous data demands of smartphone users and includes IT capabilities that deliver a range of enhancements, including content caching, coordinated scheduling and streamlined signaling between app servers and user equipment. The company continues to demonstrate traction in 4G gear, with early success in W iMAX and LTE wins including KDDI, SK Telecom, Sprint, MetroPCS and Cellular South. And it is executing on its geographic expansion imperatives, hailing its first European LTE win, with Three UK in 2012 (a win that spoke well of the European unit Samsung had created the year before) and one with Telefonica in Chile in early 2013. Also, its deal to supply Sprint with small cells represented a highprofile and early win in an important segment that offers particular opportunity for Samsung to challenge the incumbency of the worlds top mobile access infrastructure. In addition, the increasing visibility and transparency of its infrastructure division (with increased messaging, communication and promotion) show it is committed to scaling the organization independently of its devices business. At the same time, the companys overall financial health distinguishes it well from some rivals, such as Alcatel-Lucent and ZTE, that have struggled with profitability. However, Samsung still has work to do in competing against major suppliers of end-to-end solutions. The vendors absence from China Mobiles 2012 TD-LTE trial, despite a clear devotion to the global TDLTE market, distinguished it from all major LTE vendors in a way that wont aid its ambitions to crack the top three. The vendor still lacks a well-defined carrier W iFi story and is vague on the topic of smallcell backhaul, where it claims unspecified partnerships but needs to offer greater clarity to bolster its credibility in small cells. In addition, its services organization is dwarfed by rivals and doesnt include an actively marketed managed services component. Overall, the vendors brand identity, spanning everything from televisions and refrigerators to mobile devices and base stations, makes it easy for operators to question whether the company can devote sufficient focus to the mobile access space. But the companys presence in mobile access is clearly shifting, and major vendors must keep their eye on Samsung.

Ratings
Market Mobile Access 3GPP Networks 3GPP2 Networks Femtocell Mobile Packet Core WiMAX Networks Perspective Positive Positive Negative Moderate Moderate Positive Market Perception Moderate Positive Negative Negative Moderate Very Positive Momentum Moderate Moderate Moderate Moderate Moderate Positive Vision Positive Positive Moderate Negative Positive Positive Innovation Positive Positive Negative Moderate Positive Positive

High Impact Events

Feb MW C 2013: NSN Decides Operators Can W ait Longer for FlexiZone, but Not for Feb MW C 2013: Cisco Adds 3G to W iFi APs and Ties Network Optimization to Policy, Feb Alcatel-Lucent Prepares for Next Phase with Departure of CEO Verwaayen

22 Smarter W iFi or Femtos 7 2

19 Upping the Ante in RAN/W iFi Convergence

Nov Google Announces Shiny New Nexus Devices with Same Old App and Distribution

Problems

2012

16
2012

Oct ZTE Vows to Cut Back After Another Bad Quarter: Less Global Expansion Ahead?

Strengths and Weaknesses

Strengths
Samsung continues to demonstrate progress in its aim to expand its infrastructure business

geographically, a feat some of its peers (e.g., NEC) have struggled to do. Its mid-2012 deal for RAN and 3G/LTE core infrastructure with UK operator Three represented a milestone in this regard (Samsungs first major European network win). And its early 2013 win in Chile, with Telefonica, shows it continues to expand in multiple directions, adding to previous wins in Korea, Japan, Saudi Arabia and elsewhere. Samsungs inclusion of IT capabilities in its Smart LTE Networks access solution give the vendor a claim to technological innovation and advancement aimed at future-looking network requirements. Enabling features such as content caching (which Samsung began talking publicly about in 2011, months before NSN gained attention for it), coordinated scheduling and reduced application signaling, the Smart LTE platform is well-aligned to take advantage of a broader industry trajectory toward telecom/IT convergence and do so in ways that have broad near-term applicability. Samsungs enviable position in the mobile devices space gives it credibility in the overall mobile world and relationships with operators that it can leverage for infrastructure sales as well as intellectual property rights that can be applied to both areas. The companys highly popular and acclaimed Galaxy S III, for example, gives it plenty of attention from operators and end users alike and allows Samsung to one-up other infrastructure vendors with less accomplished device businesses. Samsung cites its strong position in Korea -- which has the worlds highest penetration of LTE subscribers, according to the GSMA -- as a testament to its ability to stay on the leading edge of market demands. W hen the company claims its Smart LTE platform is optimized for smartphone use, it can credibly claim to be ahead of the curve that other networks will follow. In addition to Samsungs progress with LTE, the company has a successful track record deploying W iMAX networks, which adds to its traction and credibility in the 4G infrastructure space. The vendor claims to have commercial deployment contracts with 33 operators and to have shipped over 100,00 W iMAX base stations. Those wins include some of the highest profile W iMAX operators in the market: Clearwire (U.S.), KT (Korea), UQ (Japan), Y ota (Russia), Intellecom (Ukraine) and Max Telecom (Bulgaria). Although the precise financial performance of Samsungs infrastructure business isnt publicly quantified, the overall company boasts a level of financial health and stability that has become rare among major vendors in the mobile access infrastructure space. Because the companys interests are distributed across a range of successful enterprises including consumer electronics it can exploit the financial woes that have afflicted rivals such as Alcatel-Lucent and ZTE by arguing that its own future is more reliable.

Weaknesses
Samsungs access infrastructure customer list is far shorter than those of all of the top five vendors (some of which it hopes to displace in order to accomplish its goal of breaking into the top three). As of March 2013, it reported 18 LTE contract wins (counting three small cells as separate contract wins), while Alcatel-Lucent, for example, reported 25 in mid-2012. Although comparisons of shipments or revenues might tell a more meaningful story (as of February 2013, Samsung claimed to have deployed over 195,000 commercial LTE cells), Samsungs relatively short customer list can be used by rivals to marginalize it. Primarily a consumer electronics company, Samsungs focus, attention and priorities are divided among eight separate businesses including TVs, cameras and printers of which telecom infrastructure is just one. The vendor has recently begun to change this dynamic ramping up messaging on its infrastructure business but it will continue to face the hurdle that its brand is less associated with mobile infrastructure than, say, Ericssons or NSNs, for whom mobile networks are a more central pursuit. Samsung lacks the track record of its larger competitors (Alcatel-Lucent, Ericsson, Huawei, NSN, and ZTE) when it comes to 2G and 3G network deployments. Though the company added GSM capabilities to its multi-standard base station in 2012, it does not have the broad base of 2G and 3G customers that its rivals are mining for 4G sales. In addition, Samsungs lack of 3G small cells give rivals another chance to secure customer relationships that can be leveraged for potential LTE sales. Despite devoting messaging to its TD-LTE efforts, Samsungs credibility in TD-LTE took a hit when it was absent from the list of vendors selected to supply the 2012 expansion of China Mobiles TD-LTE trial (all top five major LTE vendors were included). As the operator with the worlds largest TD-LTE

trial (all top five major LTE vendors were included). As the operator with the worlds largest TD-LTE deployment, China Mobile will no doubt be highly influential in the evolution of this technology (a variation of LTE). Samsung insists that its absence was the result of a business decision to step back temporarily from the trial its own business decision owing to the calculation that China Mobile was too demanding, but this position allows all top five major LTE vendors to point out that it wasnt too demanding for them . Samsungs infrastructure services business is much smaller than those of its chief rivals and further limited by its conservative stance regarding managed services. Its services unit, SNS, employees a fraction of what competitors devote to the task (though Samsung doesnt publicly disclose its headcount or the number of dedicated services personnel it says are outside of SNS), and its decision not to actively market managed services deprives it of another tool that competitors regularly use to increase customer stickiness (and wallet share). Services are a vital aspect of the infrastructure business, and Samsungs comparably diminutive resources in this area will make it harder to compete against the worlds top vendors. Notwithstanding Samsungs enterprise W iFi offerings, the vendor has thus far not told a fully formed carrier W iFi story, putting it at a disadvantage against some major rivals which are making W iFi a part of their offerings in response to operator demand. Samsung has hinted, as recently as Q1 2013, that it will soon have more to say on the W iFi front, but its silence in the meantime lets competitors with strong carrier W iFi plays (e.g., Ericsson, since its acquisition of BelAir) control the conversation. Though opinions still differ on the best approach to this topic, Samsungs softness on the topic only weakens its stance.

Recommended Actions
Recommended Vendor Actions
Samsung should publicly cite independent estimates of its LTE sales growth or market share growth rather than the number of its LTE contract wins or its market share goals. W hile other vendors might regularly update their total number of LTE contract wins, this may be less helpful for Samsung, whose LTE contract wins trail the top five vendors by a wide margin. Instead, emphasizing sales growth or market share growth in this area relative to rivals may put it in a better light. Samsung should work to maintain its edge on the topic of mobile caching by highlighting any differentiators between its approach and those of NSN and startup Saguna. Even highlighting customer traction in this area may help, as Samsung begain promoting its use of mobile caching in 2011, long before NSN. But now that the concept is developing into a trend, Samsung must leverage its earlymover advantage to make sure it isnt bypassed by others. Samsung should present a carrier W i-Fi play in connection with its small-cell strategy, both in response to operator interest and because it could give the vendor more even footing with incumbent RAN vendors, which are relatively new to W i-Fi themselves. The ubiquity of operator interest in W i-Fi for offload and capacity relief has made it difficult for any vendor to ignore. But operator adoption and vendor implementation even among the worlds largest suppliers is in early stages, giving Samsung a chance to at least keep up with major rivals. Samsung should clarify its small-cell backhaul strategy. In conversation, the vendor will refer to openended ad hoc partnerships on this front, but with many competing and overlapping technological approaches, promising to work with unspecified partners could leave operators feeling that Samsungs competitors offer greater vision and understanding of small cell backhaul and the need to marry it closely with small cells themselves. Even if Samsung opts to take an open-ended best-of-breed approach, it should make a strong, clear case for this position and its superiority over other vendors. Samsung should devote more energy to driving the ecosystem for enabling W iMAX-to-TD-LTE network migrations, positioning itself as the worlds utmost authority on this front. The company occupies a rare position: one of the very few remaining W iMAX suppliers with a large installed base of W iMAX platforms, high credibility in LTE and a highly influential position in the devices space. A more forceful role at the industry level whether this means taking more of a leadership position with the W iMAX Forum or creating a new organization aimed specifically at the W iMAX-to-TD-LTE evolution would aid Samsungs interests while differentiating among peers. If Samsung can migrate even a fraction of W iMAX customers to LTE, it will contribute greatly to the vendors goal of becoming a top-three LTE supplier.

 Samsung should reveal more details of the financial performance of its infrastructure business. Because this business is cloaked within two units its North American subsidiary (which includes devices) and its Information Technology & Mobile Communications group (which includes TV and cameras), the industry doesnt have a clear picture of the financial health of this segment. Considering the financial difficulties challenging rivals such as Alcatel-Lucent and ZTE, Samsung could promote its financial stability as a differentiator, but it would need greater transparency to be effective on this front.

Recommended Competitor Actions

Major RAN vendors such as Ericsson, Alcatel-Lucent, NSN, Huawei and ZTE should point to Samsungs absence from the 2012 expansion of China Mobiles TD-LTE trial as an indictment not only of Samsungs mastery of TD-LTE technology but of the vendors ability to serve the requirements of top-tier global mobile operators. NEC and Ericsson should emphasize the importance in small-cell deployments of including backhaul as part of the solution. In doing so, they should criticize Samsungs vague public stance on small-cell backhaul, suggesting (at least) inefficiencies in relegating this functionality to other vendors and (at most) the lack of a clear vision for small-cell backhaul. Both vendors can then contrast this with their own recently expanded toolkit visions for small-cell backhaul, announced in connection with Mobile W orld Congress 2013. Major RAN vendors should question Samsungs ability to support operators with the services needed to attend its solutions. All of the top five major RAN vendors can point to the comparably small headcount of Samsungs services organization as one example and to its passive stance on managed services as another. Finally, NSN and Ericsson in particular should go further to question Samsungs commitment and attention to the infrastructure space, as it remains just one part of the vendors overall business. RAN vendors that havent already (and Cisco) should sharpen their video optimization stories to either join or respond to the burgeoning trend toward mobile content caching. For example, NSN has unveiled a mobile caching solution, and Ericsson has exhibited a mobile caching RNC. One path to consider is investigating the value of partnerhips with a small but growing list of startups that are attacking the space in different ways, including Altobridge, QuickFire, Saguna and Vasona could be potential partners. At the very least, vendors should address it from a messaging perspective and be wellprepared to answer questions on the topic. Small-cell backhaul specialists and startups such as Tarana W ireless and Fastback Networks should consider partnering with Samsung (if they havent already done so) and urge Samsung to promote case studies in which Samsung pairs its own small cells with their backhaul solutions. Samsungs public position on this front is too vague, and the specialists in this crowded space could benefit from the imprimatur of a major vendor like Samsung as well as greater publicity in general. Thus a joint effort would benefit all parties.

Recommended End-User/Customer Actions

Operators under managed services contracts with Samsung should have a plan in place to replace those responsibilities or bring them in-house in the event that Samsung chooses not to renew the contract. In conversation, Samsung cites Alcatel-Lucents moves to review its managed services contract as context for its relatively recent decision to cease actively marketing managed services. European operators should press Samsung on the full range of offerings and services available through the vendors European Network Organization, as the vendor has been tight-lipped in public about some of the details of these operations due to competitive concerns. Operators should press Samsung on how its small cells can provide benefits, by themselves, that exceed the benefits of rolling out small cells supplied by their existing macrocell vendor. These discussions not only help inform operators decisions, they can also be used to gain negotiating leverage with macrocell vendors -- which may try to dismiss the value of independent small cells. Operators considering small cells should pay close attention to Sprints small-cell deployment as a relatively early example showcasing not only the strategies and challenges inherent in small-cell deployments but also the merits of Sprints suppliers in this deployment, Samsung and Alcatel-Lucent.

Overview
Company Description
Company Name Locations Samsung HQ: Seoul, South Korea; Dallas, Texas, USA; London, England, UK

Primary Markets W orldwide Revenues Employees Founded Management Product Lines 2011: 165 trillion won (~$148.5 billion) 344,000 1938 Gee-Sung Choi, Vice Chairman & CEO 3GPP Radio Access; Femtocells; W iMAX Radio Access

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Financial Summary

No company financial information available at this time.

This report is tagged to the following vendor(s): Samsung This report is tagged to the following content areas: Service: Service Provider Infrastructure Market: Mobile Access

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