'From talent acquisition to big deal rumors'... Can Lee Jae-yong's chosen 'telecom business' turn from ugly duckling to swan?

[Korea Financial Times, Kim JaeHun] Network businesses such as telecommunication equipment, which Samsung Electronics Chairman Lee Jae-yong has noticed, are preparing to stretch again, overcoming sluggishness and preparing for the 6G era. The recent rumors of a possible acquisition of global telecom giant Nokia's network division are analyzed to be related to this.

Samsung has recently hired talent from global telecom giant Ericsson and Chairman Lee Jae-yong has been meeting with global telecom companies to provide supportive fire.

According to Samsung Electronics on 19th, it hired former Ericsson Netherlands CEO Evers Flores as general manager of its network business in Europe. He has been with Ericsson Netherlands since 2015 and was in charge of network digital managed services based on 5G and IoT platforms. Prior to Ericsson Netherlands, Mr. Flores was in charge of sales at Cisco Systems, a US-based telecommunications equipment company with a global network.
Samsung Electronics' appointment of Evers Flores is a step toward strengthening its network business competitiveness. Currently, Samsung Electronics is in the process of applying its next-generation equipment technology, 'Open LAN' solution, to base stations in major European countries such as Germany.

This move is also in line with Samsung Electronics' rumored acquisition of Nokia's network division, which was previously reported by major foreign media. Nokia is the second-largest global telecommunications equipment maker after China's Huawei. If the rumored acquisition is true, Samsung Electronics will be able to expand its share of global 5G equipment infrastructure and respond quickly to the upcoming 6G transition.

According to industry sources, the acquisition of Nokia's network division is valued at around $10 billion (KRW 13 trillion), making it Samsung's largest acquisition since its 2017 acquisition of electronics company Harman (KRW 7 trillion). This year, Samsung Electronics has been making large-scale M&As to strengthen the competitiveness of its existing businesses, and the deal has drawn attention from both inside and outside the industry.

“We are looking for M&A and future businesses as a way to further strengthen our existing businesses, and we are preparing for tangible results,” said Han Jong-hee, vice chairman of Samsung Electronics, at the IFA event in Germany on Sept. 9, although he avoided confirming the rumors.

Samsung Electronics' network business, including telecommunication equipment, was declared as the future food along with AI, foundry, system semiconductors, bio, etc. in 2018, when Chairman Lee Jae-yong began to lead the group in earnest.

The network business, including 5G, was selected as a new business for the future because it can synergize with various industries such as AI and smart factories. “No company can guarantee 10 years from now,” he said at the inauguration ceremony of the 5G network communication equipment production line at Samsung Electronics' Suwon plant in 2019, emphasizing that “we need to increase our competitiveness with the attitude of a challenger in the newly opened 5G market.”

Since then, Chairman Lee Jae-yong has held a series of meetings with the global telecommunications industry, including a 5G-related meeting with the Crown Prince of the UAE, a meeting with Japanese telecom executives, and a meeting with the CEO of Deutsche Telekom in Germany. As a result, Samsung Electronics has won a 5G contract with New Zealand carrier Spark, a 5G equipment supply contract with Telus in Canada, and a 5G equipment contract with Verizon in the United States.

However, the company has been unable to gain more than a single-digit share in the global market, which is dominated by Huawei, Nokia, Ericsson, and other leading telecom equipment companies. More recently, the company's presence has faded as the 5G market has become saturated.

According to global market research firm Deloitte, Samsung's global telecommunications equipment share was about 2% last year, ranking seventh. In the first half of this year, the company did not even have a market share. Samsung's network division also posted sales of 3.78 trillion won last year, down 29.7% from the previous year. In May, the company decided to streamline its management by transferring some of the network division's 4,000 employees to other departments.

Samsung Electronics' network business has become a sore thumb, but Chairman Lee Jae-yong is undeterred. In particular, the plan is to lead international standards by improving equipment and technology competitiveness in line with the 6G transition, which is essential for the realization of future technologies such as AI and autonomous driving. Samsung Electronics explains that it will be able to return the manpower in the network business unit that has been converted and deployed in the future.

Chairman Lee Jae-yong's efforts to improve equipment and technology competitiveness in the 6G era are also notable, as he visited Samsung Research's headquarters in January to encourage employees in his first management action of the year. At the time, Chairman Lee Jae-yong emphasized the company's leadership in 6G technology standardization and promised continued support.

In June, he met with Hans Bestberry, CEO of Verizon, the world's largest telecommunications company, to discuss fostering the next-generation telecommunications business. Samsung Electronics plans to strengthen cooperation with Verizon, one of the top five sales partners of the network division and the world's largest carrier, to accelerate the development of its 6G telecommunications business.

Kim JaeHun (rlqm93@fntimes.com)