Samsung, LG modify China strategy

Samsung Electronics CEO Kwon Oh-hyun, second from right, digs at a groundbreaking ceremony for a new semiconductor plant in Xian, China, in September last year. Samsung and LG Electronics are speeding up their expansion in China to tackle the challenge of Chinese firms Huawei and ZTE. / Korea Times file

Two speed up

business expansion

to tackle challenge

of ZTE, Huawei

By Cho Mu-hyun

Korean electronics powerhouses Samsung Electronics and LG Electronics plan this year to more aggressively expand in China, following rising competition from local firms there.

Samsung is attempting to set earlier deadlines for its long-term plan as Chinese telecommunication giants ZTE and Huawei threaten its market share. It had a share of 20 percent in 2011, which declined to 14.2 percent last year, according to IT research firm Gartner.

In the past, the two Chinese companies were considered vendors of budget, low-end phones. However, both have recently unveiled high-end devices with larger screens and that are only slightly behind their Korean counterparts in technological advancement.

ZTE and Huawei have both unveiled six-inch “phablets,” handsets that blur the line between smartphones and tablets due to their screen sizes, and which are in high demand. This puts them in direct competition against Samsung who pioneered the category with its Galaxy Note series.

Much like Korea is to overseas firms, the Chinese market has been notoriously difficult for non-local firms to penetrate, irrelevant of industry, except for a few top players.

Entering the largest IT market is a double-edged sword for most firms. According to a recent report by Hanwha Investment and Securities, the smartphone industry will grow faster than it did last year, but at the same time, it will be mostly Chinese smartphone makers that will see the most increase in market shares, both domestically and globally.

Samsung has leverage over them as a major supplier of components, a business that accounts for about half of the Korean technology giant’s revenue line. Further, it recently showcased its Exynos 5 Octa, the first application process to have eight cores, to draw the Chinese clients.

The Suwon, Gyeonggi-based outfit is discussing the possibility of advancing the completion of its Xi’an semiconductor line, previously planned to start producing 10- and 20-nanometer class NAND flash chips in 2013.

According to an industry source, Samsung wants to commercialize its so-called three dimensional “V-NAND flash chips” faster to deliver them to clients. Samsung will guarantee on-time commitment to them during the manufacturing process before they release phones during the high demand seasons.

Samsung is racing with rivals SK Hynix, Toshiba and IBM to quickly commercialize 3D NAND flashes by 2014, albeit it is attempting to do so before that date.

The source also said that factories making liquid crystal display (LCD) panels for televisions will switch to making six-inch displays to be used in tablets and smartphones made by Chinese vendors.

“The demand for Samsung’s chips is high in China,” said Greg Roh, a senior analyst at HMC Investment Securities. “Besides supplying to local manufacturers, Samsung will need to increase its chip output for its own shipments of mobile devices.”

Samsung plans to expand in China not only to establish itself in the Chinese market but also to create a manufacturing base for its increased production of touch-screen devices this year. Industry analysts said the Suwon-based technology giant controlled seven percent of the tablet market share last year and aims to increase this figure to 20 percent this year. “It will need to increase its output for chips and panels accordingly,” said Roh.

It plans to ship 43 million tablets, according to estimates by HMC Investment Securities. Samsung is planning to unveil its eight-inch Galaxy Note but not its flagship smartphone Galaxy SIV at the upcoming Mobile World Congress. Further, it will release the Galaxy Note 3, which has a 6.3-inch screen some time later, making it important for the outfit to maintain steady productions for mid-sized display panels, though they use organic light-emitting diodes (OLED) rather than LCD panels.

Chinese computer giant Lenovo will pose the biggest challenge in tablets for Samsung, according to analysts.

LG, which accounts for half of Korea’s electronics industry, also feels the same threats but lacks Samsung’s foothold in China. It has recently formed a taskforce to aggressively expand there. It currently has less than one percent market share.

The Yeouido, Seoul-based company also formed a taskforce to create a division for fabless chips late last year. The size of the teams has not been disclosed. “This year is the chance for LG to expand its smartphone business that was once in peril. It is still the only company that has the highest chance of stealing away some of Samsung’s market share,” said an industry official, declining to be named. “In technology, it is more advanced than ZTE or Huawei but will need to increase its global market share this year, including in China, to maintain a safe distance ahead of them.

Observers were more pessimistic about LG’s potential in China compared to Samsung. “Honestly, it is safe to say that LG’s presence in China currently doesn’t exist,” said Roh.