Posted : 2016-02-25 16:17
Updated : 2016-02-25 18:00

Cisco approaches Samsung for acquisition

By Kim Yoo-chul

BARCELONA, Spain ― Cisco Systems, the U.S.-based networking giant, has approached Samsung Electronics to acquire the latter's network business division, a person familiar with the matter told The Korea Times.

"Despite repeated denials by the two companies about the issue, Cisco is still interested in purchasing Samsung's network business division," the official said on the sidelines of this year's Mobile World Congress (MWC), Thursday (KST). "Samsung was contacted several times by Cisco."

According to the official, Cisco's previous attempts to purchase Samsung's network unit had failed as its bidding price was "too low," given Samsung's increased presence in that business in some key markets.

He said the growth of Samsung's network business means the U.S. company will have to spend more if it wants to close the deal. Cisco, however, hopes to spend less but things have become complicated, said the official.

While Samsung isn't a major player by market share in the network equipment business, the company's growing presence in target markets is noticeable, analysts said.

By last year, Samsung Electronics was found to be the top long-term evolution (LTE)-based wireless network equipment supplier in India, while the company increased the portion of its overseas sales to 11 percent between 2013 and 2015.

In Korea where Samsung is the sector leader, efforts by telecom operators and network infrastructure companies to invest more in fifth-generation (5G) technology ahead of the 2018 Winter Olympics will be accelerated in line with the Korean government's plan to make the country the test-bed for the high-speed technology.

By supplying the needed equipment, foreign network companies that operate in Korea, from Nokia-Alcatel Lucent and Huawei to Cisco, plan to use the Winter Olympics as the springboard to apply their 5G technologies for business expansion in other countries.

"If Cisco were to buy Samsung's network business, then it could get a significantly strong foothold in Korea, India and countries in Western Europe, as well as the United States, as all leading technology firms are planning to expand their 5G," said the official.

For Cisco, the Samsung deal, if completed, could also help it offset investors' concerns that its networking business may be challenged further due to the rise of competitors.

Additionally, given Samsung's presence in the enterprise sector across the world, the acquisition will also help Cisco raise its profile in the business-to-business (B2B) sector.

As seen in the smartphone industry, a new order prevails also in the global network equipment industry. Nokia closed its deal to purchase Alcatel-Lucent in order to put itself in a competitive position to challenge Chinese competitors Ericsson and Huawei.

The official said Huawei's steep growth in the market may hurt Cisco's sustainability. In 2014, Cisco signed a cross-licensing deal with Samsung Electronics, allowing both firms access to each other's patent war chests.

"Chinese companies are unable to buy from Samsung's network equipment business division because of a de facto U.S. government restriction on Chinese vendors winning contracts with top-tier U.S. carriers over security concerns," he said.

This year's MWC highlighted tech companies' passion for 5G, which is essential to mission-critical Internet of Things (IoT) applications such as remote-controlled robots and products supporting virtual reality (VR) technology, in addition to immersive media services.

GSMA Intelligence said subscriber growth in the mobile market is expected to slow over the next five years as markets approach saturation, pressuring mobile operators and others to find new opportunities in areas such as 5G.

"This means new business will come from developing to developed markets," the official said.

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