Convergence credentials

Samsung Gulf Electronics is using the power of its product portfolio to deliver the convergence dream to customers across the Middle East. From mobile phones to monitors and printers, Samsung stands out from the crowd as a vendor with the breadth of solutions required to take on this new challenge. Samsung Gulf Electronics’ president J.H. Park explains the company’s plans for further growth in the Middle East and outlines the importance of Gitex as a platform for showcasing the vendor’s long-term plans and its convergence credentials.

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By  the Gitex Times Staff Published  September 26, 2005

|~|samsung1.jpg|~|Samsung Gulf is looking for revenues of US$900 million this year, says J. H. Park.|~|Gitex Times: How does Samsung Gulf Electronics actually fit into the wider Samsung organisation? Talk us through the company’s structure? J.H. Park: Samsung Gulf Electronics now comprises 72 staff including our logistics team at Jebel Ali, as well as our staff at the office in Dubai. We have grown the team during the last year and serve Egypt, Yemen and the whole of the GCC, with the exception of Saudi Arabia. Pakistan was part of the organisation until April 2005 when it became a separate Samsung entity. What happens is that when one country performs and hits a certain business level they become an independent company. I think that Egypt also has the potential to become an independent Samsung country organisation next year. In terms of revenues, the decision to create a separate country unit usually occurs when a market reaches US$100 million in revenues. GT: Talking of revenues, what sort of sales is Samsung Gulf Electronics now achieving for the countries that it serves? JHP: Last year Samsung Gulf Electronics revenues totalled US$790 million and this year we expect that figure to hit US$900 million. The largest portion of this sales figure is derived from the mobile phone business, which will account for approximately US$650 million of the projected US$900 million for this year. However, it is worth noting that this mobile phone revenue is not just for the countries that Samsung Gulf Electronics serves. Because we act as a logistics hub, some of the products that pass through Samsung Gulf Electronics are intended for other markets in the Middle East that are not part of our territory. The mobile phones from Samsung factories in Korea and China come through our logistics operation even if they are eventually destined for markets such as Saudi Arabia or Iran. GT: The mobile phone sector still appears to be doing incredibly well. What is your opinion on the existing vendor landscape for handsets? JHP: Mobile phones are definitely a leading segment in the electronics business. Next year we are looking at a minimum sales increase of US$100 million for this part of the business and if we hit the targets that we are looking at, this will probably be US$200 million extra. This would take the mobile phone revenues for Samsung Gulf Electronics up to US$900 million. In this market, Samsung is the number two vendor with Nokia maintaining the number one position. The other vendors are some way behind, but even though we are currently number two we believe there is still a long way for us to go to fulfil our potential in the Middle East and Africa (MEA) markets. We currently have 20% market share in MEA but in some specific countries such as Pakistan or Iran we actually have over 30% market share. In Iran we actually have 38% share and lead the market and we plan to take on Nokia in other markets as well. Globally, Motorola is a strong vendor — especially in a market such as the US — but here it still has a limited presence. GT: There is a lot more to Samsung than mobile phones. How is the IT side of the business performing now? JHP: The IT side of the business is very important to Samsung. We recently launched a new and improved range of ‘Magic’ monitors in the market and this forms just one part of the overall IT business. I said we would do US$900 million in sales this year with US$650 million from mobile phones. Of the remaining US$250 million, IT probably accounts for US$85 million of this total with the remainder derived from audio-visual products and home appliances. On the IT side, approximately half of the sales come from monitors. Regionally the CRT monitor business is only growing at around 5% at present, but that is still quite healthy when you consider that globally the market is shrinking. The LCD segment is really picking up though in this region. Last year we sold 35,000 LCD monitors in the region and we are actually predicting selling 75,000 LCD units during calendar 2005. That is more than double the previous year’s total. In many ways, the growth in the sales of LCD units is compensating for the global fall in CRT units. It is also worth noting that part of the loss in CRT sales is also due to the massive global growth in the sales of notebook PCs that is occurring.||**|||~|samsung2.jpg|~|According to J. H. Park, Samsung is selling more LCD and plasma displays as consumers move away from CRT monitors. |~|GT: Samsung is a global powerhouse in the display business. How challenging is that sector given the changing supply-demand dynamic, especially in the flat panel space? JHP: Samsung is already producing the seventh generation of flat panel technologies and we are preparing for the eighth generation already. As this progression occurs, it means that bigger sized panels become more affordable. We don’t believe that displays will continue to get bigger and bigger. When you look at televisions, the maximum size that customers are comfortable with could be 42”. You only need a 100” screen if you live in a palace. It may be that we are reaching the last stage in terms of meeting the size requirements of the home user and as this happens we will start to see the production of these large displays move towards higher volumes and that will mean that the prices will start to drop. Today, a 42” LCD TV costs several times what a traditional TV of this size would cost. That is because the manufacturers have made huge investments in developing the manufacturing capability, but the demand is still relatively small — that makes it difficult to drop the price. When people see that they can get a better product for a reasonable increase in price they start to buy. GT: Is this trend happening now? JHP: In Germany, more than 55% of buyers are now opting for either an LCD or plasma TV. Two years ago that figure stood at just 20% so the speed of change is quite dramatic. When you look at the 15” or 17” flat panels we have seen a real change in the price ratio between LCD and CRT technologies. Three years ago the ratio of the price of an LCD monitor compared to a CRT monitor of similar size was 4:1. Now it is less than 2:1. With LCD prices expected to drop 35% next year in addition to the 35% they have fallen this year, the ratio will be down to 3:2. This means that an LCD monitor will only cost one-and-a-half times what a CRT does. GT: You’ve talked about TVs and monitors there. Is this a reflection on Samsung’s strength as the worlds of IT and consumer electronics start to converge? JHP: Samsung has an edge in terms of convergence. There was an announcement recently from Interbrand that Samsung had become the biggest global brand in the consumer electronics sector — even bigger than Sony in terms of brand equity. The main driving engine behind this type of achievement is digital convergence. We have almost all the product areas covered. In the display segment, Samsung has every type of technology covered and we also have a strong presence in the audio sector through products such as MP3 players, home theatre systems and even Hi-Fis. Then you have to take into consideration Samsung’s position in the information technology arena. GT: Do you have everything covered from an information technology perspective when it comes to delivering convergence solutions to customers? JHP: Even though we are not selling notebooks or desktops here, we do have experience of that sector in Korea. We hold 60% notebook market share in Korea even though we are up against global competitors. In this region we have the printers, monitors and components such as hard disk drives and optical disk drives. At a global level, Samsung also has networking equipment and then of course we are also strong in the mobile sector. Today, people tend to be in one of three locations: at home, in the office or in a mobile environment. Ten years ago, if you were not at home in the office you were not connected. Today we are constantly connected and Samsung has the terminal devices that sit at the very heart of the connectivity: monitors, mobile phones and home display devices. No other vendor has this breadth. Many consumer electronics companies do not have IT products and likewise, many IT companies do not have consumer electronics products. Many major mobile phone vendors do not have any strength outside this segment. GT: Are you convinced that this convergence dream will become a reality in the Middle East? JHP: I believe that even home appliances represent a product area that will eventually be digitally networked as part of the smart home. In Dubai we already receive many enquiries from customers wanting to know if we can supply smart home solutions — connecting audio-visual products, home appliances and IT equipment through a home network. This technology is now becoming a reality — the ability to switch on the water heater at your home or open a window just by using your mobile phone to make contact with the home network. Samsung has a complex in Korea already working in areas such as this. This is possible because we reinvest 10% of sales in research and development (R&D) every year. Last year Samsung’s global revenues hit US$65 billion. That means that more than US$6 billion was spent on R&D. GT: So why has Samsung not launched its notebooks in the Middle East region? Personal computers are surely the glue that holds the whole idea of convergence and home networks together. JHP: Samsung is quite a conservative company in some respects. We have not even launched notebooks in the US. To date, Samsung notebooks have only been launched in a dozen countries including Korea, China, Germany, France, Italy, Spain and the UK. These are products where you need to ensure that the post-sales service and support network is perfect and offers a quick response for customers. We will make sure that a high level of support is in place before we launch notebooks in this region. Our target launch date is the second half of 2006. GT: You already have a service network in place for the other products you sell. Why can’t that be used to service notebooks as well? JHP: There are different levels of service complexity. With a monitor the repair process is fairly simple and it is clear when a replacement unit is required. Notebooks are much more complex than this and you need fully trained engineers in the market. Also, the area we specialise in is slim business-focused notebooks. The entry-level notebook space is highly competitive and price driven and is not necessarily a productive area for Samsung to enter. For the segment we intend to enter, we need to achieve a certain volume to justify the level of service we wish to offer.||**|||~|samsung3.jpg|~|Samsung will look to launch its laptops in the region next year, says J. H. Park.|~|GT: Do you have any concerns that the barriers to entry rise the longer Samsung leaves it before launching notebooks in this region? JHP: Even though Samsung is already a very well known brand it will require considerable effort when we decide to launch notebooks in this region. However, I believe that our experience means that we know exactly how to approach this. We will make the proper investment and will plan the launch in detail. GT: Samsung has launched printers in MEA. How successful has that been to date? JHP: Last year in the MEA region, we sold 130,000 printers and this year we are expecting to sell 350,000 units — almost triple the amount. This is the speed that we are growing at despite the fact that there are many vendors operating in this sector. There is still a great deal of room for Samsung to grow into as we look to move into the tier one vendor group. At a corporate level we are investing huge amounts in R&D on the printer side and it is an area where we will continue to grow. GT: Is Samsung launching new products at Gitex? JHP: We recently launched a photo printer at an exhibition in Germany and have several thousand units here at Gitex for an initial launch. We also have a new mobile phone, an MP3 player with a built-in digital camera and a digital camcorder as well. All three of these products can be used with the photo printer and this goes back to the digital convergence concept. How many companies can showcase these solutions? The edge that we have over other vendors is the ability to link all these products together to form solutions and that is what we are showcasing at Gitex. GT: Is there anything special for visitors to see at Samsung’s stand this week? JHP: We are displaying an 82” plasma screen and this is actually a technology that is not yet in commercial production. Globally there are only five units of this size and the screen is worth US$150,000. We are showcasing both convergence and also Samsung’s leadership in developing breakthroughs in product technology.||**||

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