South Korean CDMA handset manufacturers exporting their way out of the currency crisis affecting their country are expected to fuel competition in the U.S. Code Division Multiple Access handset market this year.
One analyst in South Korea expects all four of the country’s main handset manufacturers-Samsung Electronics Co. Ltd., LG Information & Communications Ltd., Hyundai Electronics Industries Co. Ltd. and Maxon Electronics Co. Ltd.-to aggressively export CDMA handsets as domestic demand for handsets will fall well below their expectations. Five CDMA carriers now operate in South Korea. The four manufacturers combined are expected to export more than half of their total volume of CDMA handsets they manufacture this year.
Telson Electronics Co., an established provider of pagers and cordless phones, has announced it will introduce personal communications services CDMA handsets in the United States and Korea next month. Telson said it plans to export about one-third of the total volume of CDMA handsets it will manufacture next year, and the company is reviewing whether it will contribute more to the export market. Telson plans to manufacture about 250,000 handsets this year.
With the United States becoming a strong CDMA market, South Korean manufacturers’ exporting practices will “definitely have an impact on the U.S. market given the relative advantage of the won against the dollar,” said Raj Srikanth, a telecommunications analyst with Schroder Wertheim & Co. in New York. “There is no question that the entire CDMA handset business will go through a tremendous level of competition this year given the number of handset suppliers.” South Korean manufacturers will drive the competition even harder, he said.
“The Koreans are in a position that will make pricing look even more aggressive, and it will push other handset manufacturers to bring their prices down,” said Ira Brodsky, president of Datacomm Research Co. in St. Louis. “CDMA has had a weakness in the PCS band, which is the high cost of the handsets. I think that lowering the handset prices gives the operators more dollars to spend on marketing than on subsidizing.”
To what extent South Korean manufacturers will be able to lower prices, however, is questionable. Srikanth said South Korean manufacturers have to buy their chipsets in U.S. dollars and pay royalty fees to Qualcomm Inc., which will limit how much they slash prices. Herschel Shosteck, president and chief executive officer of Herschel Shosteck Associates Ltd. in Wheaton, Md., believes the export business for Samsung, a worldwide consumer electronics powerhouse, may not be all that advantageous.
“Its terminals will be less expensive because of the devaluation, but it still will have to support the U.S. market in dollars,” he said. “The overhead of supporting a marketing effort will be substantial, and it will have to spend a lot of advertising dollars. This will offset the lower cost advantage.”
Samsung’s American telecommunications business, Samsung Telecommunications America, is on the fast track in the United States, spending $10 million on a brand promotion campaign with a goal of capturing 40 percent of the U.S. CDMA handset market. Currently, Samsung is a lower priced provider, analysts believe, but industry heavyweights Nokia Corp. and Motorola Inc. have yet to pummel the market with CDMA products. Samsung accounted for 60 percent to 80 percent of Sprint PCS’ subscriber activations during the fourth quarter, Samsung said. Sprint PCS recently announced it reached 1 million subscribers.
While a number of South Korean companies last year signed license agreements with Qualcomm-which holds the intellectual property rights to Interim Standard-95 technology-to manufacture handsets, analysts believe they will hold off on plans to introduce products this year because of the economic problems in South Korea. For some manufacturers, their inevitable failure will come earlier than anticipated.
“Qualcomm was brilliant in promoting the virtues of CDMA technology and convinced a lot of small manufacturers to attempt to enter the market. Most of these will be unsuccessful,” said Shosteck. “They had virtually no chance of success, and that would hold true regardless of the Asia-Pacific meltdown.”
