Since its exit from the highly competitive U.S. mobile handset market in late 1998, Siemens AG has vowed to return.
The German manufacturer will make its comeback this summer, but to a mobile-phone market that is even more crowded and competitive than ever before. Rapidly falling handset prices and demand for a broad product line led to Siemens’ exit from the Global System for Mobile communications handset market nearly two years ago. The company also had scrapped development plans for Code Division Multiple Access handsets.
The company’s return will take “investment, investment, investment,” recognizes Lothar Pauly, who April 1 will take the reins in Munchen, Germany, to lead Siemens’ global efforts in mobile phones and infrastructure. The company announced the two divisions will officially merge on April 1.
Siemens was in economic trouble when it exited the U.S. mobile-phone market, explained Pauly in an exclusive interview with RCR. The company needed to refocus on its core GSM business in Europe and Asia. The supplier sold 11 million handsets worldwide in 1999, twice that of the previous year, and plans to sell 30 million this year.
“We had a successful launch one year ago with the C-25 handset,” he said. “Now we have a very good business and gained market share. We are profitable, and we now have the resources to enter the U.S. market.”
That won’t be an easy task, say analysts. In order to compete here, handset players need volume, distribution and a strong brand. The space, especially in the CDMA handset arena, is becoming crowded. Asian manufacturers are flooding the market and L.M. Ericsson will try to aggressively sell CDMA handsets this year. Sony Corp., Oki Telecom and Bosch Telecom Inc. have been some of the casualties of the market.
“They will have to be very aggressive and innovative if they are going to succeed,” Jane Zweig, vice president with Herschel Shosteck Associates Ltd., said of Siemens. “The market is crowded and it will get more crowded … Price will be very important.”
Siemens understands these facts.
“We have to build up the same reputation and recognition that Siemens has in Europe and Asia as being one of the most important wireless players,” said Pauly.
Since Siemens’ departure, it has made strategic investments and acquisitions to prepare for its return, including a 15-percent investment in San Diego-based Neopoint Inc., the maker of popular CDMA smart phones that integrate a personal digital assistant and mobile phone. The company also recently acquired Denmark-based Bosch, which introduced the World 718 phone in 1998 but pulled out of the U.S. market later that year. And it won’t say no to more investments and acquisitions to ensure a dominant position in the U.S. market.
“The main focus is developing CDMA phones,” said Pauly. “We will leverage our Neopoint relationship and walk into the smart-phone arena. We can also leverage our manufacturing expertise and our volume to decrease manufacturing costs so that we can compete here.”
Siemens also teamed with Casio Computer Co. Ltd. to jointly develop a new line of palmtop personal computers with wireless Internet capabilities for the GSM market.
But it knows it will have to play in all segments ranging from low-end to high-end phones to properly compete in this market and realize its goal of becoming the third-largest handset maker in the world.
Siemens gained 350 research and development engineers from its acquisition of Bosch, whose primary product in the United States was the world phone. As such, it will use this acquisition to introduce a triple-band GSM handset into the U.S. market in June. U.S. GSM carriers have been aggressively promoting international roaming, signing record numbers of roaming agreements with European operators in recent months.
By the first quarter next year, Pauly said Siemens will unveil a Time Division Multiple Access/ GSM phone. The TDMA and GSM communities are working on interoperability between their systems to give both technologies access to a global footprint. Carriers like AT&T Wireless and SBC Communications have announced keen interest in such products. AT&T Wireless has partnered with British Telecom to offer consumers international wireless services. A TDMA/GSM phone is key in this initiative. SBC owns GSM operator Pacific Bell Wireless and wants its customers to have nationwide coverage.
Siemens wants to introduce CDMA handsets by June 2001 through co-development efforts with Neopoint engineers. Hence, the company will establish its handset group in San Diego. The company also has offices in Boca Raton, Fla., and Austin, Texas. Roy Gunter, who today heads the infrastructure group will lead Siemens’ U.S. wireless initiatives.
The vendor will also be aggressive on the GSM infrastructure front in the United States. It already has a presence here as a supplier to Omnipoint Corp., which recently merged with VoiceStream Wireless Corp., and Southeast personal communications services carrier DigiPH. The key will be to gain business with VoiceStream, which is piecing together the country’s largest GSM network with its acquisition of Omnipoint and Aerial Communications Inc.
Pauly believes Siemens has a compelling product offering. Siemens owns a company in Colorado Springs, Colo., called OpusWave. Two hundred R&D engineers there are developing a product called Corporate GSM, which Siemens has sold to operators in Europe, and will focus the product in the United States. Corporate GSM can seamlessly integrate GSM networks, private branch exchanges and Internet Protocol-based local area networks across a corporate enterprise.
“We can deploy pico base stations in a corporate compound, connect to the IP infrastructure of a company in a local area network and then run voice over IP and have all in-house calls running on the network and all outgoing calls go the the [mobile switching center],” said Pauly. “This is the first step to an all-IP based mobile network. And secondly, it provides an interesting value proposition for a GSM operator.”
