Why Samsung’s Networking Unit Is Betting Big On 5G

Samsung Electronics’ (OTC:SSNLF) networking equipment division plans to double down on the development of 5G technology, as it looks to take on market leaders Ericsson and Nokia in what is expected to be the next big growth driver for the wireless infrastructure market. Samsung has created a task force of around 100 employees from its telecom and semiconductor arms to begin work on 5G, which could offer speeds that are 100x as fast as current 4G networks. The company plans to sell as much as 10 trillion won (US $8.5 billion) worth of 5G network equipment by 2022, up from just about 3 trillion won ($2.5 billion) in total network equipment sales in 2015. Below we take a look at some of the key reasons for Samsung’s interest in the space and where 5G technology stands currently.

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5G Development Gaining Momentum Amid Carrier, Vendor and Regulator Interest

5G is expected to usher in the next big wave of spending for global wireless carriers, with 4G deployment in Western countries largely complete and carriers looking to mitigate the effects of a saturating market by getting customers to spend more on wireless data services. Carriers and network equipment suppliers have begun development of the technology, with plans for commercialization around 2020. Verizon, the largest U.S. wireless carrier, said that it will begin field testing 5G technology as early as this year. Regulators have also jumped on board, with the U.S. Federal Communications Commission (FCC) indicating that wants 5G wireless to be available from 2020, noting that it would open up vast amounts of suitable spectrum for 5G deployment. There are a lot of unknowns at this point, since the technical specifications of the standard haven’t been finalized yet, but standard bodies could complete this within the next few years.

5G Technology Deployment May Be Very Capital Intensive

Building out 5G networks could be quite capital intensive for carriers, since they will likely operate on higher frequency bands which have weaker signal propagation characteristics, calling for potentially smaller cells. While projections for potential global spending on 5G are not currently available, the number should be substantial. For perspective, South Korea’s Minister of Engineering, Science and Technology predicted that companies will spend over $300 billion in network infrastructure upgrades, including 5G over the next decade. That said, it’s unlikely that 5G and wireless networking will emerge as a major driver of revenues for Samsung, at least relative to its bread and butter smartphone business. While the global smartphone market was worth about $400 billion in 2015, the size of the mobile infrastructure market was just about $40 billion. ^[1]

Relationships With Carriers, Korea’s Early Start In 5G Deployment Could Help Samsung 

Although Samsung is a relatively small player in the networking equipment space, it could stand to benefit meaningfully from 5G. The company already sells wireless network equipment to several large carriers such as SK Telecom and Verizon, who are taking the lead in 5G deployment in Korea and the U.S., respectively. Korea is also expected to be one of the leaders in 5G deployments, with a limited trial network potentially launching by 2017 and 5G speeds being released to the broader public by 2020.  ^[2] It’s possible that carriers in the country could favor a local vendor, benefiting Samsung. 

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1. Smartphone Market Size: GfK via Statista [↩]
2. The What, When, and How of 5G, Inside Towers, 5G [↩]