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CONFIDENTIALMobileHandsetCompetitorAnalysis:SiemensSAMSUNGELECTRONICSCHINA(SECChina)August20,2001Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.SAMSUNG010605BJ-kickoff2OVERVIEWOFCOMPETITORANALYSISFRAMEWORK1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing2SAMSUNG010605BJ-kickoff2KEYISSUESTOPROBE-SIEMENSStrategyProduct/marketValuechainstrategyOrganization&ownershipFinancialperformanceWhatdoesSiemensaimtobein2005inmobilecommunication?HowareSiemens’sproductandvaluedeliverysystemstrategiesdifferentfromitscompetitors’?WhatwillbeSiemens’sfutureproductsandwhichsegmentsofthemarketwillittargetat?InwhichsegmentofthemarketisSiemensstrongorweak?WhatisthekeysuccessfactorsforSiemenstopickupmarketsharequicklysince1999?HowdoesSiemens’sdistributionchanneldifferfromitscompetitors’?HowcapableisSiemensinR&D,manufacturing,salesandmarketing?Withabroadproductportfolio,howdoesSiemensorganizeorreorganizeitself?HowdoesSiemensperformandisitsperformanceexpectedtoimprovefurther?3SAMSUNG010605BJ-kickoff2BACKGROUNDINFORMATION1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing4SAMSUNG010605BJ-kickoff2CHINAHASDEVELOPEDINTOAMAJORPILLARFORSIEMENSBUSINESSINASIAPACIFICLocationBasedatGermany50+JVs,28officesinChinaShanghaiisthelargestSiemenslocationoutsideGermanyInvestmentInvestedUSD0.44billioninChinaBusinessAllbusinesssectorsofSiemensincludinginformation

andcommunication,automationandcontrol,power,

transportationandhouseholdappliance,etc.StartingEnteredChina'stelecommunicationin1985Informationandcommunicationbusinessstarted1991Employees

30,000staffininformationandcommunicationmobileglobally25,000employeesforallbusinesssectorsinchinaHistory1982SiemensBeijingofficeopened1985enteredChina'stelecommunicationmarket1990establishedJVBeijingInternationalSwitchingSystem1994SiemensChinafoundedinBeijing1998formedbusinesssegment-InformationandCommunication2000joinedforceswithCATTandHuaveifornextgenerationmobiletechnology.FoundedTD-SCDMAinternationalforumwithDatang,CATT,Huawei,Motorola,Nortel,Chinamobile,andUnicomImplicationAnearlyentranttoChina'stelecommunicationmarketBroadproductportfoliorepresenting

allbusinesssectorsof

SiemensworldwideSource:Siemenspressrelease5SAMSUNG010605BJ-kickoff2STRATEGY1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing6SAMSUNG010605BJ-kickoff2SIEMENSAIMSTOBENUMBER2INMOBILECOMMUNICATIONMARKETINCHINAProductFocusonstylishnewmodelswithsuitablepricingtargetingmidtolowendofthemarketInvestinfutureproducts,e.g.,TD-SCDMAhandsetsandwirelesshomenetworkdevices,etc.StrategyValuedeliverysystemEstablishR&DcentersformobilecommunicationinBeijingandShanghaiMobilehandsetproductioncapacitybeingraisedto14millioninShanghai,agrowthof40%since2000IntensivemarketingonnewproductswithmostcompetitivepricingCarefullyselectexclusivechannelpartnerPTACtomaintainuniformpricelevelnationwidetoensurehealthysalesHelpsresellerssetupservicecenterstohandlerepairandmaintenanceVisionTobenumber2intheAsianmobilecommunicationmarket(withoutJapanandKorea)7SAMSUNG010605BJ-kickoff2SIEMENSISRISINGSTEADILYINMOBILEHANDSETSSINCE1999Monthlymarketsharedevelopment(Percentofmarketinunitssold)9899Jan‘00Dec‘00NokiaMotorolaSiemensEricssonSource:RetailAuditSource:IDC,McKinseyAnalysis8SAMSUNG010605BJ-kickoff2SIEMENSHASOVERTAKENERICSSONTOBENO.3INMOBILEHANDSETBYBOTHREVENUEANDSALESVOLUMEOthersSiemensEricssonMotorola199920012000SamsungNokiaBreakdownofsalesbybrandeachyearPercentSource: GfK,IDC,McKinseyanalysisOthersSiemensEricssonMotorola199920012000SamsungNokiaBreakdownofunitssoldbybrandeachyearPercent9SAMSUNG010605BJ-kickoff2PRODUCT/MARKET1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing10SAMSUNG010605BJ-kickoff2Siemensoffersacompeterangeofmobilecommunicationsolutionsincludingdevices,infrastructureandapplications.Siemens’smobilehandsetscomewithgoodqualityandcompetitivepricingSiemenstargetsthemidtolowendofthemobilehandsetmarket.MostofitsmodelsareinthepricerangefrombelowRMB1000toRMB2200Siemenshasdevotedgreatattentiontotheimportant4th-tiercitiesandwestChina,henceitsmarketshareinthesedevelopingareasarerelativelyhigherthanitsshareinthemoredevelopedareas.KEYMESSAGES-PRODUCT/MARKET11SAMSUNG010605BJ-kickoff2SIEMENSOFFERSACOMPLETERANGEOFMOBILESOLUTIONSINCLUDINGDEVICES,INFRASTRUCTUREANDAPPLICATIONSProductsNowandfutureInformationandcommunicationmobileSiemensproductofferingsInformationandcommunicationnetworksMobilenetworkWirelesshomenetwork&officenetworkMobilehandsetC2588(small,lightsmart)S2588(braintruster)3508(small,light,sexy)3518i(toughenough)3568i(smartthinking)BroadbandnetworkIPnetworkFixed-linenetworkTransmissionnetworkOfficenetworkCablenetworkTakeTD-SCDMAmobilehandsetstoserialproductionlevelby2003Offerthecompleterangeofmobilesolutionsincludingmobiledevices,infrastructureandapplications,e.g.,wirelesshomenetwork,CompleterangeofGSM,GPRSandUMTSmobilenetworks,unifiedmessagingandmobilepaymentOverallstrategyof"auniverseofone",pursuingIPdrivenvoiceanddatacommunicationandcustomer-orientedend-to-endsolutionandservicesSource:Siemenspressrelease12SAMSUNG010605BJ-kickoff2SIEMENSMODELSHAVETHEMOSTCOMPETITIVEPRICINGSource:McKinseyAnalysisProductpositioningDec2000A6188(1.4%)8850(1.8%)V8088*(3.9%)S800C(1.2%)A100(0.8%)T28(3.6%)8210(4.6%)7.8%21.9%18.2%52.2%Business/professionalPersonal*WAPphoneProductpositioningJune20009110S800C(1.8%)V8088(1.6%)8850(1.7%)V998(5.6%)3568*(0.5%)S600C(3.8%)7110*(0.9%)T28(3.3%)8210(3.7%)LF2000*(2.9%)6150(1.8%)L2000*(4%)S2588(1.8%)CD928(1.1%)T18(6.1%)T10(1.2%)C2588(3.2%)2188(3.8%)L2088(2.5%)3210(2.2%)5110(9.6%)368C(3.1%)3508(1.6%)338C(0.6%)T2688(4.8%)11.4%17.4%25.3%45.9%HighHigh-mediumMedium-

lowLowBusiness/professionalPersonal*WAPphoneV998++(6.9%)7689i(1.8%)LF2000i*(1.7%)3568*(1.7%)7110*(0.3%)6150(0.9%)600C(2.3%)3310(6.8%)3518i(1.8%)T18(3.3%)CD928(0.1%)S2588(0.2%)C2588(0.1%)T10(0.7%)T2688(6.2%)3508(3.9%)V2088(1.0%)3210(9.6%)5110(5.9%)RetailpriceHighHigh-mediumMedium-

lowLowRetailpriceRMB3,500RMB2,200RMB1,600368C(2.3%)V2188(1.3%)RMB3,500RMB2,200RMB1,600Red-NokiaWhite-MotorolaBlue-EricssonBrown-SiemensGreen-Samsung8250(0.0%)6210(0.6%)13SAMSUNG010605BJ-kickoff2SIEMENSTARGETSMIDTOLOWENDOFTHEMARKETHigh(>RMB3,500)Source: Sino-MR(Jan2001––Feb2001),CCIDBreakdownofunitsoldbybrandforeachpricepointPercentHigh-mid

(RMB2,500-3,500)Mid

(RMB2,000-2,500)Mid-Low

(RMB1,500-2,000)Low(<RMB1,500)OthersSiemensEricssonMotorolaSamsungNokia9%15%7%Unitsas%oftotal26%43%714SAMSUNG010605BJ-kickoff2Tier1Tier2Tier3Tier4NokiaMotorolaOthersSIEMENSALSOADDRESSESTHEIMPORTANT4THTIERCITYMARKETPercentmarketshare,2000EricssonSiemens18%19%23%40%Tiersizeas%oftotal100%=Millionunits6.77.08.514.8Source:McKinseyAnalysis15SAMSUNG010605BJ-kickoff2SIEMENSISRELATIVELYSTRONGINCENTRAL,EASTANDWESTMarketsharebybrandspergeographicarea,2001PercentMarketsharebygeographicareaPercentEastSiemensEricssonSamsungOthersNokiaMotorolaWestNorthNorth-eastSouth3013151311Central18Source:GfK,McKinseyAnalysis16SAMSUNG010605BJ-kickoff2VALUECHAINSTRATEGY1.BackgroundinformationLocationRegisteredcapitalManagementteamEquity

structureStartingyearNumberofemployeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing17SAMSUNG010605BJ-kickoff2Siemens’svaluedeliverysystemstrategyhasevolvedsince1999.Ithasinvested$1.5billionintheAsianPacificareaasitsAsianoffensivecampaignSiemenshasspentagreateffortinlocalizingR&Dandmanufacturing.IthasbuiltR&DcentersinBeijingandShanghaiandhasraisedthemobilehandsetproductioncapacityinShanghaito14millionunitsin2001.ItisaleaderinTD-SCDMA3GtechnologyinChinaSiemenshasachievedamarketshareof12%insalesvolume,afterintensivemarketingofnewmodelswithcompetitivepricing,andaimstoincreaseitsmarketshareto15%Siemensdistributesthroughexclusive1st-tiernationalresellerPTACand2nd-tierprovincialresellers.Auniformpricelevelinthemarketismaintainednationwidetoensurehealthysales.KEYMESSAGES-VALUECHAINSTRATEGY18SAMSUNG010605BJ-kickoff2SIEMENSVALUEDELIVERYSYSTEMHASEVOLVEDOVERTHEYEARSFrom...(1997)To...(2000)NoR&DfacilityinChinaNoproductlocalizationProductioncapacityinShanghaiPudong(150,000)60%ofproductsforChinesemarketproducedinHongKongBrightpointhandlingover90%ofdistributionMarketsharelessthan5%ProductProductionDistributionMarketingHighcommitmenttoTD-SCDMA–testsacrossChinain2001AsianoffensivecampaignwithUS1.5billioninvestmentinR&Dandmarketinguntil2003ProductioncapacityinShanghaihasbeenraisedto14millionunitsfrom10millionunitsin2000Usesdifferentdistributor(PTAC),butstillonlyonenationwideMarketshare12%asaresultofintensivemarketingofnewmodelswithcompetitivepricingAimstoincreasemarketshareto15%Source:Interviews,McKinseyanalysis19SAMSUNG010605BJ-kickoff2SIEMENSINVESTSTREMENDOUSEFFORTINEVERYPART

OFTHEVALUECHAINR&DManufacturingandsupplychainMarketingandbrandingSalesanddistributionServiceStrengthsR&DcentersformobilecommunicationinBeijingandShanghaiwithmorethan500engineersplannedLeadinternationalforuminTD-SCDMAFrequentintroductionofnewmodelsContinuouslyincreaselocalproductioncapacityandcapabilityIntensivemarketingonnewmodelswithcompetitivepricingHealthysalesthroughexclusivechannelpartnerPTACCapableafter-salesservicewith100servicestationsnationwideLeversforimprovementLackscapabilityinW-CDMAandCDMA2000FullydependentonsinglenationaldistributorSource:Worldcomputerjournal,McKinseyanalysis20SAMSUNG010605BJ-kickoff2SIEMENSVALUEDELIVERYSYSTEMISORGANIZEDAROUNDPRODUCTLINESWITHMULTIPLECUSTOMERINTERFACESValuedeliverysystemCustomerinterfacesICMobileandICNetworkcommunicatewiththesametelecomoperatorsseparately,with“multiplefaces”Source:McKinseyanalysis21SAMSUNG010605BJ-kickoff2SIEMENSDISTRIBUTESTHROUGHEXCLUSIVENATIONALRESELLERPTACSource:IDCRationalesSiemenspartnerswithPTAC,takingadvantageoftheirstreamlinedandefficientdistributionchannels.PTACisselectedastheexclusivenationaldistributorduetoresourcesandimage.AuniformpricelevelinthemarketismaintainednationwidetoensurehealthysalesSiemensChannelStructureRelyonboth1st-tiernationalresellerPTACand2nd-tierprovincialresellersDevotemuchattentiontolow-tiercitymarketVendor1st-tierresellersConsumers2nd-tierresellersRetailers/retailchainstores12%9%79%67%12%67%12%21%22SAMSUNG010605BJ-kickoff2ORGANIZATIONANDOWNERSHIP1.BackgroundinformationLocationRegisteredcapitalManagementteamEquity

structureStartingyearNumberofemployeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing23SAMSUNG010605BJ-kickoff2Withalargeproductportfoliocoveringinformationandcommunicationandhomeappliancesetc.Siemens’sorganizationisproductfocusedwithclearlinesofP&LresponsibilitiesSiemenshasover50JVsandWOFEsinChinawithlargecommitmentsintelecommunication.SiemensShanghaiisdevotedtomobilecommunicationincludingmobilehandsetsSiemens’sjointventuresaremanagedundertheirownglobalBU,andSiemensChina,theholdingcompany,coordinatesandprovidessharedservicesfortheglobalBUactivitiesinChinaSiemensisstartingtocentralizesalesandmarketingtobetterhandlesolutionsales,andthegoalistoconsolidateallmarketingandsalesfunctionsunderSiemensdirectlyKEYMESSAGES-ORGANIZATIONANDOWNERSHIP24SAMSUNG010605BJ-kickoff2WITHALARGEPRODUCTPORTFOLIO,SIEMENSTENDSTOBEMOREPRODUCTFOCUSEDWITHCLEARLINESOFP&LRESPONSIBILITYOrganizationstructureP&LresponsibilityICMmanagerforinformationandcommunicationmobileICNmanagerforinformationandcommunicationnetworkDrivingfactorsInordertomeetthetrendoftechnologicalmerginginInformationandCommunicationfield,thenewSiemensbusinessgroup-InformationandCommunicationmobile(ICM)starteditsoperationinApril1,2000.ICMhandlestheentiremobiletelephonebusiness,withregardtobothcommunicationsterminals(mobileandwiredphones,mobileorganizersanddigitalproducts)andmobilephonenetworks(productsandservicesformobilecommunicationandintelligentnetworks).Source:Siemenspressrelease,McKinseyanalysis25SAMSUNG010605BJ-kickoff2SIEMENSHASOVER50JVsORWOFEsINCHINA,AMONGWHICHSIEMENSSHANGHAIISDEVOTEDTOMOBILEHANDSETSSiemensChinaBeijinginternationalswitchingsystemsBISCSiemenstransmissionsystemsGuangzhou(STSG)XinDetelecominternationalventures(TIV)SiemensShanghaiMobilecommunicating(SSMC)ShanghaiSiemensbusinesscommunicationsystem(SBCS)MaindriversTobeclosetocustomersTobeinlinewithgovernmentpoliciesTobecomeChinesecompanyforChinesepeople40%WithGuangzhouNanfangphotoelectricaltelecommunication60%Beijingwirecommunication.BeijingtelephoneauthoritiesBeijingcomprehensiveinvestmentShanghaiAijian,ShanghaiXinguangWithShanghaivideoandAudioElectronics,ShanghaiPostandtelecommunication51%EstablishyearProductoffering1990EWSDswitching1993-1994Transmissionsystems(PDH,SDH,DWDM)1994FinanceleasingandconsultingHicom300switchingsystemGSMmobilenetworksandmobilehandsetsMPT'sFirstResearchInstitute19931993NotExhaustiveSource:Siemenspressrelease26SAMSUNG010605BJ-kickoff2SIEMENSHASMADELARGECOMMITMENTSINTELECOMMUNICATIONINCHINAJVcompanyYearofcontractPlannedinvestment(mDM)Siemensshare(%)Chinesepartner(share)BusinessscopeBeijingInternationalSwitchingSystemsCo.,Ltd.SiemensFibreOpticCablesLtdChengduSiemensShanghaiMobileCommunicationLtd.GuangzhouNanfangTransmissionSystemsLtd.SiemensTelecomPowerSupplyLtd.ShanghaiXinDeTelecomInternationalVenturesCo.Ltd.SiemensBusinessCommunicationSystemsLtd.ShanghaiSiemensShanghaiCommunicationTerminalsLtd.SiemensOpticalFiberCablesLtd.Chengdu90989393949395949054.5501535454050516050BeijingWireCommunicationPlant25BeijingTelephoneAuthorities25BeijingComprehensiveInvestmentCo.10ChengduFibreOpticCableFac