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CONFIDENTIALMobileHandsetCompetitorAnalysis:EricssonSAMSUNGELECTRONICSCHINA(SECChina)August20,2001Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.OVERVIEWOFCOMPETITORANALYSISFRAMEWORK1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing2KEYISSUESTOPROBE-ERICSSONStrategyProduct/marketValuechainstrategyOrganization&ownershipFinancialperformanceWhatwillbeEricsson’sstrategicfocusforthenext5years?HowwillEricssonsecureitsleadingpositioninmobileinfrastructure?WhatproductswillEricssonbefocusingon?WhichmarketsegmentwillEricssonbeinterestedin?WillEricssonbecomeanichemarketplayerinmobilehandset?HowdoesEricssonsecureitsleadershipintechnology?HowdoesEricssonimproveitslocalproductioncapability?HowareEricsson’smobilehandsetsdistributed?HowdoesEricssonorganizeitsJVsandWOFEs?WhatfunctionsdoesEricssonChinacentralize?HowgoodisEricsson’srecentfinancialperformance?HowwillEricssonimproveitsperformanceinthefuture?3BACKGROUNDINFORMATION1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing4ERICSSONISATECHNOLOGYLEADERINMOBILECOMMUNICATIONANDAMARKETLEADERINMOBILEINFRASTRUCTUREImplicationLeaderinmobilesystemtechnologyincludingGSM,GPRSand3GEmphasizeonmobileinfrastructureandclaimtobetheonlytotalsolutionproviderforafullrangeof2Gand3GstandardsLocationBasedatSweden,with24officesinChinaSince1998,ChinahasbeenEricsson'slargest

marketintheworldInvestmentInvestedmorethanUSD0.6billioninChinaBusinessFourmainbusinessunits:Mobileinfrastructure,mobilehandset,datanetworkandcircuitswitching/packetswitchingmulti-servicenetworksStartingFirstofficeinChinain1985,firstJVinChinain1992Employees100,000staffin140countriesOver4,000employeesinChina24offices,10JVsand4WOFEsHistory1985:FirstEricssonofficeinBeijing1987:FirstmobilenetworklaunchedQinhuangisland1989:SetupofficesinGuangzhouandShanghai1992:StartedJVsinChinaformobileinfrastructureandhandset1994:EstablishedEricssonChinaLimited1995:ChinabecameEricsson'sthirdlargestmarketintheworld1996:ChinabecameEricsson'sssecondlargestmarketintheworld1997:EstablishedR&DcenterinShanghaiandEricssonChinainstitute1998:ChinabecameEricsson'slargestmarketintheworld,establishedChongqingEricssontechnology1999:EstablishedEricssonconsultinginShanghaiandmobilemulti-medialabin

Zhonguancun2000:FirsttocompleteWCDMAtestinChinaBackground5SAMSUNG010605BJ-kickoff2STRATEGY1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing6ERICSSONAIMSTOSECUREITSLEADERSHIPPOSITIONINNETWORKEQUIPMENTANDMAYBECOMEANICHEPLAYERINMOBILEHANDSETProductMaintainfootholdinthelowendmobilehandsetmarketthroughJVwithNanjingPandaDevelop3Gtechnology(WCDMA)formobilecommunicationbycollaboratingwithMIIandDoCoMo,andapplyleadingtechnologytoproductsSecureitsleadershippositioninnetworkequipmentratherthanbecomingthebest-sellingbrandformobilehandsetsValuedeliverysystemR&DlocalizationthroughcollaborationwithChinesegovernmentanduniversitiesFurtherexpandlocalproductioncapacityCentralizemarketingfunctionsunderEricssonChinaDistributethough5first-tierresellersincludingPTACandPTICBuildsconsumerwebsiteforEricssonhandsetusersVisionToinnovateinmobilenetworkandinternetconvergenceandtoleadintheeraofmobileinternetStrategySource:Ericssonpressrelease,DresdnerKleinwort,McKinseyanalysis7SAMSUNG010605BJ-kickoff2ERICSSON’sMARKETSHAREISDECREASINGOVERTHEPASTFEWYEARSMonthlymarketsharedevelopment(Percentofmarketinunitssold)9899Jan‘00Dec‘00NokiaMotorolaSiemensEricssonSource:RetailAuditSource:IDC,McKinseyAnalysis8SAMSUNG010605BJ-kickoff2ERICSSONISNOWNUMBERFOURINSALESVOLUMEANDNUMBERFIVEINREVENUEINTHEMOBILEHANDSETMARKETOthersSiemensEricssonMotorola199920012000SamsungNokiaBreakdownofsalesbybrandeachyearPercentSource: GfK,IDC,McKinseyanalysisOthersSiemensEricssonMotorola199920012000SamsungNokiaBreakdownofunitssoldbybrandeachyearPercent9SAMSUNG010605BJ-kickoff2PRODUCT/MARKET1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing10Ericssonclaimstobetheonlytotalsolutionproviderinmobilecommunicationwhooffersafullrangeof2Gand3Gstandards.Tosecureitsleadershippositioninmobileinfrastructure,EricssonmaybecomeanichemarketplayerinmobilehandsetsEricssonisatechnologyleaderinmobilecommunication,whichisreflectedinitsearlyreleasesofWAP,GPRSandbluetoothhandsetsand3GnetworksEricssongivesupthehigh-endmarketinmobilehandsettofocusonlow-end.Itisrelativelystrongin1sttiercities,andtheNorthandEastChinaKEYMESSAGES-PRODUCT/MARKET11ERICSSONOFFERSTOTALSOLUTIONSINMOBILECOMMUNICATIONWITHMOREEMPHASISONMOBILEINFRASTRUCTUREProductsNowandfutureEricsson

mobilehandsetEricsson

product

offeringsEricssonnetworkFirstWAPhandsetintheworld(MC218)R320scWAPhandsetwithChineseinterfaceA2638scforyoungandsuccessfulT29scformobileprofessionalR380scforbusinesseliteT20sc,A2618scforyoungandfashionableGSMandUMTSmobileinfrastructureincluding

GSM,DCS1800,CDMAandWCDMADatanetwork,e.g.AXD301ATMswitchAXI540IProuter,andIPphoneFirstGPRShandsetandfirstbluetoothhandset(T36)FirsttoprovideGSM1800/

1900networkssimultaneouslyLeaderinWAPLeaderinGPRSTotalsolutionsin3GbasedonWCDMA,CDMA2000andEDGESource:Ericssonpressrelease12SAMSUNG010605BJ-kickoff2ERICSSONMAINTAINSFOOTHOLDINTHELOWENDMARKETHigh

(>RMB3,500)Source: Sino-MR(Jan2001–Feb2001),CCIDBreakdownofunitsoldbybrandforeachpricepoint

PercentHigh-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%713SAMSUNG010605BJ-kickoff2Tier1Tier2Tier3Tier4NokiaMotorolaOthersERICSSONMATCHESSIEMENSINTHE1stTIERCITYMARKETPercentmarketshare,2000EricssonSiemens18%19%23%40%Tiersizeas%oftotal100%=Millionunits

6.77.08.514.8Source:McKinseyAnalysis14SAMSUNG010605BJ-kickoff2ERICSSONISRELATIVELYSTRONGINNORTHANDEASTMarketsharebybrandspergeographicarea,2001PercentMarketsharebygeographicareaPercentEastSiemensEricssonSamsungOthersNokiaMotorolaWestNorthNorth-eastSouth3013151311Central18Source:GfK,McKinseyAnalysis15SAMSUNG010605BJ-kickoff2VALUECHAINSTRATEGY1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing16Forcoreproductssuchasmobileorfixedlineinfrastructure,Ericssonhascentralizedthesalesforcestoprovide“oneface”tocustomers;forsmallerproductssuchasmobilehandsets,EricssonsellsthroughJVsanddistributorsEricssonusesPTAC,PTIC,Stellar,508,andtheUnitedFirstasits5first-tierresellers.Insufficientsupportprovidedbyresellerslimittheabilityofitsdealerandchannelstoprovidepre-andafter-salessupporttocustomers,whichgreatlyafftectEricsson’spositionintheChinamarketKEYMESSAGES-VALUECHAINSTRATEGY17ERICSSONPRESENTS"ONEFACE"TOCUSTOMERSBYCENTRALIZINGCOREPRODUCTSALESTHROUGHITSOWNSALESFORCER&DManufacturingMarketingSalesServiceNetworkMobileinfra-

structureShanghaiR&DcentreNanjingEricssonBeijingEricssonTelecomSystemEricssonChinaEricssonChinaDalianEricssonGuangdongTerminalMobile

handsetBeijingEricssonMobileTelecomShanghaiEricssonEricssonChinaDistributors/dealersRationaleEricsson'sroutetomarketisbased

onproductcharacteristicsCoreproductsaresoldthroughtheEricssonsalesforceSmallerproducts

aresoldthroughJVsanddistributorsElectroniccompo-nentsWired-lineDistributors/dealersSource:Ericssonpressrelease,interviews,McKinseyanalysisChongqingEricssonTechnologyNanjiingEricssonMobileTerminalHeilongjiangBeijingEricsson18ERICSSONISSTRONGATTECHNOLOGYANDMARKETING,BUTRELATIVELYWEAKATMANUFACTURINGANDSERVICEINMOBILEHANDSETTechnologyleaderinGSM,GPRSand3GFirsttoreleaseWAP,GPRS,bluetoothhandsetsExpandedlocalmanufacturingwith2JVsdevotedtomobilehandsetsCentralizedpurchasingandsupplyR&DManufac-turingandsupplychainMarketingandbrandingSalesanddistributionServiceCentralizedmarketingfunctionstopromotestrongandconsistentbrandimageGoodrelationshipwithresellerssuchasPTACandPTICStrengthsLackofbig-hittingnewmodelsProductdevelopmentnotmeetingmarketdemandinChinaManufacturingwithuncompetitivecoststructureLocalproductioncapacityinsufficientcomparedwithMotorola,NokiaandSiemensInsufficientsupportprovidedbytheresellerslimittheabilityofitsdealersandchannelstoprovidepre-andafter-salessupportLevelsforimprove-mentSource:Ericssonpressrelease,IDC,McKinseyanalysis19SAMSUNG010605BJ-kickoff2ERICSSONDISTRIBUTESTHROUGHFIVEFIRST-TIERRESELLERS

Source:IDCRationalesEricssonusesPTAC,PTIC,Stellar,508,andtheUnitedFirstasits5first-tierresellers.Sincethereisahugepricegapbetweenofficialandparallelimports,theunitsalesofEricssonhandsetinChinathroughofficialchannelswasaffectedresultingindownwardpressureonhandsetprices.Insufficientsupportprovidedbyresellerslimittheabilityofitsdealerandchannelstoprovidepre-andafter-salessupporttocustomers,whichgreatlyafftectEricsson’spositionintheChinamarketEricssonChannelStructureBeingamajormobilenetworkequipmentvendor,EricssonmaintainsgoodrelationshipwithgovernmentbodiesanddistributesthroughPTAC,PTICandlocaltelecomoperatorsVendorPTAC,PTIC,etc.ConsumersLocaltelecomoperatorsRetailers/retailchainstores20ORGANIZATIONANDOWNERSHIP1.BackgroundinformationLocationRegistered

capitalManagement

teamEquity

structureStartingyearNumberof

employeesEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureOwnershipstructureSalesProfit2.Strategy3.Product/marketMissionVisionCorporatestrategyMarketpositionKeyproductofferingsKeycustomersValuepropositionGeographicfocusPricing21Ericssonhas10JVsand4WOFEsinChina,amongwhichBeijingEricssonMobileandNanjingEricssonMobileTerminalaredevotedtomobilehandsets.Ericssonbelievesthatlocalizationiskey.Ericssonusesjointventurepartnerstoenterthemarket,andestablishedholdingcompanyin1994tobettermanagelocaloperationsEricssonusesitsownsalesforcetosellcoreproductsanddeliverscoordinationtocompetein“solution”salesKEYMESSAGES-ORGANIZATIONANDOWNERSHIP22ServiceERICSSONCHINAHASCENTRALIZEDMANYCOMMONFUNCTIONSFROMJVsEricssonChinaLtd.NanjingEricssonNanjingEricssonmobileterminalBeijingEricssonmobileGuangdongEricssonChongqingEricssontechnologyMarketingandbrandingPurchasingandsupplyManufac-turingSalesManufac-turingSalesR&DManufac-turingSalesServiceMarke-tingSalesServiceMobileinfrastructureMobilehandsetMobilehandsetMobilebasestationMobileinfrastructureMobileinfrastructureSource:Ericssonpressrelease23SAMSUNG010605BJ-kickoff2ERICSSONHAS10JVsAND4WOFEsINCHINA,AMONGWHICH2JVsAREDEVOTEDTOMOBILEHANDSETS

Source: Ericssonpressreleases;literaturesearch;interviewsEricssonChinaLtd.(HoldingCo.)1994Esta-

blished

yearBeijingEricssonBeijing

EricssonMobileShang-haiEricssonHelong-jiangEricssonNanjingEricssonMobileTerminalGuang-dongEricssonNanjingEricssonWuhanYangtzeEricssonChong-qingEricssonTelecomChong-qingEricssonTech.EricssonR&DcenterShanghaiEricssonConsult-ingShanghaiDalianEricsson1994199519971995199219971998199819971999ProductofferingPBXMD110Mobile

handsetMobile

base

stationElec-

troniccompo-nentsTele-

com

equip-

mentserviceMobilehand-

setMobileinfra-structureservicesGSM

900/

1800

AXE10SDHtrans-missionsystemsDigitalmicro-waveMobilesystemmarket-ingsalesandserviceSoft-wareapplica-tionConsul-tingserviceforwire-lessandfixedlineopera-torsTech-nicalservice55%

withBeijingCableTelecom49%withPTIC,BeijingTelecomCom-ponents,BeijingTelecomEquipment,YunShing80%withShanghaiSimtek56%withGDPTAGuang-

dong

Mach-

inery

Import

and

Export55%withNanjingRadioFactory,HKYunShing47.5%withWRILongxingInvest-mentChang-qingSouth-westWirelesstelecom100%100%100%65%withNanjingPanda24SAMSUNG010605BJ-kickoff2ERICSSONUSESJVPARTNERSTOENTERTHEMARKETANDITSOWNSALESFORCETOSELLCOREPRODUCTSInfluenceEricssoncorporatefocusedontoptotoprelationsJointventurepartnershelptogainlocalcustomeraccessPartnershipstructure&roleEricssonChina

(10jointventuresand4WFOEs)HoldingcompanyaimstocoordinateallactivitiesinChinaWFOEforsoftwareR&DinChinaLimi