CONFIDENTIAL Mobile Handset Competitor Analysis Ericsson SAMSUNG ELECTRONICS

CONFIDENTIAL Mobile Handset Competitor Analysis: Ericsson SAMSUNG ELECTRONICS CHINA (SEC China) August 20, 2001 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Mc. Kinsey & Company. This material was used by Mc. Kinsey & Company during an oral presentation; it is not a complete record of the discussion.

OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK 1. Background information 4. Value chain strategy • Location • Registered Focus on • Marketing, advertising and promotion • Distribution (channel and sales force) capital • Starting year • Number of employees • Management • Era analysis team • Equity structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product/market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 1

KEY ISSUES TO PROBE - ERICSSON Strategy • What will be Ericsson’s strategic focus for the next 5 years? • How will Ericsson secure its leading position in mobile infrastructure? Product/market Value chain strategy Organization & ownership Financial performance • What products will Ericsson be focusing on? • Which market segment will Ericsson be interested in? • Will Ericsson become a niche market player in mobile handset? • How does Ericsson secure its leadership in technology? • How does Ericsson improve its local production capability? • How are Ericsson’s mobile handsets distributed? • How does Ericsson organize its JVs and WOFEs? • What functions does Ericsson China centralize? • How good is Ericsson’s recent financial performance? • How will Ericsson improve its performance in the future? 2

BACKGROUND INFORMATION 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product/market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 3

SAMSUNG 010605 BJ-kickoff 2 ERICSSON IS A TECHNOLOGY LEADER IN MOBILE COMMUNICATION AND A MARKET LEADER IN MOBILE INFRASTRUCTURE Background Location Investment Business • • Based at Sweden, with 24 offices in China Since 1998, China has been Ericsson's largest market in the world • Invested more than USD 0. 6 billion in China • Four main business units: Mobile infrastructure, mobile handset, data network and circuit switching/packet switching multi-service networks Implication Starting • First office in China in 1985, first JV in China in 1992 • • Employees History • • • 100, 000 staff in 140 countries Over 4, 000 employees in China 24 offices, 10 JVs and 4 WOFEs • • • 1985: First Ericsson office in Beijing 1987: First mobile network launched Qinhuang island 1989: Set up offices in Guangzhou and Shanghai 1992: Started JVs in China for mobile infrastructure and handset 1994: Established Ericsson China Limited 1995: China became Ericsson's third largest market in the world 1996: China became Ericsson's s second largest market in the world 1997: Established R&D center in Shanghai and Ericsson China institute 1998: China became Ericsson's largest market in the world, established Chongqing Ericsson technology 1999: Established Ericsson consulting in Shanghai and mobile multi-media lab in Zhonguancun 2000: First to complete WCDMA test in China • • Leader in mobile system technology including GSM, GPRS and 3 G Emphasize on mobile infrastructure and claim to be the only total solution provider for a full range of 2 G and 3 G standards 4

STRATEGY 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product /market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 5

SAMSUNG 010605 BJ-kickoff 2 ERICSSON AIMS TO SECURE ITS LEADERSHIP POSITION IN NETWORK EQUIPMENT AND MAY BECOME A NICHE PLAYER IN MOBILE HANDSET Strategy • Maintain foothold in the low end mobile Product • • Value delivery system handset market through JV with Nanjing Panda Develop 3 G technology (WCDMA) for mobile communication by collaborating with MII and Do. Co. Mo, and apply leading technology to products Secure its leadership position in network equipment rather than becoming the bestselling brand for mobile handsets • R&D localization through collaboration • • with Chinese government and universities Further expand local production capacity Centralize marketing functions under Ericsson China Distribute though 5 first-tier resellers including PTAC and PTIC Builds consumer website for Ericsson handset users Source: Ericsson press release, Dresdner Kleinwort, Mc. Kinsey analysis Vision To innovate in mobile network and internet convergence and to lead in the era of mobile internet 6

SAMSUNG 010605 BJ-kickoff 2 ERICSSON’s MARKET SHARE IS DECREASING OVER THE PAST FEW YEARS Monthly market share development (Percent of market in units sold) Nokia Motorola Siemens Ericsson 98 Source: Audit Source: Retail IDC, Mc. Kinsey Analysis 99 Jan ‘ 00 Dec ‘ 00 7

SAMSUNG 010605 BJ-kickoff 2 ERICSSON IS NOW NUMBER FOUR IN SALES VOLUME AND NUMBER FIVE IN REVENUE IN THE MOBILE HANDSET MARKET Breakdown of sales by brand each year Percent Breakdown of units sold by brand each year Percent Others Samsung Siemens Ericsson Nokia Motorola 1999 2000 Source: Gf. K, IDC, Mc. Kinsey analysis 2001 1999 2000 2001 8

PRODUCT/MARKET 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product /market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 9

KEY MESSAGES - PRODUCT/MARKET • Ericsson claims to be the only total solution provider in mobile communication who offers a full range of 2 G and 3 G standards. To secure its leadership position in mobile infrastructure, Ericsson may become a niche market player in mobile handsets • Ericsson is a technology leader in mobile communication, which is reflected in its early releases of WAP, GPRS and bluetooth handsets and 3 G networks • Ericsson gives up the high-end market in mobile handset to focus on low-end. It is relatively strong in 1 st tier cities, and the North and East China 10

SAMSUNG 010605 BJ-kickoff 2 ERICSSON OFFERS TOTAL SOLUTIONS IN MOBILE COMMUNICATION WITH MORE EMPHASIS ON MOBILE INFRASTRUCTURE Ericsson mobile handset Ericsson product offerings Ericsson network Source: Ericsson press release Products Now and future • First WAP handset in • First GPRS handset and first the world (MC 218) • R 320 sc WAP handset with Chinese interface • A 2638 sc for young and successful • T 29 sc for mobile professional • R 380 sc for business elite • T 20 sc, A 2618 sc for young and fashionable bluetooth handset (T 36) • GSM and UMTS mobile • First to provide GSM 1800/ infrastructure including GSM, DCS 1800, CDMA and WCDMA • Data network, e. g. AXD 301 ATM switch AXI 540 IP router, and IP phone 1900 networks simultaneously • Leader in WAP • Leader in GPRS • Total solutions in 3 G based on WCDMA, CDMA 2000 and EDGE 11

SAMSUNG 010605 BJ-kickoff 2 ERICSSON MAINTAINS FOOTHOLD IN THE LOW END MARKET Breakdown of unit sold by brand for each price point Percent Others Samsung Siemens Ericsson Nokia Motorola 7 High (> RMB 3, 500) Units as % of total 9% High-mid (RMB 2, 5003, 500) Mid (RMB 2, 0002, 500) 15% 7% Source: Sino-MR (Jan 2001 – Feb 2001), CCID Mid-Low (RMB 1, 5002, 000) 26% Low (<RMB 1, 500) 43% 12

SAMSUNG 010605 BJ-kickoff 2 ERICSSON MATCHES SIEMENS IN THE 1 st TIER CITY MARKET Percent market share, 2000 100%= 6. 7 7. 0 Tier 1 Tier 2 18% 19% 8. 5 14. 8 Tier 3 Tier 4 Million units Others Ericsson Siemens Motorola Nokia Tier size as % of total Source: Mc. Kinsey Analysis 23% 40% 13

SAMSUNG 010605 BJ-kickoff 2 ERICSSON IS RELATIVELY STRONG IN NORTH AND EAST Market share by brands per geographic area, 2001 Percent Others Samsung Ericsson Siemens Nokia Motorola Market share by geographic area Percent Source: Gf. K, Mc. Kinsey Analysis East West Northeast South Central 30 13 15 13 18 11 14

VALUE CHAIN STRATEGY 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product/market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 15

KEY MESSAGES - VALUE CHAIN STRATEGY • For core products such as mobile or fixed line infrastructure, Ericsson has centralized the sales forces to provide “one face” to customers; for smaller products such as mobile handsets, Ericsson sells through JVs and distributors • Ericsson uses PTAC, PTIC, Stellar, 508, and the United First as its 5 first-tier resellers. Insufficient support provided by resellers limit the ability of its dealer and channels to provide pre- and after-sales support to customers, which greatly afftect Ericsson’s position in the China market 16

ERICSSON PRESENTS "ONE FACE" TO CUSTOMERS BY CENTRALIZING CORE PRODUCT SALES THROUGH ITS OWN SALES FORCE R&D Manufacturing Marketing Sales Service Network • Mobile infrastructure • Wiredline Shanghai R&D centre Nanjing Ericsson China Dalian Ericsson Beijing Ericsson Telecom System Chongqing Ericsson Technology Heilongjiang Guangdong Terminal • Mobile handset Beijing Ericsson Mobile Telecom Ericsson China • Electronic components Distributors/dealers Nanjiing Ericsson Mobile Terminal Shanghai Ericsson Source: Ericsson press release, interviews, Mc. Kinsey analysis Rationale Ericsson's route to market is based on product characteristics • Core products are sold through the Ericsson sales force • Smaller products are sold through JVs and distributors Distributors/dealers 17

SAMSUNG 010605 BJ-kickoff 2 ERICSSON IS STRONG AT TECHNOLOGY AND MARKETING, BUT RELATIVELY WEAK AT MANUFACTURING AND SERVICE IN MOBILE HANDSET Manufacturing and supply chain R&D Strengths • Technology • Levels for improvement leader in GSM, GPRS and 3 G First to release WAP, GPRS, bluetooth handsets • Lack of big • hitting new models Product development not meeting market demand in China • Expanded • local manufacturing with 2 JVs devoted to mobile handsets Centralized purchasing and supply • Manufacturing • with uncompetitive cost structure Local production capacity insufficient compared with Motorola, Nokia and Siemens Source: Ericsson press release, IDC, Mc. Kinsey analysis Marketing and branding • Centralized marketing functions to promote strong and consistent brand image Sales and distribution Service • Good relationship with resellers such as PTAC and PTIC • Insufficient support provided by the resellers limit the ability of its dealers and channels to provide preand after-sales support 18

ERICSSON DISTRIBUTES THROUGH FIVE FIRST-TIER RESELLERS Ericsson Channel Structure Vendor Rationales • Ericsson uses PTAC, PTIC, etc. Stellar, 508, and the United First as its 5 first-tier resellers. • Since there is a huge price gap Local telecom operators Retailers/retail chain stores between official and parallel imports, the unit sales of Ericsson handset in China through official channels was affected resulting in downward pressure on handset prices. • Insufficient support provided by Consumers • Being a major mobile network equipment vendor, Ericsson maintains good relationship with government bodies and distributes through PTAC, PTIC and local telecom operators Source: IDC resellers limit the ability of its dealer and channels to provide pre- and after-sales support to customers, which greatly afftect Ericsson’s position in the China market 19

ORGANIZATION AND OWNERSHIP 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product /market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 20

KEY MESSAGES - ORGANIZATION AND OWNERSHIP • Ericsson has 10 JVs and 4 WOFEs in China, among which Beijing Ericsson Mobile and Nanjing Ericsson Mobile Terminal are devoted to mobile handsets. Ericsson believes that localization is key. • Ericsson uses joint venture partners to enter the market, and established holding company in 1994 to better manage local operations • Ericsson uses its own sales force to sell core products and delivers coordination to compete in “solution” sales 21

SAMSUNG 010605 BJ-kickoff 2 ERICSSON CHINA HAS CENTRALIZED MANY COMMON FUNCTIONS FROM JVs Ericsson China Ltd. Nanjing Ericsson Manufacturing Sales R&D • Mobile infrastructure Nanjing Ericsson mobile terminal Beijing Ericsson mobile Manufacturing • Mobile handset Source: Ericsson press release Sales Guangdong Ericsson Marketing Service Sales Chongqing Ericsson technology Sales Marketing and branding Purchasing and supply Service • Mobile handset • Mobile base station • Mobile infrastructure 22

SAMSUNG 010605 BJ-kickoff 2 ERICSSON HAS 10 JVs AND 4 WOFEs IN CHINA, AMONG WHICH 2 JVs ARE DEVOTED TO MOBILE HANDSETS Ericsson China Ltd. (Holding Co. ) 1994 49% with PTIC, Beijing Telecom Com 55% ponents, with Beijing 80% with Telecom Cable Equipment, Shanghai Telecom Yun Shing Simtek Beijing Ericsson Mobile Shanghai Ericsson 1994 1995 1997 Established year Product offering • PBX MD 110 • • Mobile handset Mobile base station • Electronic components 56% with GD PTA Guangdong Machinery Import and Export 65% with Nanjing Panda Helongjiang Ericsson • Telecom equipment service Nanjing Ericsson Mobile Terminal • Mobile handset • 55% with Nanjing Radio Factory, HK Yun Shing Longxing Investment Changqing Southwest Wireless telecom 47. 5% with WRI 100% Guangdong Ericsson Nanjing Ericsson Wuhan Yangtze Ericsson Chongqing Ericsson Telecom Chongqing Ericsson Tech. Ericsson R&D center Shanghai 1995 1992 1997 1998 1997 Mobile • infrastructure services GSM 900/ 1800 AXE 10 Source: Ericsson press releases; literature search; interviews • SDH • Digital transmicromission wave systems • Mobile system marketing sales and service • Software application 100% Ericsson Dalian Consult- Ericsson ing Shanghai 1999 • Consul- • Techting nical service for wireless and fixed line operators 23

ERICSSON USES JV PARTNERS TO ENTER THE MARKET AND ITS OWN SALES FORCE TO SELL CORE PRODUCTS Partnership structure & role Route to market • Ericsson China • Ericsson’s sales • • (10 joint ventures and 4 WFOEs) Holding company aims to coordinate all activities in China WFOE for software R&D in China Limited technology transfer to China – heavily import dependent Service joint ventures are cost centers • • force (based in the holding company) sells core products (switching and transmission) Joint venture sales force sells small and standalone products Wireless products sold through distributors Key messages • Uses joint venture partners to enter the market, then established holding company in 1994 to better manage local operations • Use its better-trained own sales force to sell core products; delivers coordination to compete in “solution” sales • Believes that localization is key; established specially monitored career track for promising Chinese managers to enhance retention Influence • Ericsson corporate focused on top to top relations • Joint venture partners help to gain local customer access 24

FINANCIAL PERFORMANCE 1. Background information 4. Value chain strategy • Location • Registered • Focus on capital • Starting year • Number of employees • Management • Era analysis team • Equity – Marketing, advertising and promotion – Distribution (channel and sales force) structure 2. Strategy 5. Organization and ownership • • • Organization structure • Ownership structure Mission Vision Corporate strategy Market position 3. Product/market 6. Financial performance • • • Sales • Profit Key product offerings Key customers Value proposition Geographic focus Pricing 25

KEY MESSAGES - FINANCIAL PERFORMANCE • Although Ericsson’s consumer products, i. e. mobile handsets grew in revenue by 28% in 2000, the profit was negative at SEK – 16 billion. The operating profit margin for mobile handset is – 29% globally in 2000 • Ericsson’s network products grew in revenue by 29% in 2000, and in profit by 65%. The operating profit margin for network product is 17% globally in 2000 • To maintain its leadership position in network products, Ericsson may become a niche market player in mobile handsets 26

SAMSUNG 010605 BJ-kickoff 2 ERICSSON SAW NEGATIVE PROFIT FOR ITS MOBILE HANDSETS IN 2000 SEK billions Revenues globally Operating profit globally CAGR= 27% Others Enterprise solutions Consumer* products CAGR= - 5% 274 19 215 Others Enterprise solutions 20 Network operators service providers Consumer* products 1999 2000 * Consumer products are mainly mobile handsets Source: Ericsson press releases 1999 2000 27