HIGH-END HOPES

Samsung is quite the paradox. The South Korean electronics maker has engineered a miraculous rise to the top of the wireless industry over the last few years that began as a regional footnote at home in the late 1990s. The company then teamed up with Sprint PCS, and three years later Samsung boasts 26% of the CDMA handset market share, far outpacing its competitors.

It's difficult to find faults — or business acumen — with Samsung's successful strategy in the burgeoning CDMA industry. When Samsung launched its first GSM products last year, it had to compete with firmly entrenched carriers and the most powerful handset makers in the world. The company pulled it off, though. It's now the world's third largest handset maker, and this year Samsung claims its GSM handset sales exceed its CDMA handset sales.

For all of its successes, though, Samsung seems focused on one accomplishment. At an analysts' conference in New York City last week, Randy Smith, vice president of U.S. wireless product marketing, dismissed Samsung's impressive market share figures and focused on one statistic: In the U.S., Samsung has 45% of the market for wireless handsets priced at $150 or more. While that may seem like standard marketing spiel, Samsung takes that bit of datum very seriously. In fact, Samsung is basing its future business model on it. “We're not going to make cheap, generic phones,” Smith said.

Samsung won't sell prepaid phones, a gutsy move for a company trying to succeed in the prepaid-dominated European market. And it wants to raise the average price of handsets, which goes against all market trends and economic logic.

Consumers expect phone prices to fall, and many expect them to be free. But Samsung said it plans to target only the mid- and high-end markets by convincing carriers that customers use products more if they have an investment in them.

The obvious problem with this strategy is that the high-end market is only so big, which isn't a problem for niche manufacturers that have suitably limited expectations. But Samsung said it plans to continue its phenomenal growth.

The other problem is that the high-end market has already bought into the wireless revolution. New customers tend to be on the lower end of the scale, especially in saturated markets such as Europe. Sure, Samsung can try to convert those lower-end users to higher-end users, but once the high-end becomes too big, doesn't it become low-end? And if colorized, camera-equipped phones are the norm, won't prices be forced down by competition and demand? And once those fancy handsets migrate to the low end, what will Samsung do? Abandon those customers and models to focus on even newer technologies?

Samsung has the resilience and the technical know-how to make a lasting mark on this industry. But its goals are at odds with one another. On one hand it wants to grow and challenge Nokia as king of the handset industry. On the other, it wants to abandon the fast-growing — though not most lucrative — low-end market segment. Something's got to give.