Samsung Is Putting Songs In Its Heart

In recent years, the phone division of Samsung Electronics Co. has looked as if it might turn into a camera company. The unit -- the world's No. 3 handset maker -- now integrates cameras into nearly every new phone it makes, with some models sporting optical zoom lenses and resolution of up to seven megapixels. Today, though, the Korean company seems to have a new ambition driving its phone development: music.

Since last summer, Samsung has introduced more than 20 phones that double as MP3 players. Of course, most of these handsets still include cameras, but music is the hot trend. The new models range from devices that store a few dozen tunes all the way up to the SGH-i300, a phone with stereo speakers and a 3-gigabyte hard drive that can hold 1,000 songs. "Music will be driving demand this year, like imaging was last year," says Lee Kyung Ju, a Samsung vice-president.

The change dovetails with Samsung's drive to unseat Apple Computer Inc. (AAPL ) as the world's No. 1 maker of music players by 2007. It's an audacious goal, given that Samsung sold just 1.7 million players last year, vs. Apple's 8.3 million iPods. But Samsung is serious about music. The company plans to bring out a half-dozen new stand-alone music players by summer, with an eye toward selling 5 million players -- or 10% of the global market -- this year.

Samsung is even more ambitious with its handsets. This year, it expects to launch scores of new music player/phone combos with features such as surround sound, a button for instant access to tunes, and a dial for playlist navigation. Samsung execs say that before long, most phones will double as portable jukeboxes with enough memory to hold hundreds of songs. And Samsung aims to stay at the forefront of the trend. "The mobile phone will be the center of digital convergence," says Samsung President Lee Ki Tae.

Korea's cell-phone carriers -- and their subscribers -- like the sound of that. Already more than 80% of phones sold in the country double as music players because Samsung's local rivals, LG Electronics Inc. and Pantech Co. have jumped on the music phone bandwagon, too. Korean mobile operators plan to sell more than 10 million such phones this year -- about five times the number of music players Koreans are expected to buy. "I'm sure there will be far more people listening to music on their phones than on music players," says Shin Won Soo, senior manager at SK Telecom, Korea's largest mobile-phone company.

The enthusiasm of Korea's wireless carriers may give Samsung a leg up. The country's operators have led the way in experimenting with the wireless music business. And Koreans have proved eager to buy music from the country's operators, with 300,000 people now paying SK Telecom $5 a month for a service, launched in November, that provides unlimited access to tunes. Now, Samsung says it has deals to supply music handsets to U.S. carriers Sprint, Cingular, and T-Mobile. In the battle between the cell phone and the iPod, Samsung may well be the chief arms dealer.

By Moon Ihlwan in Seoul

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