Samsung Moves Upmarket

Only a few years ago, cell phones were built just for talking. Then along came a company called Samsung Electronics, little known to most Americans, selling us phones that are voice activated, that surf the Internet, that play MP3 tunes. Last year Samsung rolled out stylish models that keep our calendars in color and can pinpoint our exact location. Now the South Korean company is introducing phones with always-on text messaging and wireless video that lets us play games and watch movie clips.

Like a lot of Samsung's new devices, these combine cutting-edge technology with award-winning design--at premium prices. That's something new for a company that only a few years ago was known as a mass marketer of cheap TVs and VCRs--the kind you bought off a shipping pallet at Costco if you couldn't afford a Sony or Mitsubishi. Since 1997, however, Samsung has begun rubbing shoulders with the market leaders in high-end cell phones, DVD players, elegant flat plasma TVs and a wide range of other consumer products. These gadgets are sometimes less expensive than those of Japanese or Finnish competitors--but by no means inferior. Which is pretty clear if you've tried to order an I300, the Palm-powered PDA that's really a phone (sorry, sold out), or if you feel embarrassed to answer your Motorola StarTAC in public because it's so...yesteryear.

All this attention has prompted Eric Kim, 47, Samsung's savvy Korean-American marketing chief, to boldly suggest that he hopes to surpass Sony in brand recognition by 2005. Don't laugh; Sony CEO Nobuyuki Idei certainly isn't laughing. Samsung has the second most recognizable consumer-electronics brand in the world, according to Interbrand, the New York City-based consultancy. Idei has said privately that Samsung is on the verge of overtaking Sony in the consumer-products race. Graeme Bateman, head of research in Seoul for Japanese investment bank Nomura Securities, says Samsung is "no longer making poor equivalents of Sony products. It is making things people want."

What's more, at a time when most of the world's tech companies are still shuttering plants and trimming R. and D. to weather the global economic slump, Samsung is extending its reach. Bolstered by the resurgent Korean economy--which is expected to grow 3% to 6% this year after nearly collapsing during the 1997 Asian financial crisis--Samsung Electronics' worldwide revenue reached $25 billion last year.

That's not even half the revenue stream of giant Sony, but Samsung Electronics is growing fast. It is the best performer in the family-controlled conglomerate that spawned it, the Samsung Group. Some analysts complain that the family of founder Lee Byung Chul, who died in 1987, still treats Samsung Electronics as a personal fief and that murky financial reporting makes it hard to discern the company's true profits. But neither worry has stopped investors from pouring money into the stock, which is up 65% over the past 12 months. Korea's consumers are spending more than ever, and they just happen to be among the most wired people on the planet, with easy access to broadband connections and new wireless local-area networks. So Samsung has an unparalleled testing platform for new gadgets right in its backyard.