According tomedia reports, people familiar with the matter said Samsung plans to transfer one-fifth of its smartphone manufacturing operations next year to Chinese factory manufacturers, which could help it compete with domestic smartphone makers such as Huawei and Xiaomi, but the strategy also carries risks. Samsung is quietly shifting some of its Galaxy A smartphone manufacturing operations to foundry operators such as China Tech, which are little known outside China.
Samsung has been vague about the number of phone phones involved. But Samsung plans to ship about 300m handsets next year, 60m of which will be made by Chinese foundry makers, the sources said.
Wentai Technology and other mobile phone foundry manufacturers produce mobile phones for several brands, including Huawei, Xiaomi and OPPO. This licensing model can bring economies of scale to smartphone manufacturers, reducing costs, while flexible contracting strategies help them quickly develop and produce new, low-cost phones.
Critics of Samsung’s strategy say the company may have no control over the quality of its phones and that outsourcing could affect Samsung’s manufacturing advantages. Samsung’s excessive number of licensed handsets has even further reduced the operating costs of contract companies, increasing manufacturing experience and indirectly helping competitors.
Now Samsung can’t afford another crisis about device quality. In 2016, Samsung dropped its flagship Galaxy Note 7 directly after reports of frequent fires or explosions in the expensive Galaxy Note 7, and this year delayed the original release of a collapsible smartphone after it was discovered that there was a screen defect.
But people familiar with Samsung’s strategy say the company has no choice but to follow its rivals and use Chinese foundry makers to cut costs because of the low profit margins on cheap smartphones.
“This strategy is inevitable, not good or bad, ” said one source with knowledge of Samsung’s China operations. “
Samsung said it had been making a limited number of smartphones through other manufacturers to expand its existing product portfolio and “ensure effective market management”. The company declined to say how many Samsung phones it produced on the foundry’s label, saying future production had not yet been determined.
Wentai Technology did not respond to a request for comment.
Cheap mobile phone components
Phone foundry makers are buying between $100 and $250 for lower parts for smartphones, 10 to 15 percent less than big brands with factories in China, says Counterpoint, a market research firm.
A supply chain source said some of the parts purchased by China Tech were 30 per cent cheaper than Samsung’s in Vietnam. Samsung currently has three factories in Vietnam that produce smartphones, Televisions and household appliances.
Wentai Technology has been producing tablets and mobile phones for Samsung labels since 2017. The report said That Samsung smartphones, which are part of the brand, account for 3% of Samsung’s total. This year’s figure is expected to reach 8 per cent to 24m, according to IHS Markit, a market research firm.
Samsung’s labeling plans include its low-end and mid-range Galaxy A-series smartphones, which are designed and produced, the sources said. It is reported that the A6S is one of the models that will be branded as a contract, selling for 1299 yuan in the Chinese market.
A source said that The phones of The tsin-tech workers will be mainly sold in Southeast Asia and South America. Samsung’s market share is growing in both regions.
While Samsung is keen to maintain its leading position in the global smartphone market, some analysts worry that it may not be worth the risk, given the lower profits in the cheap handset business.
“Low-end phones are a headache for Samsung,” said CW Chung, head of Korea research at Nomura Securities in Japan.
CW Chung said it was “nonsense” that these generic products were produced in-house. But he and other experts say that if Samsung increases the number of licensed handsets, it could further cut the cost of foundry makers and indirectly improve their manufacturing experience.
Tom Kang, an analyst at Counterpoint, a market research firm, said: “If label edfactory manufacturers become more competitive, so will competitors.” “
CW Chung said Samsung’s strategic shift marked a decline in the company’s manufacturing capabilities. Samsung, once a low-cost Asian manufacturer, is now the world’s largest producer of high-end consumer electronics.
By contrast, rival Apple outsources production to Foxconn, but it still designs its own phones in California.
Samsung said it would be involved in overseeing the design and development of the branded smartphone.
A person familiar with Samsung and the label foundry said contractors tend to save money by eliminating steps in the manufacturing process, which can lead to equipment quality problems. He declined to give details.
With that in mind, Samsung has been pairing South Korean parts suppliers with contractors to keep a close eye on quality control, the person said.
“We understand that increasing production to contractors is a strategic business decision, but that doesn’t mean we’re all happy about it, ” says an executive at a South Korean parts supplier. “
Samsung said it uses the same quality inspection and control standards for all of its products and said it was committed to delivering high-quality products.
Samsung has gradually reduced the proportion of handsets produced locally because of higher labor costs in South Korea and China. Almost all of Samsung’s handsets are designed and manufactured in large factories in Vietnam and India.
But According to two people familiar with the matter, Samsung’s youngest president, Lu Taiwen, will take the lead in the mobile division to support the new sign-and-card contract strategy.
“Cost-cutting is crucial in order to remain competitive with Huawei and other Chinese handset makers, ” said one Samsung insider, who asked not to be named. “
Other South Korean companies are also outsourcing their mobile phone manufacturing operations. LG Electronics said it plans to expand the volume of its licensed phones from cheap phones to mid-priced phones.
“Smartphones are ultimately a cost war. It’s a survival game now,” says Kim Yong-serk, a former Samsung mobile executive and professor at Sungkyunkwan University in South Korea.