What you need to know
- Samsung is partnering with a Chinese ODM Wingtech to produce its Galaxy A series phones in China to save money.
- The South Korean company plans to ship 60 million made in China phones, according to sources.
- Critics fear there could be quality issues with the ODM-made phones and that it could likely backfire, lowering the costs for all companies instead of just Samsung.
In a surprise move, Samsung will outsource one-fifth of its smartphone production to China next year after shutting down its last smartphone factory in the country in October. The move comes as Samsung faces increasing pressure and competition in the budget segment of the market from Chinese brands. An unnamed Samsung insider said:
It is crucial to cut costs to maintain competitiveness with Huawei and other Chinese handset makers.
As part of the strategy, Samsung will move production of its Galaxy A phones to China and partner with original design manufacturer Wingtech. Partnering with an ODM is nothing new, many larger brands such as Huawei and LG use contractors like Wingtech to save money.
One way an ODM saves major brands money is with the cost of components. Counterpoint Research says ODMs can get components 10-15% cheaper than larger brands, and one source says Wingtech can get some parts up to 30% cheaper than Samsung does for its factories in Vietnam.
Samsung is currently the number one smartphone maker in the world, but in recent years, it has felt pressure from Huawei and other Chinese brands that sell volumes of budget phones for a cheaper price. By switching to an ODM for it's Galaxy A series, Samsung will be able to better compete on price against Chinese brands where profits on budget phones are razor-thin.
Wingtech will not only assist in the production, but also in the design of the phones with the Galaxy A6S being one of the phones being outsourced. According to sources involved, Samsung plans to ship 60 million made in China phones out of its total 300 million devices. Most of the Wingtech phones will be shipped to Southeast Asia and South America, according to one source.
Critics fear that this shift from Samsung could lead to quality issues at a time where Samsung cannot afford any more problems after the rocky launch of the Galaxy Fold. However, when speaking to Reuters Samsung says it will apply the "same quality checks and standards it does with all its devices."
Others are worried that giving ODMs more business will backfire and lower the costs for all brands. According to a source with knowledge of Samsung's Chinese operations, "This is an inevitable strategy rather than a good strategy."
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