Samsung will reportedly use Chinese ODM to design, produce 60 million phones next year

Samsung will reportedly use Chinese ODM to design, produce 60 million phones next year
Looking to lower the manufacturing costs of some of its handsets, Reuters reports that Samsung plans on outsourcing the production of some Galaxy A handsets to a Chinese original design manufacturer (ODM) named Wingtech. Samsung closed its production facilities in China last month and by relying on Wingtech to assemble these phones, the company hopes to reduce the cost to manufacture low-end handsets; this will allow it to cut retail prices in certain regions including India, the second-largest smartphone market in the world. But since it is a developing country, consumers are very mindful of a handset's price which is why value for money manufacturers like Xiaomi are doing well in that country.

20% of Samsung's 2020 phone production could come from Wingtech

Phones produced by Wingtech will reportedly be shipped to Southeast Asia and South America. Besides Xiaomi, Samsung is expected to take business away from Huawei. Due to its U.S. supply chain ban, the latter cannot ship new phones using the Google Play services version of Android. Huawei's phones in the aforementioned markets will be powered by an open-source version of Android and won't be able to use Google's core Android apps like the Play Store, Search, YouTube, Gmail, Maps and others. This might not matter inside China, but outside of the country it is a big deal. A Samsung insider who wished to remain anonymous says, "It is crucial to cut costs to maintain competitiveness with Huawei and other Chinese handset makers."

Sources cited by Reuters say that Samsung plans on shipping 60 million handsets out of China, about one-fifth of the 300 million units it expects to roll off of the assembly line in 2020. But the report also mentions some of the risks that Samsung faces by using an ODM. Perhaps the biggest gamble is that Samsung will lose control over the quality of the phones being manufactured. And the strategy could backfire because Wingtech also produces handsets for Xiaomi; any economies of scale that Wingtech realizes from taking Samsung on as a customer could result in lower pricing for Xiaomi phones as well. Samsung says that it will apply the same quality testing and standards to the models made in China. The company says that it is committed to making high-quality units in the country.

The models being farmed out to Wingtech include lower and mid-range Galaxy A models. While Samsung will have oversight over their design, the ODM will also have some say in the design of the phones. One model that will be produced by Wingtech is the Galaxy A6s which retails for the equivalent of $185 in China. As you might expect, Korean suppliers are not thrilled with this move. An executive at a Korean component supplier ruefully noted, "We understand the logic of increasing the production volume with Chinese contractors is a strategic business decision but that doesn’t mean all of us are happy about it."

Research firm Counterpoint says that an ODM can obtain all the parts needed to build a $150-$250 smartphone for less than what it would cost Samsung to obtain these parts in China. Counterpoint says that Samsung would pay 10% to 15% more for these components if it decided to build these devices itself in China. A source who works in the supply chain said that Wingtech can get some parts for 30% less than what Samsung pays for them in Vietnam where it currently makes some models.

Since 2017, Wingtech started manufacturing phones and tablets for Samsung. That year, the company was responsible for 3% of Samsung's handsets and that percentage is expected to rise to 8% this year, or 24 million units. CW Chung, head of research at Japanese securities house Nomura says that "Low-end phones are (a) headache for Samsung," pointing out that they are should be considered a commodity product. But the analyst also said that this news is a sign that Samsung's manufacturing abilities are declining.



1. strawberry

Posts: 123; Member since: Feb 20, 2019

samsung fanboys always look down on apple phone parts are manufacturered by samsung. now samsung phones are made by china.

2. ijuanp03

Posts: 654; Member since: Dec 30, 2014

"The models being farmed out to Wingtech include lower and mid-range Galaxy A models" while iPhones are all made in China. So it's safe to say iPhones and lowend Galaxy phones have the same quality.

3. PartTimePhoner

Posts: 44; Member since: Jun 03, 2019

You pay $700+ for the iphones. This article said that it will be for $250-$100 phones.

5. mackan84

Posts: 631; Member since: Feb 13, 2014

Who gives a s***? We will buy them anyway.

4. Dr.Phil

Posts: 2487; Member since: Feb 14, 2011

I think this just speaks volumes for how well Xiaomi phones are built if Samsung is going to use the same manufacturer. Good news for Xiaomi if you ask me.

6. No_Sammy_No_Gimmicks

Posts: 158; Member since: Jun 10, 2015

Looks more like this is a change in strategy for Samsung to cut costs. It doesn’t make financial sense to manufacture your own phones whereby contract manufacturers are able to make use of up to more than 90% of the factory capacity by assembling various OEM’s devices, on your own, you might just hover around 60% capacity thereby making serious losses, especially so for Samsung with declining market share. Ask Apple, they are not sitting on piles of cash, by accident, they do things smartly and efficiently.

8. shm224

Posts: 300; Member since: Mar 19, 2015

Oh jesus, another incoherent Apple fanbois rambling. Samsung gained 11% with the largest 22% global smartphones in last quarter whereas Apple lost -7% now down to 12.3% market share, perhaps the lowest in years. Samsung's marketshare would be higher than Apple's without those made-in-China phones.

9. No_Sammy_No_Gimmicks

Posts: 158; Member since: Jun 10, 2015

U really are being narrow minded. This has got nothing to do with being Apple fanboi. Samsung’s not even a top player in the Chinese smartphone market anymore, a stark contrast to yesteryears. Look at the market share trend for the last 5 years. Apple doesn’t manufacture their own devices cos it’s too expensive to do that, factories will idle for vasts amount of time. Samsung closed factories in China cos it’s not viable to operate them.

13. shm224

Posts: 300; Member since: Mar 19, 2015

so why make up stuff you can't support? First, there is nothing in this article suggesting that Samsung's move in motivated by their Chinese market share. Second, further, according to this Reuter's article (and many others), phones produced by Samsung's ODM, Wingtech, "... will reportedly be shipped to Southeast Asia and South America." Third, the article cites Counterpoint's claims that Wingtech's comparative advantage comes not from higher production capacity, but their ability to procure "some parts for 30% less than what Samsung pays for them in Vietnam." Apple doesn't compete with Samsung in mid or low-end smartphone market, so your comparison isn't even relevant at all.

10. Dr.Phil

Posts: 2487; Member since: Feb 14, 2011

Market share and profits are two separate things. Samsung has a large market share but they also make a dozen or more new smartphones every year tackling just about every price point. This is great for gaining market share, but it doesn’t mean you are necessarily gaining profits because the majority of those sales are happening at the bottom instead of the top. By going with a Chinese manufacturer, they are hoping to shave off that cost to build on their lower priced handsets, thereby increasing the share of profits.

12. shm224

Posts: 300; Member since: Mar 19, 2015

Sure, fanbois, do you have reading comprehension problem? nobody here said anything about profit, but you.

15. Cyberchum

Posts: 1106; Member since: Oct 24, 2012

Someone probably more knowledgeable tries to explain to you and this is your reaction? Really? Proud ignorant.

14. Cyberchum

Posts: 1106; Member since: Oct 24, 2012

Don't make everything a fanboy war. Read to understand, sometimes. It must be hard for you, but try!

7. redmd

Posts: 1948; Member since: Oct 26, 2011

Good news for consumers.

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