Weakness in smartphone sales worldwide leads Samsung to cut production

Reuters is reporting that Samsung's huge smartphone manufacturing center in Vietnam has seen a sharp drop in handset production because of a current slump in global smartphone sales. The slowdown is part of an overall decline in consumer spending worldwide and has left the manufacturer with bulging inventory that it will need to get rid of, possibly by dropping prices. The report notes that major U.S. retailers like Best Buy and Target are expecting sales to continue to sputter as state-side consumers have started to feel the weight of a weakening economy.

Warehouses in California are filling up with clothing, electronics, furniture, and other goods from across the Pacific Ocean. Samsung recently said that it expects flat smartphone sales or single-digit growth at best for the second half of this year. The Samsung factory in Thai Nguyen, Vietnam churns out 100 million phones a year. Two factories in that country are responsible for half of Sammy's annual smartphone production.

According to several workers at the Thai Nguyen factory who spoke with Reuters, business is not good. Last year at this time, business was booming. But now, these employees say that they have never seen smartphone production drop this low with some assembly lines running for just three days a week, down 50% from the six days a week that they usually run. Other lines are operating four days a week and no overtime is allowed.

In its report, Reuters did note that it is possible that some of Samsung's smartphone production could have been moved to other plants in India and/or South Korea. Nonetheless, Samsung has yet to make any job cuts in Vietnam even though other tech firms have started announcing layoffs. Those companies include software and hardware producer Microsoft, retailer Best Buy (heavy on tech sales), social media apps TikTok and Twitter, streaming content provider Netflix, online broker Robinhood, and audio chat app Clubhouse.

This news comes just six days before Samsung is scheduled to hold its next Unpacked event during which it is expected to introduce the Samsung Galaxy Z Fold 4 and the Samsung Galaxy Z Flip 4; the former opens like a book to turn from a small smartphone into a tablet. The latter is a small device that easily fits into a pocket and flips open to become a 6.7-inch phone with a tall and thin display.

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While these are very expensive phones that could be a hard sell with a global recession approaching, Samsung reportedly expects to ship a combined 10 million units of the two Galaxy Z foldable models.

The U.S. Gross Domestic Product (GDP), which measures the value of goods and services produced in the states and purchased by the end user, has declined for two consecutive quarters which usually is a sign of an impending recession. Add to that the 150-point hike in short-term interest rates orchestrated by the Federal Reserve Board to slow inflation, and we could see even more declines in smartphone production ahead.

Higher inflation in the U.S. is also leaving Americans with less money to spend on expensive consumer electronic devices including smartphones. There are still enthusiasts who are able to include the purchase of a new phone in their budget. Others might have to hold on to their current phone or downgrade from a top-of-the-line model to a more affordable model. Interestingly, Samsung's Galaxy A line might perform well under these conditions.

The mid-range Galaxy A phones have viable cameras, large screens, big batteries, and smaller price tags.