Samsung reorganises Chinese phone production

Samsung Electronics has closed its last handset factory in China in its bid to reorganise production for better cost control.

The South Korean tech giant confirmed that its factory in Huizhou, Guangdong halted production completely as of September and will be closed down. 

The move was done to increase global production efficiency, Samsung said, but it has declined to elaborate further.

The factory in Huizhou was the last of its handset factories in China to face closure. Samsung had shut down its factory in Tianjin in December 2018 while its factory in Shenzhen halted production in April last year.

Samsung is planning to contract out its mobile production in China to local original device makers (ODM) to better control costs, sources within the company said. ODM plants develop and produce devices while the client provides its brand. In China, using ODMs is an established way to get local manufacturers to make phones as local consumers demand a diverse range of phones to choose from.

The company made minor changes in its executive reshuffle last year, but significantly, it promoted Roh Tae-moon, the head of its mobile business research team, from executive vice present to president. Since the promotion, Roh has been tasked with reviving Samsung's ailing mid-tier smartphones that was losing out to Chinese rivals.

Roh has taken broader control of the mobile business and is behind the decision to expand the use of ODMs.

It is a highly unorthodox move by the company as it had previously deemed its vertically integrated structure, where it has total control over its own production process, as a strength that provided fast production and better flexibility against market changes. While Samsung has considered using ODMs for other products in the past, this will its first foray into using ODMs for its mobile business.

The South Korean tech giant has also been shifting its production in general to Southeast Asia, especially Vietnam, where labour costs are lower than in China.

Samsung's mobile business has seen its profits decline in recent years. For the second quarter of FY19-20, the company posted an operating profit of 1.56 trillion won, which was much lower than analysts' estimates. It was also significantly lower than last year's 2.67 trillion won in the corresponding quarter and the previous quarter's 2.27 trillion won.

Total operating profit, meanwhile, has dropped 56% to 6.6 trillion won due to the downturn in the memory market.

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