How Samsung will gain from Apple’s production issues in China

Korea’s Samsung Electronics is likely to gain from China production problems announced by rival Apple.
Samsung Galaxy A8+ in IndiaSamsung has low-cost smartphone manufacturing facilities in Vietnam. Samsung, according to the latest IDC report, has shipped 295.7 million smartphones registering 1.2 percent growth in 2019.

Samsung manufacturers half of smartphones in Vietnam, where the coronavirus that has crippled the China operations of Apple and many other firms has so far had only a limited impact on its production.

Samsung invested more than $17.3 billion in Vietnam and accounts for around one-fifth of the country’s total exports, media reports indicated earlier.

Vietnam’s exports of smartphones and electronic components, mostly produced by Samsung Electronics, rose 5.6 percent in the first eight months of 2019 from a year earlier to $33.39 billion, according to government data.

Samsung has shipped 295.7 million smartphones, retaining its #1 position in the global smartphone market for the full year of 2019. Apple had shipped 208.8 million smartphones in 2019.
Apple became the #1 supplier of smartphones during the fourth quarter by shipping 73.8 million units. Samsung shipped 69.4 million smartphones during Q4 2019.

Apple said on Monday it would not meet its revenue guidance for the March quarter due to the coronavirus impact on both production and sales in China, where most iPhones are made. Chinese smartphone maker Xiaomi last week also flagged a hit to its March quarter sales.

Huawei, another major Samsung rival, has not announced any production problems, but Samsung analysts and suppliers expect Huawei will also be hit hard due to its heavy reliance on Chinese manufacturing and parts. Huawei has shipped 56.2 million smartphones in Q4 and 204.6 million in 2019.

Many Chinese and foreign firms have started to re-open China factories that were idled for weeks, but shortages of workers and other problems have in many cases kept output to a minimum, Reuters reported.

Samsung has also largely ceded the China market to its rivals in recent years, meaning it won’t suffer from the store closures and drop in demand that is hitting Apple and others.

Problems with cross-border shipments cropped up in the early phases of the virus outbreak as Vietnam imposed stricter border controls, says Hong Sun, vice chairman of Korea Chamber of Business in Vietnam. The issues have been resolved, Sun said, but risks remain if Chinese parts suppliers cannot get back to work.

Samsung relies on Chinese contract manufacturers for low-end models.

In a statement to Reuters, the company said: “We are making our best effort to minimize any impact on our operations.”

TrendForce recently cut its first quarter production forecasts for Huawei by 15 percent and Apple by 10 percent. It cut projections for Samsung Electronics by 3 percent.

Samsung has boosted output through cheaper labor and generous government incentives since starting phone production in Vietnam in 2009. A number of South Korean suppliers followed suit, powering its breakneck growth.

Samsung ended its own smartphone production in China last year as its market share plunged to nearly zero.

Apple makes most of its iPhones in China via Chinese company Foxconn. Manufacturing facilities there that produce Apple’s iPhone and other electronics have begun to reopen, but they are ramping up more slowly than expected, Apple said on Monday.