A few of Samsung's component suppliers from South Korea are reportedly beginning to worry for their future as Samsung's plans for outsourcing the production of some of its smartphones to Chinese ODMs could put a dent into their revenues.
According to The Korea Times citing market analyst Kim Joon-hwan, local component suppliers could lose 3.4 trillion Won ($2.9 billion) if Samsung goes with its alleged plan to outsource the production of more than 60 million Galaxy M (2020) and Galaxy A (2020) smartphones next year.
Chinese ODMs pose a threat to Samsung's local part suppliers
This year Samsung launched a couple of ODM smartphone models that were manufactured in China without much of Samsung's input, expertise, and supply channels. A few months ago the company was said to plan shipping between 30 to 40 million ODM phones by the end of 2019, and now fresh reports suggest that Samsung aims to ship 60-70 million ODM devices in 2020.
These smartphone models bearing the Samsung brand will be manufactured by Chinese ODMs using their own resources and suppliers while loosely following Samsung's design guidelines. Samsung won't have to put in much effort to ready these devices for the market, and so far the business practice seems to be working in Samsung's favor as the lower production costs give the company a better fighting chance against its budget competitors from China.
The problem is that South Korean component suppliers are not in the same boat as Samsung. While the tech giant seems to benefit from its ODM partnerships, its domestic part suppliers are going to lose business to Chinese ODMs.
The ODM strategy is limited to low and mid-range devices at the moment, but part suppliers from South Korea are now worrying that outsourcing high-end and premium flagships to Chinese ODMs might become just as profitable for Samsung in the future. This could result in even lower profits for domestic businesses.
Local part suppliers are reportedly taking measures to try and mitigate potential losses. An association of Samsung partners has apparently been formed to try and address these problems. Some of these businesses even got in touch with Chinese ODMs to try and become their direct component supply channels.
All in all, we don't think Samsung will allow its flagship phones to be manufactured by Chinese ODMs anytime soon, but things could change. It's quite evident that the company does intend on releasing more budget-friendly ODM devices next year. Only time will tell how this business strategy will affect Samsung's relationships with local component suppliers and who will come out on top at the end of it all.
