Samsung’s ODM strategy boon for China’s Wingtech

Samsung Electronics’ mobile communications arm is moving to outsource more budget smartphones to attract more consumers in growing markets like China, according to industry sources on May 29.

The sources told The Elec that following Samsung Electronics’ Vice Chairman Lee Jae-yong’s visit to China last year, mobile chief Roh Tae-moon has been looking to produce more ODM(Original Development Manufacturing) smartphones, and that this new strategy has reportedly been communicated within the mobile communications unit.

So far this year, Samsung has already outsourced three low-end Galaxy smartphones models to Chinese ODM company Wingtech, which also produced the Galaxy A6s, the first ODM smartphone from Samsung launched in November last year.

“Since last year, Samsung has outsourced a total of four low-end Galaxy smartphones to Wingtech,” said one source close to the matter. “Their contract ends in September, but it looks like Samsung may enlist two more models.”

Earlier this month, a high-ranking Wingtech executive came to South Korea to meet Roh and discuss how to expand their ties.

For domestic smartphone parts suppliers, the latest development was far from welcome. Unlike OEM, ODM calls for the supplier to be entirely responsible for designing and building the product, not to mention securing the necessary parts. Wingtech would most likely rely on Chinese suppliers for this, meaning local suppliers may lose their business.

“We may be forced to go through Wingtech in order to supply Samsung,” said one source in the Korean parts manufacturing sector.

Global semiconductor Nexperia is one firm that will likely supply Wingtech. The firm was spun off from NXP in 2017. Holding a 12% worldwide market share, it’s the world leader for Small Signal Discretes, Logic and MOSFET.

Experts say Samsung has no choice but to cut prices in order to compete against Chinese rivals such as Xiaomi and Huawei.

Globally, out of the 1.42 billion number of total handsets manufactured last year, up to 430 million – or 30% -- were ODM phones, according to market research firm Strategy Analytics.

Wingtech is currently the world’s No.1 smartphone ODM company that has manufactured more than 90 million phones. Its clientele includes Huawei, Xiaomi, Lenovo and Meizu. Last year, it added Samsung, LG Electronics and OPPO.

Meanwhile, some members of the mobile communications unit are skeptical towards going ODM. They say that other than labor expenses, there’s not too much of a price gap. Critics also caution that excessive ODM reliance could undermine Samsung’s core competence and disrupting the suppliers’ ecosystem.