Samsung May Shutter Chinese Phone Factory as Its Market Share Collapses

In the United States, Samsung and Apple command nearly a supermajority of the phone market, with an estimated 64 percent of the space between them. Here, Samsung has been a dominant player for so long, it’s hard to imagine the company falling on hard times. But in other markets, the story is quite different, and Samsung may close down a phone factory due to falling demand for its handsets.

That’s the story from the Electronic Times, a South Korean paper (via Reuters). Reuters spoke to Samsung directly, which told the company it had not made a decision regarding its Tianjin manufacturing plant. “The overall smartphone market is having difficulties due to slowing growth. Samsung Electronics’ Tianjin telecom enterprise aims to focus on activities that increase competitiveness and efficiency,” the Korean firm told Reuters. But the problem may have less to do with the slowing smartphone market and more to do with Samsung’s own Chinese market share.

According to a report by Korean site Hankyoreh, Samsung’s sales fell below 1 percent of the Chinese market in Q1 2018, down from a comparatively massive 19.7 percent market share back in 2013, when it led the space overall. Last year, Samsung only sold 9.8 million units in China for the entire year. That’s roughly equivalent to the 9.9 million smartphones the company sold in the United States in just Q3 2017. Smartphone penetration rates between the US and China are closer than you might think, with 68 percent of Chinese reporting owning a smartphone compared with 77 percent of Americans. The Chinese market is obviously far larger than the US space given the difference in population, which makes Samsung’s overall performance in the country that much worse by comparison. Companies like Huawei, Xiaomi, and other Chinese brands have stolen its thunder.

Samsung has been ramping up production in other areas, taking advantage of falling labor costs as Chinese labor markets have become relatively more expensive. The company produces 36 million phones at the Tianjin factory compared with 72 million phones in a second plant at Huizhou, China. Its Vietnamese plants build a combined 240 million plants per year. Taking the Tianjin factory offline would represent a drop in the company’s overall capacity, but not a critical one.

It’d be interesting to know if the growing trade war between the US and China plays any part in Samsung’s deliberations. The semiconductor industry is already concerned about tariffs as the total value of goods targeted for increases has grown, and phones are a luxury good it would be comparatively easy to hit with higher prices compared with the political and economic cost of passing along increased prices on foodstuffs or basic goods. Samsung is unlikely to shutter a factory simply to make nice with the United States, but it might be more willing to close a facility it was already considering shutting down if it thought the move might align it with a major market — and between the US and China, it’s clear which country Samsung is selling more devices in.