Samsung Electronics’ mobile communication business division plans to roll out up to 100 million Original Development Manufacturing (ODM) budget smartphones next year, according to industry sources on Aug. 21.
The models would be mostly those priced under $200, such as the Galaxy J series.
Considering that Samsung is currently shipping around 300 million smartphones a year, ODM phones could account for up to 30% of the tech giant’s annual volume.
For ODM orders, Samsung would do little more than request the specs and slap on its label on the end product. The rest, including the parts supply and the assembly is up to the commissioned manufacturer.
Samsung has already commissioned a key project for one of next year’s models to a Chinese manufacturer.
"It looks Samsung will delegate most of the big projects to Wingtech and Huaqin as key partners, while commissioning others, such as Longcheer, for backup,” said one source close to the matter.
One condition for the change would be for the ODM models in the market to sell above a certain target volume, he added. This is because the mobile communication division is still divided on the ODM strategy.
Those supporting the move, it’s the only way to achieve price competitiveness.
Last year, the Chinese smartphone market was the largest by selling 459 million handsets.
Samsung had previously nabbed a 19% share in the Chinese market as of the fourth quarter of 2012, but in the second quarter of this year, it stood at 1%. Chinese brands such as Huawei, Oppo, Vivo and Xiaomi, on the other hand, held a combined 86% share.
Samsung’s mobile communication head Koh Dong-jin recently told reporters that it’s near impossible for Samsung to make any profit out of a handset that costs under $130 by making it itself.
“It’s critical for us to go ODM on some level, as long as our criteria is met,” he said.
The ODM phones made in China will also be shipped off to emerging markets such as India, where Chinese handsets are already fast making headway. Last year, Samsung was trumped by Xiaomi in India, which took No.1 in the smartphone market.
Driving the ODM project within Samsung is Noh Tae-moon, the head of R&D at the mobile division who favors outsourcing. Considering his status as the next-in-line for CEO, market watchers say Samsung won’t be abandoning ODM any time soon.
For local suppliers, the news was a hit since Samsung would now secure only key parts, such as AP and memory chips from them.
The rest will most likely depend on the Chinese ODM companies. This means Samsung’s suppliers would have to woo these ODM firms for orders.
“Most times, even if a deal is struck, the payment conditions are usually pretty bad,” said one source in the supplier community. “While Samsung pays once or twice a month, companies like Wingtech and Huaqin usually pay after as much as six months.”
Some critics are worried about the impact on Samsung’s manufacturing capacity, a concern that is warranted given that many of its predecessors, such as Nokia, Ericsson and Motorola have all failed after relying on ODM to claw back the market share they lost to their younger rivals.
The Elec is South Korea's No.1 tech news platform.