Samsung Electronics’ IM division appears to be torn between adopting more Original Development Manufacturing (ODM) smartphones to cut costs amid intensifying competition and trying to maintain the status quo.
But with one of the key executives pushing for the idea, industry watchers say widening ODM adoption is ‘inevitable.
For ODM orders, Samsung does 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.
Roh Tae-moon, the CEO of development at the IM division believes ODM is the only way to compete against cheaper smartphones from China and India. He has already enlisted the ODM project to senior vice president Kim Seong-eun of the IM purchasing team.
In China, Samsung has a less than 1% stake, while in India, it lost the No.1 title to China’s Xiaomi.
Both Huawei and Xiaomi relies heavily on ODM, with up to 30% of ODM smartphones taking up the former’s production volume, and 70% of the latter’s.
For next year’s models, Samsung will be depending on China’s Wingtech for the ODM production. Since last year, Samsung has created four ODM smartphones with Wingtech.
Samsung has recently announced it would churn out up to 100 million such phones next year, which is about one-third of its annual smartphone production volume. It also reflects a huge jump from this year, when ODM phones took up less than 10%.
Some within the IM division, such as vice president Park Kyung-goon, are against going ODM. Park believes local suppliers should be given a chance.
Critics also say that giving Wingtech even more leeway by placing more orders would lead to the creation of yet another rival within the smartphone segment.
“Relying on Wingtech for even the product concept just means feeding a potential rival,” said one industry watcher on the condition of anonymity. “Some say to prevent this, Samsung should take up a stake in Wingtech, but this would be no different than Wingtech having a South Korean affiliate.”
Others suspect the actual price competitiveness of the ODM products. “Wingtechproducts aren’t that much cheaper, meaning that if Samsung is unable to improve the bottom line with more ODM phones, it won’t be able to save face,” said another market source.
He added that the success would hinge on the quality.
Suppliers, meanwhile, are up in arms over Samsung’s latest campaign. Most would be affected if Samsung decides to go ahead and produce up to a third of its volume via ODM.
Concerns are mounting further on recent news that Samsung has decided againstusing its Exynos AP in ODM products, meaning there is less room for the suppliers to get enough parts orders.
The Elec is South Korea’s No.1 tech news platform.