SEOUL —Samsung Electronics will cease operations at one of its mobile phone manufacturing plants in China, the company said, as its sales in the world’s biggest smartphone market slumps amid rising competition from lower-cost, local rivals.
The South Korean company has seen its share of the Chinese market shrink to 1 percent in the first quarter of this year, losing out to homegrown brands like Huawei, according to market research firm Counterpoint, which pegs Samsung’s share of the pie at about 15 percent at mid-2013.
“As part of ongoing efforts to enhance efficiency in our production facilities, Samsung Electronics has arrived at the difficult decision to cease operations of Tianjin Samsung Electronics Telecommunication,” Samsung said in a statement, referring to the plant in the northern Chinese city of Tianjin.
The factory, which currently employs about 2,600 people, is scheduled to be shut down by the end of this year.
Samsung, the world’s biggest smartphone maker, said it would offer compensation packages to the employees and also provide opportunities to transfer to other Samsung facilities.
The company, which has focused on low-cost countries like Vietnam and India for production, added it would continue to operate another Chinese phone factory in Huizhou, in the southern province of Guangdong.
“Samsung doesn’t need to stay in China because of rising labor cost and its almost non-existent Chinese market share. They can be better off in India and Vietnam,” said Greg Roh, a senior analyst at Hyundai Motor Securities.
Samsung’s Tianjin plant produces 36 million mobile phones a year and the Huizhou plant makes 72 million units, while two of Samsung’s factories in Vietnam combined make 240 million units a year, according to the South Korean newspaper Electronic Times.
Samsung declined to disclose the capacity of each factory.
China’s OLED Ambition
China seeks to dominate the OLED industry by fair means or foul, but its domestic OLED industry is still limited. According to Aju News, none of the major smartphone makers around the world get their OLED supply from Chinese sources.
Chinese manufacturers also have not yet developed the technology to produce large OLED panels for TV screens.
South Korean prosecutors on Nov. 29 said they have indicted nine people on suspicion of leaking Samsung Electronics flexible display technology to a Chinese company. The chief executive and eight employees of supplier Toptec Co., Ltd. were charged for selling information earlier this year about Samsung’s organic light-emitting diode (OLED) panels.
The group is accused of forming a separate shell company that received information on the use of equipment and drawings of panels obtained from Samsung subsidiary Samsung Display, and sold some of the documents in China for 15.5 billion won ($13.85 million).
On June 27, South Korean prosecutors announced they had indicted seven individuals—six Korean nationals and one Chinese national—for violating South Korea’s Industrial Technology Protection Act while attempting to pass on core OLED technology to an unnamed Chinese OLED company, according to South Korean news site Aju News. Three individuals, including the Chinese national, were arrested and detained.
By Ju-min Park. The Epoch Times contributed to this report.