Source: Financial Breakfast
Since the Samsung mobile phone battery explosion in 2016, the market share of the mobile phone category in Samsung Electronics in China has fallen sharply. From falling out of the top five in the Chinese market in 2015, to less than 1% of the market share today, it seems that Samsung is gradually marginalized in China.
However, despite the "silence" in the hot field of Consumer Electronics in China, Samsung's sales in the global market are very hot, which is inevitably confusing: Does Samsung want to exit the Chinese market?
But if we pull the timeline forward from now on and understand Samsung's actions in the two major fields of consumer electronics and semiconductors in China in recent years, we may be able to draw some conclusions: Samsung has not given up the Chinese market, nor will it give up the big cake of the Chinese market. Whether it's questioning its slow response or the Chinese market is too competitive, Samsung is picking up confidence to return to the Chinese market.
The ambition behind frequent factory closures
2010-2015 was the highlight of Samsung's chinese market, and in 2013 Samsung topped the domestic mobile phone industry, although this glory lasted only one year.
Since 2015, Samsung has fallen out of the top five in the Chinese market and has been reduced to the "others" column in the major smartphone market research reports. In 2016, Samsung was deeply involved in the Note 7 explosion controversy, and the subsequent THAAD incident and the Samsung interference in politics once again consumed the patience of the Chinese people.
Under the mobile phone scramble, the domestic country has been divided, the rapid decline in user reputation superimposed on the domestic mobile phone to divide the low-end market, Samsung's mobile phone business in China has declined is an indisputable fact. By the end of last year, Samsung's mobile phone share in the Chinese market was less than 1%, inferior to the "Huami OV" (OPPO, Vivo, Huawei, Xiaomi).
In the above market ranking, Samsung is not on the list, and as of the end of last year, this situation has not changed. In China, Samsung rarely publishes sales data, and the author flipped through the financial reports of Samsung Electronics Group over the years and did not find relevant market data.
In stark contrast to the domestic market, Samsung mobile phones are hot in the global market. According to IDC data, Samsung will continue to rank first in the global mobile phone category with 272 million units of shipments and a market share of 20.3% in 2021. In North America, Russia, India, Europe, Africa, Southeast Asia and other regions, Samsung's market share is in the forefront. This is the tenth consecutive year since Samsung reached the top in 2012 that it has won the first place in the global mobile phone market.
Although the loss of the Chinese market has become a disappointment for Samsung Electronics, it does not mean that Samsung has performed poorly in other Southeast Asian countries. As an important Asian market, Samsung has always been the first in India, and the importance of the Indian market is increasing, and has released a series of measures to strengthen its "leadership position" in the Indian high-end market.
In contrast, the frequent closure of factories in China inevitably makes people question their attitude towards the Chinese market.
In October 2019, Samsung announced the closure of the last and largest mobile phone factory in China, the Huizhou factory in Guangdong, which was understood by the industry as a sign of Samsung's withdrawal from the Chinese market. Subsequently, in August 2020, Samsung closed its last computer factory in China; in November, it closed its TV factory in Tianjin, which is also Samsung's only TV factory in China.
Is Samsung accelerating its exit from the Chinese market?
If we look at Samsung's series of moves outside of the factory closure, we may be able to conclude that this may just be a strategic adjustment of Samsung's return to the Chinese market. China's opportunity, which Chairman Li Jianxi of Samsung Group said 20 years ago, is still a top priority in Samsung's global strategy.
When closing the Huizhou mobile phone factory, Samsung issued a statement: Samsung's industrial layout in China has been transformed into a high-end manufacturing industry in line with the guidance of the Chinese government, and it has continued to invest in high-end industries in China in the past 6 years, with an amount of more than 20 billion US dollars, far higher than the amount of industrial adjustment, and will continue to invest in high-end industries in China in the future.
A series of measures by Samsung also confirmed this statement. While shutting down a large number of low-end manufacturing plants, Samsung has successively deployed semiconductor production plants in Suzhou, Xi'an and Tianjin, focusing on high-tech fields such as semiconductors, displays, communications, and software.
In terms of the proportion of investment in high-end industries in China, Samsung increased from 13% in 2012 to 72% in 2019. At present, Samsung has more than 20 production plants, 7 R&D centers, nearly 80,000 employees and more than 4,000 R&D personnel in China.
In fact, in the process of China's overall manufacturing transformation and upgrading, the low-end manufacturing industry has successively shifted to Southeast Asian countries such as Vietnam, which is not a move by Samsung, Apple has moved the iPhone and iPad production lines to India, and multinational clothing companies such as Adinec have transferred their production lines to Vietnam.
The transformation or end of the low-end manufacturing industry is inevitable, starting from Samsung's large number of closures of old production capacity, the author believes that behind it is not Samsung's concession to the Chinese market, and the new high-end manufacturing dispute has begun.
This competition can be seen in Samsung Electronics' group organizational structure changes and a series of actions in China.
It is better to stop boiling than to draw salary from the bottom of the kettle
The shift in strategy for the Chinese market has been implemented for many years, but the results do not seem to be very significant, at least on the consumer electronics side (including mobile phones, home appliances) performance.
Since it is useless to stop the boiling of the soup, it can only be drawn from the bottom of the kettle.
Change begins with a change in personnel.
On December 7 last year, Samsung Electronics officially announced the biggest high-level personnel change in five years, the original three major divisions - equipment solutions (DS) division, consumer electronics (CE) department, IT and mobile communications (IM) division, the CEO of the three departments at the same time stepped down, and the CE and IM two major business units were merged to form a new business unit - the whole machine department (SET).
Image source: Nikkei Chinese.com
This restructuring means that the internal structure of Samsung Electronics Group has been simplified to two businesses, toC and toB.
Han Jong-hee: Responsible for C-end consumer business, including consumer electronics such as mobile home appliances, visual display, health care and other businesses. In the past, Han Jong-hee led the company to the top of the global TV sales list for 15 consecutive years.
Kyung Kye-hyun: Responsible for the B-side device solutions (DS) division, leading Samsung's vital chip business. It is reported that Qing Guixian was the CEO of Samsung Motor.
South Korean media generally believe that Samsung Electronics' major personnel change is an "unconventional measure", showing that in the case of increased global uncertainty, Samsung Electronics hopes to increase its competitiveness in the global semiconductor, artificial intelligence and robot markets through organizational structure adjustment and personnel reform.
In the global market, China cannot be absent. The organizational structure was followed by a major restructuring of its business units in China. Samsung Electronics announced the establishment of a new division in China, the China Business Innovation Team, reporting directly to Samsung Electronics Co-CEO Han Zhongxi.
Whether it is South Korea or domestic media, the caliber of Samsung's move is also very consistent: Samsung will seek new development opportunities in China.
The new division is involved in consumer electronics production lines such as mobile phones and smart homes, and unlike the previous dependence on the group, the new team has a Samsung brand and global products provided by Samsung, but it needs to operate itself and bear its own profits and losses. This means that Samsung's team in China needs to get rid of its past dependence on Samsung Group.
This is a challenge, but it is also a new opportunity for Samsung in China. Let people who know the Chinese market better make decisions about Chinese consumers and get rid of the big company disease.
The establishment of the new division means that Samsung attaches a new level of importance to the Chinese market, which may become a turning point for Samsung to revitalize the Chinese consumer electronics market.
New personnel changes have been completed and follow-up deployments are in full swing. For domestic enterprises, the days of Samsung's "disappearance" in the Chinese market have passed, new competition has quietly arrived, and Samsung's deployment in China for many years has provided sufficient "ammunition" for this competition.
Years of layout, Samsung "ammunition sufficient"
According to South Korea's Seoul Economics, on March 28, the U.S. government proposed to form a "chip quad alliance" with South Korea, Japan and Taiwan, hoping to gradually exclude Chinese mainland from the "chip supply circle of U.S. allies."
But not long after, on April 2, according to the South Korean media "Korea Business", Samsung Electronics' second NAND Flash flash memory factory in Xi'an, China, has completed expansion and begun full production. At this time, it was less than half a month before the "chip quad alliance" launched by the United States.
Where the chip alliance will go in the future is unknown, but for Samsung, following the US initiative to exclude Chinese business, Samsung is reluctant. This can be seen from the remarks at Samsung's annual shareholders' meeting.
On March 16, Samsung Electronics' new co-CEO Qing Guixian (head of B-end business) said: Samsung's foundry business will find new customers in China and focus on improving supply capacity by improving factory operations.
The chip business is the core business of Samsung Electronics and the top priority of its future strategy. Qinggui Xian has been in office for less than half a year, and in order to make the chip business improve qualitatively in the short term, the Chinese market facing the problem of lack of cores seems to be an ideal choice.
Qing Guixian said: In the case of tight global chip supply, the company will increase supply by improving operations. Samsung's chip and components division is expected to perform strongly this year, growing faster than the expected annual growth rate of 9% in the global chip market.
How is Samsung Electronics going to fulfill this expectation? The Chinese market obviously cannot be absent, and in fact, Samsung will not be absent. If TSMC focuses on the European and American markets, Samsung has carried out many years of deployment in the Chinese semiconductor business, and the ammunition depot is sufficient.
In 2018, Samsung invested in the world's leading MLCC (multilayer ceramic capacitor) factory in Tianjin, becoming Samsung's main production base in this field. MLCC is the most demanded electronic components in the electronics industry, is the basic electronic components necessary for electric vehicles, mobile phones, computer electronics, etc., and this factory has achieved mass production of new products in 2021.
Xi'an NAND Flash Flash Factory is Samsung's only overseas flash memory factory, with an overall investment of US$10.8 billion. The first plant started operations in 2012 and in 2014, and the second plant has been operating at full capacity since it started operations in early March. The nand flash memory production of the two plants reached 250,000 pieces/month, accounting for more than 40% of Samsung's total global production. According to industry estimates, the completion of the second plant will increase Samsung's market share of the global NAND Flash from 35% to 40%. [Note: NAND Flash flash memory is a kind of memory, which is widely used in digital cameras, USB sticks and other digital electronic products]
In addition to semiconductors, in the field of consumer electronics, Samsung has closed a large number of tail factories at the same time, and introduced a new OLED display production line in Tianjin in 2020, and successfully put into operation in February 2021. This production line will provide high-end display screens for laptops and tablets. At the same time, Samsung has also settled the second phase of the most important small battery overseas production base SDI project in Tianjin to provide lithium-ion batteries for mobile phones, computers, automobiles, etc.
The above is only part of the investment of Samsung's semiconductor and consumer electronics industries in China, and Samsung has been deeply integrated into the Chinese industrial chain.
Although the performance in mobile phones, color TVs, white tv and other fields is dismal, Samsung has not withdrawn from the high-end manufacturing industry in China, including semiconductors, but has secretly exerted its strength. From 1992 to the present, Samsung has invested more than $50 billion in China, of which more than $20 billion has been invested in the past five years. [1]
Plant one millet in the spring and harvest ten thousand seeds in the autumn. From the early stage to the current mass production into the market, the benefits to Samsung have gradually emerged.
Image credit: Statista
As can be seen from the above figure, in the annual revenue of Samsung Electronics in 2011-2021, China accounts for between 14% and 18%. What does this number mean?
Taking Samsung's performance in 2021 as an example, Samsung Electronics' overall revenue in 2021 will be 1.48 trillion RMB, and its operating profit will reach 51.63 trillion won (about 272.5 billion yuan), of which the Chinese market will account for 16%. This means that throughout last year, Samsung Electronics' revenue in the Chinese market (16.3%) reached 241.2 billion RMB.
What is this magnitude, perhaps we can simply compare Huawei, Apple, Tesla. Huawei's overall revenue for the whole year last year was 634 billion yuan, of which the domestic market revenue was 413.2 billion RMB; Apple's total revenue in Greater China in 2021 was 72.805 billion US dollars (equivalent to about 460 billion yuan); and Tesla's revenue in the Chinese market in 2021 was 13.844 billion US dollars (about 88 billion yuan).
It can be seen that although Samsung is an important supplier of China's semiconductor market, from the perspective of Samsung's revenue in China, the Chinese market may really be indispensable to Samsung.
For the "co-optation" of the United States and so on, Samsung will also have its own considerations. Samsung and TSMC have fierce competition, and its chip foundry technology has always ranked second below TSMC. However, due to the low yield of the 4nm process and the gap between the 4nm process and TSMC, Samsung has lost many customers in the past.
It's not hard to see why Samsung wants to find new chip foundry customers in China. China's chip market has broad prospects, with Chinese mainland 2021 contributing more than half of the global semiconductor market 's sales ( $299.1 billion ) , and the world's largest electronics manufacturing location.
As a result of years of hard work, Samsung's semiconductor business may have new progress, and this progress will also help Samsung compete for the domestic consumer electronics market share represented by mobile phones.
Folding screen: a new opportunity for Samsung to turn the tables against the wind
Samsung's poor performance in the domestic consumer electronics field is a consensus, but how miserable is it? This can be seen from Samsung's proud color TV performance.
In the global market, Samsung TV stands out, accounting for 29.5% of global TV sales in 2021, ranking first in the world for 16 consecutive years. But looking at the Chinese market, in 2021, Samsung's national shipments of color TVs will be less than 500,000 units, and the market share will be only 1.9%. The white-power business also shrank, with refrigerators in the market share of about 2%, ranking ninth, and other home appliances such as washing machines.
In the comparison between the semiconductor business and the global performance, Samsung is really frustrated in the domestic consumer electronics market, and it seems that the tail is not falling, the decline is obvious, and the prospect is unclear. Chinese consumers do not pay for the so-called high-end production line, but does this mean that the high-end strategy does not work in the Chinese market?
Not really.
According to the "2021 High-end Home Appliance Market White Paper" jointly released by the Red Top Award Organizing Committee,"; GfK China jointly released the "2021 High-end Home Appliance Market White Paper": In the first 10 months of last year, the proportion of offline retail sales of refrigerators, color TVs, cabinet air conditioners and dishwashers with more than 10,000 yuan increased by 4.3, 3.7, 2.9 and 4.3 percentage points respectively compared with 2020 The proportion of offline retail sales of washing machines above 6,000 yuan increased by 5 percentage points to 27.6% compared with 2020; the offline retail share of sweeping robots above 5,000 yuan increased by 4.6 percentage points to 21.9% compared with 2020.
The purchasing power and budget of Chinese consumers are gradually increasing, and in this market situation, Samsung's high-end consumer electronics products are cold in China, and I think that the market and brand strategy may be an important factor. Since the battery explosion, Samsung needs to start with the brand, reorganize the word of mouth in the minds of Chinese consumers, and get rid of the "arrogant" brand image.
As for where the opportunity is, judging from the outbreak of folding screen mobile phones this year, this may become the core competitiveness of Samsung to return to the Chinese market.
In 2022, the folding screen mobile phone market is hot, only a few months after the beginning of the year, several major domestic mobile phone brands have released or will soon release folding screen mobile phones.
According to the "Market Tracking of Smartphone Models in the Fourth Quarter of 2021" released by market research agency Omdia, as of the end of 2021, the cumulative shipments of folding screen smartphones worldwide reached 11.5 million units, and the shipments in 2021 alone accounted for 9 million units, an increase of 309% year-on-year.
The global folding screen mobile phone market prospects are clear, the glory Magic V and vivo X Fold are out of stock when they are on sale, the major e-commerce platforms have been out of stock for a long time, there is no shortage of price increasers, and the scene is hot and comparable to Apple's new products.
In the field of folding screen mobile phones, Samsung is undoubtedly the king. According to IDC data, in the list of China's folding screen mobile phone market share last year, Samsung ranked second with a market share of 28.8%, compared with the overall smartphone market share of less than 1% in China, which is a headwind reversal.
Although it is still inferior to Huawei in China, in fact, Samsung is the world's largest folding screen mobile phone manufacturer, and its Galaxy Z-Fold series and Galaxy Z-Flip series have been iterated many times. In addition, Samsung is not only a manufacturer of folding screen mobile phones, but also a supplier, supplying folding screens for some brands.
Image credit: IDC China
In addition to folding screen phones, Samsung is also looking for growth in other categories, including non-folding smartphones and color TVs.
When the market is not optimistic about the performance of Samsung mobile phones in China, Samsung has not given up. In 2018, Samsung officially announced at the Galaxy A8s conference that "Samsung has returned to the battlefield", "will return with innovative technology and products", and "with the most advanced technology of the moment, without reservation to Bring to China".
Since then, Samsung has made some new moves in China every year. In 2020, Samsung said at the press conference that it would compete for the Chinese market. In February this year, Samsung released a new generation of flagship mobile phone Galaxy S22 series, the global price of 5499RMB started, but in the Chinese market to make a price reduction, the basic S22 (8 + 128GB) starting price of 4999 yuan. The first shipments of this series were snapped up as soon as they were released, which has a significant increase compared to the same model last year.
It seems that Samsung is showing sincerity to Chinese consumers, and judging from the consumer reaction, the response seems to be good.
In addition to the mobile phone market, color TVs are also the focus of Samsung's deployment. At the 2022 German CES Consumer Show, Samsung unveiled the latest Neo QLED 8K series color TV, and held the 2022 new product launch in Beijing on April 7 to launch this new product. The series is the latest achievement of Samsung's high-end color TV, and the official website of Samsung China has been on sale.
For the return to the Chinese market, Samsung looks full of motivation, and the sales of folding screen mobile phones seem to be able to give Samsung a lot of confidence. So, for domestic manufacturers, what does Samsung's entry mean?
Domestic consumer electronics or will the big reshuffle?
During the Beijing Winter Olympics, Samsung, as a sponsor of the Chamber of Commerce, distributed a gift package worth more than 10,000 yuan to each athlete, which included Samsung's new folding screen 5G mobile phone. According to market statistics, this sponsorship alone reached nearly 30 million yuan. This is just the tip of the iceberg, Samsung has also opened more than 20 pop-up experience stores in China, and Jingdong has once again reached a strategic cooperation on online channels, sponsoring a number of variety entertainment programs....
Samsung, which has a lot of money, may have to put pressure on domestic manufacturers. However, the author believes that these are only appearances, in the current global market is still facing the problem of lack of cores, Samsung's use of semiconductor business to bring blessings to the consumer electronics business may be the source of pressure on a number of manufacturers, but also one of the confidences of Samsung to return to the Chinese market.
The chip industry is divided into IDM mode and chip foundry production mode, the former mainly refers to a company to grasp the whole chain production strength from chip design to manufacturing packaging, and the latter separates chip design and chip foundry. Samsung's bottom card is that, unlike TSMC's foundry technology, Samsung can design OEM and produce and sell itself. This means that when many domestic companies are facing production problems because of lack of cores, Samsung's layout in the semiconductor industry in China for many years can help Samsung seize the share at this stage.
Samsung has been deeply involved in the Chinese market for many years, and major industrial supply chains have been deeply involved, such as providing memory chips and screens to major mobile phone manufacturers, purchasing LCD panels from BOE, and so on. Samsung has invested more than US$25 billion in Xi'an to establish the world's leading semiconductor memory chip base, forming a complete industrial chain from research and development, design to manufacturing, packaging, testing and system applications.
At present, China generally increases the intensity of self-developed chips, whether it is a vehicle-grade chip or a cloud computing server chip, the chip design capability is improving, and the demand for foundry is growing. Taking the 7nm high-end process as an example, ali, HiSilicon, and ZTE can design 5nm chips at present, but domestic manufacturers are still lacking in high-end processes below 7nm, and who will be responsible for the 7nm and below processes?
Last year, Huawei's consumer business declined, and who will fill the domestic high-end mobile phone market? Who will Huawei's market share in Europe be occupied?
The author does not have a positive answer, but the fact in front of him is that in the difficult moment of Huawei, Samsung's semiconductor chip base has become a climate.
Perhaps the high-end production line in Samsung consumer electronics is not necessarily the existence of a ceiling, but backed by the research and development strength of Samsung Group and the supply of self-produced semiconductors, it does make Samsung look full of advantages.
Some people also have doubts, Samsung has the strength, why don't domestic consumers buy it?
This is also the concept that the author wants to convey at the end of the article: doing a good job of localization is not easy for any company. No matter how strong the research and development strength, Samsung head Li Zairong also needs to come to China to open up joints; Ali has been working in the Southeast Asian market for many years, and still loses to Shopee; shein, a clothing company that started in Nanjing, can go deep into the North American market and be valued at 100 billion US dollars in the latest round of financing.
Samsung's series of actions are many, but the reconstruction of consumer reputation is not a one-time process, and it is essential to re-understand the hearts of Chinese consumers.
Not only that, in the domestic consumer electronics field, wolves are around, color TVs have Sony, Hisense, and then there are a number of Internet brands; mobile phones need not to say, "Huami OV" + Apple occupies the top five all year round; the semiconductor field is naturally where Samsung's advantages lie, but China's speed is eye-catching, and Samsung needs to be cautious.
There is a cloud in the "Chronicle of History": "Those who have done well are difficult to succeed and easy to fail, and those who are rare and easy to lose are also easy to lose." When the time comes, it will not come again. ”
Whether we can seize a short gap in the current Chinese market, we will wait and see.
Resources:
[1] "Samsung continues to increase investment in high-end industries and deeply integrates into the development of China's industrial chain" Beijing Broadcasting Network - Business News