Samsung Electronics cuts smartphone production target

A woman walks past an advertisement for the Samsung Galaxy Z Flip 4 smartphone at the company's Seocho building in Seoul. [AFP]

Samsung Electronics is cutting smartphone output in the face of sluggish demand for handsets and a mountain of inventory left unsold.

Its 2023 target is now 290.7 million units, down from the 2022 target of 334.2 million, according to local press reports. The revised target is below 2018 and 2019 production levels.

Samsung Electronics declined to confirm the numbers, and the company doesn't publish forward guidance on smartphone production numbers.

It is already dealing with challenges on a number of fronts. A chip glut is hitting the company's most profitable product lines, while new U.S. restrictions are threatening its semiconductor production in China. Weakness in the smartphone market, which has been brewing for some time as tech fatigue sets in and as the market becomes saturated, leaves the Samsung Electronics struggling for sources of revenue and profit growth.

A cut in smartphone production at Samsung Electronics, if it is actually implemented, would come as other phone manufacturers cut shipments and reassess their own plans.

Jusy Hong, senior research manager at Omdia, told the Korea JoongAng Daily that he estimates Samsung Electronics smartphone shipments will come in at around 260 million units this year and in the similar range next year.

“Demand for high-end smartphones tends to be more resilient in times of an economic downturn,” Hong said, “But as the downturn continues, its effect is felt among more premium lines as there are signs of slowing demand in the segment.”

This year’s shipment estimate by Hong is 13 percent lower than the company’s initial target of 300 million. Total shipment is number of units shipped, while production counts units produced at manufacturing facilities. The shipment figures are typically 10 percent lower than production.

Global smartphone shipments will likely be in line with or slightly lower than this year’s estimate of 1.23 billion, Hong projects.

Samsung Electronics production levels were in the 200 millions in 2020 and 2021, although the figure was higher between 2011 and 2019, when the manufacturer claimed a stronger footing in the premium-model market.

Park Hyung-wou, an analyst at Shinhan Securities, projected that shipments will come in at 270 million this year and expects a production cut going forward.

"We now expect Samsung Electronics to ship 270 million smartphones in 2022, down roughly 10 percent from our previous projection as global demand slows," Park said.

The largest smartphone manufacturer by shipments has been adjusting production capacity since the slump in demand accelerated this year.

Samsung Electronics smartphone factories were running at an average capacity utilization rate of 75.5 percent as of June, according to the company's financial report, dipping below last year’s 81.5 percent.

It produced nearly 120 million smartphones in the first half of the year, according to a disclosure. The number of smartphones being sold through the third quarter stood at around 200 million units, the company said.

As numbers fall, the company is shifting production, moving some manufacturing out of Vietnam, where it makes half its smartphones. It wants to reduce dependence on a single country, and has set a goal of taking Vietnam production to 46 percent next year.

Some production will be moved to India and Korea, according to local media reports. The company operates smartphone factories in Vietnam, India, Korea and Brazil.

Samsung Electronics had 52.1 trillion won ($37.6 billion) of inventory as of the second quarter, the largest inventory ever in the company's history.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]