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China Handset Production Stops Shrinking For Now

Global handset production fell 16% YoY in 2020 due to disruptions at manufacturing units and a sharp drop in demand following the COVID-19 pandemic. However, this reduction in production varied in different regions and OEMs.

Temporary pause in China slowdown

China contributed 68% to the global handset production in 2020, which is the same level as that of 2019. It could have dropped below the 2019 level had the trend of OEMs shifting production from China to India or Vietnam continued. But COVID-19 managed to delay this shift.

Vietnam’s output declines with Samsung

Samsung accounts for about 70% of Vietnam’s handset production. The company’s overall handset production decreased by 18% YoY. In the early days of the COVID-19 outbreak, Samsung was expected to have little impact due to its low proportion of production and sales in China, but as COVID-19 spread to the rest of the world, production and sales declined eventually.

Nationwide lockdown hits India

A strict lockdown was implemented in India around April 2020. This caused major disruptions in production activity. Even after the lockdown was lifted, some Chinese companies faced trouble in production due to continuous component shortage. As a result of all this, India’s handset production fell by 19% YoY in 2020.

Exhibit 1: China’s Share in Global Handset Production

Counterpoint Research China’s Share in Global Handset Production
Source: Counterpoint Global Handset Production Report

Pandemic hits Apple shift from China

Apple had been shifting out its production from China, its second biggest market, slowly but steadily before 2020. But COVID-19 stopped this. Apple’s production in China in 2020 returned to 2017 levels. The iPhone production in India, which had been increasing until 2019, showed a significant decline in 2020.

Xiaomi increased its China production

Xiaomi is the biggest beneficiary of Huawei’s decline outside China. This translates into more Xiaomi production in China. In addition, component shortages have prevented production growth in India.

OPPO, vivo increased production in SE Asia

For OPPO and vivo, production in India was similar to that in the previous year. However, their production increased in Indonesia, which led to a decrease in the China portion in 2020. Huawei’s strong sales in China hit these two brands which had been betting big on the market. Therefore, this also affected their production in China.

Exhibit 2: China’s Share in Global Handset Production by Major OEM

Counterpoint Research China’s Share in Global Handset Production by Major OEM
Source: Counterpoint Global Handset Production Report

Conclusion

In 2020, COVID-19 put a halt on shifting of handset production from China to other countries. Being the largest handset market and having a good ecosystem for handset production, China still has most advantages to attract handset production. For this reason, Samsung continues to make handsets in China through the ODM route while closing its own production plant in the country.

However, in the long run, COVID-19 could be a trigger to diversify production. Through the COVID-19 outbreak, companies and governments have realized that diversification of production areas is not just needed to reduce cost but also reduce risk.

Companies are also using local production as part of their market penetration strategy. Xiaomi, which is actively entering the European market by filling Huawei’s vacancy, recently announced plans to build its production facilities in Turkey. Other Chinese companies are likely to build production plants in Southeast Asia and South America.

In addition, governments are actively implementing policies to attract OEMs for local handset production by offering concessional tariffs and subsidies. India’s ‘Make in India’ and PLI policies are a good example of this.

In the long run, diversification of handset production sites will become a big trend, with the proportion of handset production outside China increasing steadily.

Minsoo is a Research Analyst at Counterpoint Technology Market Research and located at Seoul, Korea. Minsoo is interested in various technology sectors and its future development. Prior to joining Counterpoint Research, Minsoo had experience in various industry from tech start up to chemistries.

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