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Samsung Electronics lowers smartphone production target

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

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

Samsung Electronics is cutting smartphone production in the face of sluggish demand for mobile phones and a large number of unsold inventory.

Its target for 2023 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 production levels for 2018 and 2019.

Samsung Electronics declined to confirm the numbers, and the company does not publish future guidance on smartphone production numbers.

It is already dealing with challenges on a number of fronts. The chip glut is hitting the company’s most profitable product line, while new US restrictions threaten its semiconductor production in China. Weakness in the smartphone market, which has been brewing for some time as technology fatigue sets in and as the market becomes saturated, leaves Samsung Electronics struggling for revenue sources and profit growth.

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Samsung Electronics’ smartphone production cutback will come, if actually implemented, as other phone makers cut shipments and re-evaluate their own plans.

Jusy Hong, Senior Director of Research at Counterpoint Research, told the Korea JoongAng Daily that he estimates Samsung Electronics’ smartphone shipments will come in at around 260 million units this year and 250 million next year.

“Demand for high-end smartphones tends to be more resilient in times of economic downturn, but as the downturn continues, its impact is being felt among more distinct lines as there are signs of slowing demand in the sector,” Hong said.

This year’s shipment estimate by Hong is 13 percent below the company’s initial target of 300 million. Total consignment is the number of units shipped, while production counts the units produced at manufacturing facilities. Freight numbers are usually 10 percent less than production.

Global smartphone shipments will likely be in line with this year’s estimate of 1.23 billion, or just below Hong Kong’s estimates.

Samsung Electronics’ production levels were at 200 million in 2020 and 2021, although the number was higher between 2011 and 2019, when the manufacturer claimed a stronger position in the premium model market.

Park Hyung-wou, an analyst at Shinhan Securities, forecast shipments to reach 270 million this year and expects production cuts in the future.

“We now expect Samsung Electronics to ship 270 million smartphones in 2022, down approximately 10% from our previous forecast as global demand slows,” Park said.

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

Samsung Electronics’ smartphone factories were operating at an average capacity utilization rate of 75.5 percent as of June, according to the company’s financial report, down less than 81.5 percent last year.

It produced nearly 120 million smartphones in the first half of the year, according to a disclosure. The company said that the number of smartphones sold during the third quarter amounted to about 200 million units.

With numbers dropping, the company is shifting production, moving some manufacturing out of Vietnam, where it makes half of its smartphones. It wants to reduce dependence on one country, and has set a goal of increasing Vietnam’s production to 46 percent next year.

Local media reports said some production will be moved to India and Korea. The company operates smartphone factories in Vietnam, India, Korea and Brazil.

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

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