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Tag: South Korean

Samsung Begins Smartphone Assembly in Indonesia

Samsung Electronics Co. has begun assembling smartphones at a factory outside Jakarta to meet demand in fast-growing Indonesia, according to a person familiar with the matter.

The move is the latest sign that the South Korean technology giant is shifting some of its operations to low-cost, fast-growing emerging markets where it is looking to build its presence and cut costs.

The Indonesian unit of the South Korean technology giant aims to assemble 1.5 million handsets each month at a plant in Cikarang, an industrial town east of Jakarta, according to this person, who added that Samsung would manufacture its latest 4G-enabled smartphone at the plant and sell it to consumers starting this month. Samsung currently assembles its phones in South Korea, China and Vietnam and last year sold more than 300 million smartphones globally, according to research firm IDC.

The shift in production is partly a response to new Indonesian regulations aimed at keeping the production of mobile phones in the country, this person said, who added that Samsung started making the phones in January.

A spokesman for Samsung declined to comment, but confirmed that the company has a manufacturing facility outside Jakarta that started production of mobile phones for the local market early this year.

In August, Samsung said it was considering producing mobile phones in Indonesia to meet fast-growing domestic demand.

At the time, government officials said Samsung would use its facility in Cikarang, where the company produces various consumer electronics.

Producing mobile phones there required Samsung to modify its facilities to accommodate the new products, according to a person familiar with the matter.

The move by Samsung is part of an effort to manufacture its products closer to consumers in emerging markets.

In 2013, Samsung’s Indian subsidiary won approval to make mobile phones at a facility in Noida, just outside Delhi, and said earlier this year that was considering building a new plant in the country.

The company has also invested about $8.5 billion in Vietnam in recent years, though its facilities there make products for export to consumers around the world

Indonesia has long been wooing global cellphone makers such as Samsung and Taiwan’s Hon Hai Precision Industry Co. to set up manufacturing facilities there. The aim is to create jobs in the country, as well as to cut imports of cellular devices, which rose in value to $3.16 billion in 2014 from $2.69 billion in 2013.

So far, foreign technology companies have been reluctant to answer the call of Indonesian authorities, arguing that Indonesia doesn’t have a reliable supply chain to support the manufacturing of consumer electronics.

In 2012, Indonesia’s government introduced regulations requiring importers of mobile phones to set up assembly plants in the country by the end of 2015. In 2013, it imposed a 20% luxury tax on imported cellphones to rein in its current-account deficit. In September 2014, the government issued regulations requiring all 4G devices sold in Indonesia to include at least 30% locally-sourced contents by 2017.

Other Indonesian large cellular importers, such as PT Erajaya Swasembada, which distributes mobile phones from major global brands such as Apple Inc., Samsung, BlackBerry Ltd. and Lenovo Group Ltd., are also setting up their own factories in Indonesia.

Samsung is still the leader in the Indonesian smartphone market, with market share of about 30% in the first quarter, according to research firm IDC, though that fell from 38% a year earlier.

Samsung’s mobile phone sales decline

Samsung Electronics has reported a 4% fall in sales at its mobile phone unit.

Revenues in the sector fell to 33.4 trillion won ($32.3bn; £23.3bn) in the January-to-March period.

But the South Korean company said operating profit for its mobile phone unit rose 18% from the previous three months, in part due to “positive impact from adjustments of one-off expenses”.

Samsung is the world’s biggest mobile phone maker and handsets account for the bulk of the firm’s profits.

The figures came as the electronics giant reported a net profit of 7.57 trillion won (£4.4bn; $7.5bn) for the first quarter, up from 7.3 trillion won (£4.2bn; $7bn) in the previous three months.

Maturing market?

This is further evidence that the global market for smartphones is maturing

Andrew Milroy, Frost & Sullivan

The success of its Galaxy range of smartphones has been one of the biggest drivers of Samsung’s growth in recent years.

It helped the company dislodge Nokia as the world’s biggest phone maker in 2012.

However, competition in the sector has been increasing, forcing manufacturers to lower their prices and hurting their profitability.

At the same time, demand for smartphones in developed markets – which have been key drivers of growth of the sector so far – has also begun to slow.

“This is further evidence that the global market for smartphones is maturing and as the pace of growth which firms such as Samsung have enjoyed in recent years is slowing,” said Andrew Milroy, an analyst with consulting firm Frost & Sullivan.

He added that “the company will have to look at introducing lower cost models in emerging markets to sustain the business.”

For its part, Samsung has been looking to tap into the emerging markets by launching low cost handsets there.

However, it has been facing increased competition on that front as well, especially from Chinese firms such as Xiaomi, Huawei and ZTE.

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