Good Morning Vietnam!
It is hard to imagine that an entire country is reliant on a single company, especially one that is based elsewhere, but that is the case with Vietnam, as Samsung Electronics accounts for almost 20% of the country’s exports, so when Samsung sneezes, Vietnam catches a cold. With ~50% of Samsung’s smartphone production coming from its 6 factories in the country, spread across Hanoi, Ho Chi Minh City, Bac Ninh, and Thai Nguyen, Vietnam’s growth is closely tied to Samsung’s $18b investment in the country’s manufacturing workforce and infrastructure, including a new R&D center that will focus on AI and IoT development.
But that means that when Samsung finds it necessary to cut back production, which it did earlier this year, it has a particular effect on Vietnam’s exports and production values as reflected in the most recent report on Vietnam’s smartphone production in November, which saw a 9.3% decline. Once again Samsung cut back its smartphone production as consumer demand weakened further, and even recently re-adjusted volume targets became dreams rather than reality. Overall exports from Vietnam declined by 8.4%, in part due to Samsung’s production slowdown in November, but more concerning was the drop in imports (↓7.3%) which we see as anecdotal evidence that Samsung has reduced component orders from suppliers, indicating a lack of conviction toward a near-term recovery in smartphone shipments.
Some say that it could just be a shift away from Vietnam by Samsung toward other assembly locations, a result of the country’s close ties to China where trade conflicts with the US continue to expand, or a spike in COVID infections last March, that made it difficult for Samsung to move components in and finished goods out of the country. We believe it has more to do with Samsung’s view of the CE space overall and smartphone volumes for the remainder of the year, with a focus on maintaining low inventory levels at year end.
Samsung is expected to release it flagship Galaxy S23 smartphone line in February, so we expect a bit of a boost in production early next year, but after months of fighting the evils of excess inventory, we expect Samsung is looking to be more of a JIT supplier next year, and will farm out more to ODM/OEMs in order to let them carry more of the raw material and component inventory risk. This bodes a bit poorly for Vietnam, but with the size investment Samsung has made in the country, we expect Samsung will remain firmly rooted in the country, albeit perhaps at somewhat lower production levels, although India continues to ramp up incentives to drawn more major manufacturing to its shores. Maybe next time the note title will be प्रभात भारत instead of chào buổi sáng Việt Nam.
But that means that when Samsung finds it necessary to cut back production, which it did earlier this year, it has a particular effect on Vietnam’s exports and production values as reflected in the most recent report on Vietnam’s smartphone production in November, which saw a 9.3% decline. Once again Samsung cut back its smartphone production as consumer demand weakened further, and even recently re-adjusted volume targets became dreams rather than reality. Overall exports from Vietnam declined by 8.4%, in part due to Samsung’s production slowdown in November, but more concerning was the drop in imports (↓7.3%) which we see as anecdotal evidence that Samsung has reduced component orders from suppliers, indicating a lack of conviction toward a near-term recovery in smartphone shipments.
Some say that it could just be a shift away from Vietnam by Samsung toward other assembly locations, a result of the country’s close ties to China where trade conflicts with the US continue to expand, or a spike in COVID infections last March, that made it difficult for Samsung to move components in and finished goods out of the country. We believe it has more to do with Samsung’s view of the CE space overall and smartphone volumes for the remainder of the year, with a focus on maintaining low inventory levels at year end.
Samsung is expected to release it flagship Galaxy S23 smartphone line in February, so we expect a bit of a boost in production early next year, but after months of fighting the evils of excess inventory, we expect Samsung is looking to be more of a JIT supplier next year, and will farm out more to ODM/OEMs in order to let them carry more of the raw material and component inventory risk. This bodes a bit poorly for Vietnam, but with the size investment Samsung has made in the country, we expect Samsung will remain firmly rooted in the country, albeit perhaps at somewhat lower production levels, although India continues to ramp up incentives to drawn more major manufacturing to its shores. Maybe next time the note title will be प्रभात भारत instead of chào buổi sáng Việt Nam.
"Good Morning Vietnam" Poster - Source: Flixable.com
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