It is well known by now that the smartphone market is extremely competitive, and most of the competing players survive on razor-thin profit margins. Slowing smartphone demands at the global level and the tendency of consumers to hold onto their older phones has led several known players like HTC and Sony to reassess their place in the market. The latest news on this subject comes from FIH Mobile, Foxconn’s Android arm, which will now scale back its mobile business.
FIH Mobile, of which Foxconn is a 62% majority shareholder, is one of the world’s biggest manufacturers of Android smartphones. In a bid to counter the impact of the deepening industry slump on second tier smartphone brands that make up its client list, FIH Mobile is scaling back its mobile business and moving into next generation automotive electronics. Consequently, it is transferring hundreds of engineers and other resources from the Android operations to a newly established automotive electronics project. The Android operation makes up for 90% of FIH’s revenue, but the company recorded a net loss of $857 Million last year.
FIH Mobile counted Google, Xiaomi, Lenovo, Nokia, Sharp, Gionee and Meizu among its clientele. Of these, only Google’s contract is reportedly profitable for FIH. FIH Mobile is not said to be quitting the industry completely, but it would definitely be more selective about the clients it will take on in the future.
The report goes on to mention that the Chinese smartphone clients were being problematic for FIH Mobile, in particular. These clients would pay slowly and would rarely provide reliable production forecasts. As a result, FIH Mobile was often forced to hold client inventory when sales stalled, and had to hold its workforce in reserve, all of which directly affected their profitability.
In a separate report, it has come to light that FIH Mobile will no longer accept HMD Global/Nokia orders which have a poor margin. This has forced HMD Global to adopt a multi-ODM partnership, meaning that Foxconn/FIH Mobile will no longer be the exclusive manufacturer of Nokia phones.
The smartphone market is in the process of eliminating smaller players, and maybe in the future, several names that we see prevalent right now may exit the market. The intense competition is definitely taking a toll on second-tier smartphone OEMs who do not have very deep pockets. If the situation continues to exist as it currently does, it is only a matter of time before they go belly up.
Source 1: Nikkei Asia Source 2: NokiaMob.net
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