File photo: IC

Samsung will retain high-end divisions in China as it still wants access to the country's huge potential market as the era of 5G approaches, even as it moves to close its manufacturing facilities, said an industry expert.

"In the age of 5G, China is a big opportunity for Samsung, given the tech-savvy population's unprecedented enthusiasm for the next-gen mobile networks," Sun Yanbiao, head of Shenzhen-based research firm N1mobile, told the Global Times on Monday.

Media reports said on Wednesday that Samsung Electronics Co has decided to stop mobile phone production in China, a move which comes on the back of the South Korean company's dwindling market share to one of negligible significance.

In an emailed statement, Samsung said it had taken the "difficult" decision to close its factory in Huizhou, South China's Guangdong Province, in a bid "to enhance efficiency," Reuters reported.

"The production equipment will be re-allocated to other global manufacturing sites, depending on our global production strategy based on market needs," the statement said, although the firm emphasized that sales will continue in China.

In recent years, the handset maker has gradually shifted mobile phone production to lower-cost countries like India and Vietnam.

Sun said Samsung's move comes out of adjusting its global strategic layout, but it will not retreat from China. "Smartphone shipment data shows that India has the most potential, which makes it understandable for Samsung to shift production to India," he said.

According to the latest IDC Asia/Pacific mobile data, smartphone shipments in China slid 6 percent year-on-year to 98 million units in the second quarter of 2019, while Indian smartphone market saw the highest ever second quarter shipment of 36.9 million units in the same quarter, up 9.9 percent year-on-year.

Samsung's huge chunk of market share in the Indian market propels it to continue building on that advantage. Samsung is the second-largest handset manufacturer in India, with a market share of 25.3 percent, but it is losing out - mostly to Huawei and Xiaomi - in the Chinese market.

After shutting down the factory, Samsung will likely transfer production of smartphones in China to a domestic original design manufacturer (ODM) called Wingtech Mobile Communications Co, media reports said.

However, Sun said that uncertainty exists because this ODM mainly manufactures low- and middle-end mobile phones, but this potential arrangement helps hedge the negative influence brought by factory's shut down.

The company could not be reached for comment on Monday.

Zhang Yi, CEO of Shenzhen-based iiMedia Research, said that ODM could give Samsung huge cost savings, as the manufacturing capacity of the company's Huizhou factory is extremely large, while sales performance is not desirable.

Founded in 1993, Wingtech is a Chinese 4G/5G intelligent terminals research and development platform, manufacturing devices for the Internet of Things, smartphones, notebooks and other intelligent hardware products for clients in 170 countries and regions. According to Counterpoint, a global smartphone ODM tracker, Wingtech ranks No.1 with a global market share of 28 percent.

Although China has allowed the entry of some foreign brands into its domestic 5G industry, "Samsung might not be able to seize the 5G opportunity because it lacks advantages compared with Huawei in standards setting," Zhang said.