Chinese smartphone makers tipped to fill gap left by Note 7

Asian electronics component suppliers see fresh business opportunity after Samsung ceased production of its Galaxy Note 7 line

PUBLISHED : Thursday, 13 October, 2016, 7:17pm
UPDATED : Thursday, 13 October, 2016, 10:52pm

With production of the Galaxy Note 7 halted over safety concerns, new business for some of Asia’s major electronics component suppliers could be driven by increased demand from leading Chinese smartphone brands.

Analysts said the decision by Samsung Electronics to scrap its premium model may enable Chinese rivals such as Huawei Technologies, Oppo Electronics, Vivo, and Xiaomi to ratchet up manufacturing of their own high-end smartphones.

The supply chain may also see a wider availability of advanced smartphone parts, such as displays based on active-matrix organic light emitting diode (Amoled) technology.

Beleaguered Samsung on Tuesday permanently halted all production of its Note 7 amid increased concerns about the device catching fire while charging. The episode has severely tarnished the Korean company’s global brand and potentially jeopardised its smartphone business.

Nomura research analyst Huang Leping said in a report on Thursday that the absence of the Galaxy Note 7 in the fourth quarter this year “will help resolve the supply shortage issue in key components, such as Amoled panels, and help Chinese smartphone brands boost their flagship model sales”.

Huawei’s Honor Note 8, Lenovo Group’s Moto Z and ZTE’s Axon 7 are all high-end devices that use Amoled technology, which delivers a thinner display with brighter images and a power-saving feature.

“We think Huawei, Lenovo and ZTE are relatively well-positioned to take this business opportunity by leveraging their existing distribution network and solid product line,” the report said.

“Oppo, Vivo and Xiaomi have solid product lines, but lack distribution networks in developed markets.”

According to Citi Research, the component suppliers with the highest exposure to Chinese smartphone revenues this year include touch panel maker O-film Tech, imaging specialist Sunny Optical Technology, metal casing maker BYD Electronic, camera lens module provider Largan Precision, acoustic components makers AAC Technologies and GoerTek, and Japan Display, a joint venture by Sony, Toshiba and Hitachi.

We think Huawei, Lenovo and ZTE are relatively well-positioned to take this business opportunity
Huang Leping, Nomura

A spokesman for BYD Electronic said that “increased orders from Chinese brands, such as Huawei, will make up for” the cancelled orders for Note 7 components, which represented less than 5 per cent of the firm’s total revenue from metal casings.

Christina Liu, investor relations executive at Sunny Optical, said: “We are still observing how things play out. Chinese brands are our target customers. But whether or not we will have increased business with them, it is hard to say at this point in time.”

Citi Research said there was such a “tightness” in the supply chain because many smartphone brands, especially the Chinese suppliers, have “double-booked”, or ordered significantly more, components ahead of Apple’s anticipated fourth-quarter production ramp-up of its new iPhone 7 and 7 Plus models.

Taipei-based research firm TrendForce, however, said in a report that the end of Samsung’s Note 7 production “will not stifle the price increases for key smartphone components such as dynamic random access memory, Nand Flash and Amoled panels”.

“The halt in Note 7 sales in the short term will not loosen the panel supply,” TrendForce said. The company said its survey of the Amoled supply chain indicates that “the general shortage will persist, and Samsung’s competitors that have not secured their sources of Amoled panels will remain unable to do so.”