Samsung weathered the Galaxy Note 7 recall by ramping up production downstream

Dive Brief:

  • Samsung's investments in vertical production appears to have helped weather the storm caused by the full Galaxy Note 7 recall, The Wall Street Journal reported Friday.
  • Sales of components have risen to over 60% of the company's operating profit last quarter, as the company's semiconductors are used in many of its competitors' smartphones, including Apple.
  • With the success of its smartphone component efforts, Samsung intends to invest $1 billion or more in its Austin, Texas plant, where it will heighten production of processor chips.

Dive Insight:

It pays to produce your own parts, specially if you can sell the product to your competitors — at least in Samsung's case. 

The company seemed doomed for an unprofitable end-of-year by October, when complaints of the Galaxy Note 7's spontaneous combustion forced various stages of recalls, public bans of the phone and eventually a fully-stopped production. In analyzing the issue, Supply Chain Dive blamed just-in-time production and competitive pressures (which have recalls the norm in certain industries), as well as poor quality controls.

However, Samsung seems to have had a trick up its supply chain. 

Behind the scenes, the company continued creating, manufacturing, and most importantly, selling parts for other makers, meaning that as their own products seemingly declined in prestige, total revenue suffered little impact. Further, consumer frustration therefore had little impact on the Korean powerhouse, granting it an unusual escape from public censure. Selling parts to competitors is hardly uncommon, as even vertically-integrated supply chains often operate independently, but the revenue turnaround shows the direct competitive relationship in the mobile phone industry.

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Filed Under: Logistics
Top image credit: Mike Mozart