Is there really a need to panic about the wave of mobile phone OEM factory closures?

In the past two days, the technology circle has been flooded with rumors about the bankruptcy of Shenzhen Zhongtianxin Electronics Co., Ltd., the OEM factory of Smartisan mobile phones. From the initial rumors of wage arrears, to Luo Yonghao's stand-up to refute the rumors, and then on December 25, a picture of "Notice on Termination of Labor Contracts by Shenzhen Zhongtianxin Electronics Co., Ltd. Manufacturing Plant No. 2" was exposed. The announcement signed by "Zhongtianxin" stated that "Zhongtianxin Company is no longer able to continue operating, and announced the termination of the labor contracts of all employees, and applied to the government to apply for closure of business. The government has begun to deal with related follow-up matters."

——It seems that this old foundry, which once cooperated with domestic brands such as ZTE and Huawei, has become a new domino in the collapse of mobile phone foundries.

Prior to this, many foundries had already collapsed, including Wintek Technology, Taiwan's second largest touch panel manufacturer, which announced its suspension of production at the end of last year and its three factories in mainland China - Dongguan Wanshida, Dongguan Liansheng and Suzhou Lianjian; and Zhaoxin Communication Industrial Co., Ltd. in Dongguan City, Guangdong Province and Suzhou Honghui Technology, a supplier of Nokia's mobile phone buttons, which all went bankrupt or suffered huge losses in January this year. Zhaoxin's chairman Gao Min also committed suicide as a result; and Shenzhen Fuchang Electronic Technology Co., Ltd., a first-tier supplier of ZTE and Huawei that caused a lot of controversy a while ago - and it should be noted that these are all relatively well-known foundries in the industry, and their situation is like this, let alone some unknown small foundries.

What is quite ironic is that the data released by the Ministry of Industry and Information Technology not long ago showed that China produced more than 1.6 billion mobile phones in the first 11 months, a year-on-year increase of 2.9%. However, why did such a large output and still maintained growth rate fail to prevent the reshuffle of the foundry industry?

First, it is because of the intensified market competition and the transformation of the manufacturing industry.

In the analysis of the reasons why Fuchang Electronics went bankrupt, someone suggested that current mobile phone manufacturers are abandoning plastics on a large scale and catering to metal and other casing materials, but Fuchang Electronics mainly produces plastic molds and does not have a production line for metal casings, so naturally it cannot receive orders under the "new situation".

This statement does not seem to be the main reason, but the problem reflected behind it is worthy of reflection. That is, the competitive trend in the mobile phone industry is changing too fast, and the supply chain is beginning to show a trend of diversification and high requirements. For example, the popularity of metal materials is, to a certain extent, driven by the trend that mobile phone manufacturers are beginning to place their hopes of competition on craftsmanship and design in addition to cost-effectiveness. However, companies with a single manufacturing capability like Fuchang Electronics will inevitably be eliminated because they did not follow the transformation of mobile phone manufacturers in the first place.

At the same time, the manufacturing industry as a whole is also in the general trend of industrial transformation. Foxconn, for example, is actively seeking diversified transformation to get out of its main low-profit model of pure OEM. It is worth mentioning that Foxconn is the company in the industry that most advocates replacing manual labor with machines to reduce the increasingly high labor costs. The electronic technology industry itself is the easiest to be replaced by machines. From this perspective, the industrial upgrading of the manufacturing industry itself is accompanied by a certain degree of "slimming" behavior. In the future, with the development of technology, only companies with strong technology, high efficiency and high yield rate will stand out, otherwise they will be gradually eliminated.

Moreover, the rise of Internet brands has also driven the development of the upstream mobile phone design industry to a certain extent. For example, Redmi, Meizu Blue, and Nut have directly outsourced mobile phone design, supply chain management, manufacturing and other businesses to solution design companies such as Wingtech and Simcom. At the same time, ODM manufacturers have also begun to integrate the upstream solution design industry chain, including participating in design, production, R&D, etc., which in turn further accelerated the elimination process of companies with single manufacturing capabilities.

This has also led to the entire industry developing from the previous assembly line-like division of labor and cooperation to a chaotic situation of competition. Under this premise, on the one hand, the OEM factories must complete the transformation to actively adapt to industry changes, and on the other hand, they must compete in technology and capabilities to win orders from terminal merchants. If they slack off in the slightest, they may be eliminated.

Secondly, it is to burst the bubble in the red ocean of smartphones

OEM factories rely on mobile phone brands for survival, which has formed a bond of interests to a certain extent. When the mobile phone industry falls into a quagmire of competition and overall shipments decline, the situation of OEM factories will also be directly affected.

Prior to this, thanks to the rapid development of the smartphone industry and the greatly lowered industry threshold since the era of copycat phones, almost anyone with a little money could make a mobile phone. The mobile phone industry was booming, and the spring of OEM factories also came. Many OEM factories chose to expand production lines and compete at low prices at this stage. This actually has certain hidden dangers in itself, because when a large amount of manufacturing capacity encounters a sluggish market environment, it means that more inventory will be generated, and the latter will inevitably lead to mutual price cuts among manufacturers. The result of price cuts is a decrease in the yield rate, which will eventually eliminate the OEM factories from the cooperation list of mobile phone manufacturers. This is already a vicious competition that is bound to fail.

We have seen that with the change in the market structure, a large number of uncompetitive small and medium-sized mobile phone manufacturers have been gradually eliminated. At the same time, the development of the entire mobile phone industry has entered a relative bottleneck period, resulting in a decline in the number of orders. The profits of the foundries closest to the industrial chain will naturally be affected. The earlier expansion has now become a burden, which is almost an inevitable result.

In fact, the pressure that mobile phone manufacturers put on OEM manufacturers goes beyond this. First of all, we see that as first-tier manufacturers have begun to build their own factories in order to ensure quality control and production capacity, this is first of all a squeeze on third parties; and even if they still need to rely heavily on OEM manufacturers at this stage, companies with sufficient shipments and capital capabilities will choose Foxconn, a higher-quality and more stable OEM. As the saying goes, the strong will get stronger, and in this way, the living space left for small and medium-sized OEMs will be further narrowed.

In addition, as the domestic smartphone market is gradually becoming saturated, manufacturers are also seeking to develop overseas markets, which in turn is driving the expansion of manufacturers. For example, Foxconn has set up a factory in India to solve the local development of brands such as Xiaomi and OnePlus. However, for small and medium-sized OEM manufacturers, they may not have the ability to expand overseas, which will lead to these manufacturers being gradually excluded from the list.

summary

In general, the current wave of bankruptcies of domestic OEM factories and the wave of elimination in the mobile phone industry are related, and are both the consequences of excessive bubbles in the early years.

But it must be clear that this does not mean that the entire industry chain is in crisis. On the contrary, this is more like the principle that the human immune system actively develops a fever in order to protect itself. It is the natural path of survival of the fittest in the industry. In turn, this will also help the future development of the mobile phone industry to retain its essence and remove its dross.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.