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Google to shift Pixel smartphone production from China to Vietnam
Ngoc Mai 09:24, 2019/08/29
The Vietnam production lines will be a key part of Google`s drive for growth in the smartphone market, aiming to ship some 8 - 10 million smartphones this year, double from a year ago, sources told Nikkei.
Google is moving aggressively to shift production of its Pixel smartphone from China to Vietnam as it seeks to build a low-cost supply chain in Southeast Asia that will serve as a springboard for its growing hardware ambitions, Nikkei Asian Review reported. 
 
Illustrative photo.
Illustrative photo.
Working with a partner, Google started work this summer to convert an old Nokia factory in the northern Vietnamese province of Bac Ninh to handle production of Pixel phones, sources told Nikkei. 

This is the same province where Samsung developed its smartphone supply chain a decade ago, so Google will have access to an experienced workforce.

The push to develop a Vietnamese production base reflects the twin pressures of higher Chinese labor costs and the spiraling tariffs resulting from the trade war between Washington and Beijing. 

The US internet giant intends to eventually move production of most of its American-bound hardware outside of China, including Pixel phones and its popular smart speaker, Google Home, according to the sources.

The Vietnam production lines will be a key part of Google's drive for growth in the smartphone market. Google aims to ship some 8 million to 10 million smartphones this year, double from a year ago, stated the sources. While Google's Pixel smartphone brand is still a minor player in the industry -- not even ranking in the global top 10, according to tech research firm Counterpoint -- it is growing rapidly.

The mid-priced Pixel, launched in April, helped Google become the fifth largest mobile brand in the US for the second quarter of 2019, grabbing market share despite a wider industry slump.

Google's aggressive hardware campaign is expected to heap pressure on second-tier mobile makers such as LG Electronics and Sony, which are struggling as the industry faces its third consecutive year of decline.

By diversifying its production into Vietnam, Google hopes to ensure sustainable production of the Pixel range, a showcase for its Android operating system. Installed in 80% of the world's smartphones, Android is facing a challenge from Chinese rival Huawei Technologies, the world's second largest handset maker, which in August unveiled its own mobile platform, Harmony OS.

In 2018, Google shipped some 4.7 million smartphones, which only accounted for 0.3% of global market share, research company IDC said. However it has already shipped 4.1 million units in the first half, according to IDC, thanks to the Pixel 3A, priced at US$399.

Nearly 70% of Google's smartphone sales in 2018 were in the US, its biggest market, followed by the UK and Japan, according to IDC. For smart speakers, the US accounted for some 64% of shipments.

Under current plans, Google will shift some production of the Pixel 3A phone from China to Vietnam before the end of this year, the people said.

For its smart speakers, some production is likely to be moved to Thailand, sources said. But the company's new product development and initial production for its hardware lineup will still be in China, they said.

"Google are likely to keep some activities inside China. The US company knows that if it is going to be serious about making hardware, it could never give up the massive Chinese market," one of the sources said. "However, they also understand that, due to rising costs and the macro-environment, they need to have production outside China for the long term in order to support their hardware manufacturing."

Google is the latest to seek safety by diversifying its production as the trade war intensifies. HP and Dell have relocated their server production away from China to dodge Washington's punitive tariffs, while also shifting some notebook production to Taiwan and other Southeast Asian countries such as Vietnam, Thailand and the Philippines. Apple also has started to evaluate how it might diversify its supply chain, though it remains heavily reliant on China with more than 90% of its hardware manufactured in the country.

The relatively small scale of the Pixel handset production makes it easier for Google to contemplate shifting out of China at this stage, said Mia Huang, a smartphone analyst at the Taipei-based TrendForce. "Any potential capacity shifting for [Google] would be easier than Apple."
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Google did not respond to requests for comment for this story. 
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