Smartphone slowdown: Smaller phone brands getting shut out of the market

FIH Mobile was once the exclusive manufacturer of new Nokia phones sold by HMD Global, though lack of profitability has forced the Finnish company to look elsewhere.

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The smartphone industry is facing a reckoning, with smaller brands likely to be shut out in short order as FIH Mobile—a contract manufacturer of Android smartphones owned by Foxconn—is scaling back operations after posting a $857 million loss, according to the Nikkei Asian Review. This is the second year of losses for FIH, despite revenues of $14.9 billion for 2018. The firm manufacturers phones sold by Google, Nokia (HMD Global), Lenovo (Motorola), Xiaomi, Sharp, and lesser-known Chinese brands including Gionee, Smartisan, and Meizu.

Nikkei reports that the Google contract, in which FIH Mobile produces the Pixel phones, is the only profitable one for the company. Nikkei also quotes an industry source familiar with the situation calling the company's smartphone manufacturing business "miserable."

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As part of FIH Mobile's effort to scale back operations, the company is no longer adding new customers, and is apparently pushing HMD Global to look to outside manufacturers for future Nokia-branded phones. FIH Mobile indicated in an earnings report that the company "critically reviewed its business strategy and will not accept orders with poor margin" from HMD, also noting that "the performance of Europe segment has deteriorated dramatically."

Conversely, the report notes that the revival of the Nokia 3310 feature phone was successful.

Nikkei reports that "FIH had more than 20 smartphone clients between 2011 and 2015, but now it has fewer than 10."

Other smartphone market troubles

Separately, Sony's beleaguered smartphone operation faces similar problems, as Sony Mobile is closing manufacturing operations in Beijing, to shift production to Thailand to reduce costs. Sony's relationship with US mobile network operators has long been strained, with carrier launches largely drying up after Verizon cancelled the release of the Xperia Z4v in 2015.

Sony has in recent years dropped the trademark side-mounted fingerprint reader on Xperia smartphones, a feature that was disabled in firmware for devices sold in the US, which conflicting reports attribute to either a contractual obligation with carriers or unresolved patent issue.

Despite Sony's relative lack of presence in the smartphone market in the US, it remains the dominant Android manufacturer in Japan.

ZDNet reports that 40% of Sony's new hires for 2019 and 2020 will focus on image sensor engineering for Internet of Things (IoT) and smart automotive markets.

Many smartphone makers are being edged out by Huawei, which is more capable of competing due to vertical integration—Huawei's HiSilicon group produces the Arm-based Kirin SoC used primarily in Huawei's smartphones, whereas Android devices manufacturers are typically dependent on Qualcomm or MediaTek. Samsung, which produces their own Exynos SoCs in-house, and Apple's production of the A-series SoCs powering the iPhone, iPad, and others, give those companies a significant advantage over others.

Huawei reports that the company is now selling more consumer devices than equipment to telecoms, partially due to pushback spearheaded by the US government in banning Huawei equipment in use mobile network deployments in the US, Australia, and New Zealand. Late last month, Huawei Chairman Guo Ping criticized the US government for having a "loser's attitude," telling reports "They want to smear Huawei because they can't compete with us."

As mobile network operators transition to 5G, and gimmicks such as folding screens become accessible in the market, it is unclear if these will be sufficient to drive increased sales of smartphones.

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