Chinese contract manufacturing factories that specialize in producing smartphones have been closing, especially the ones that rely on foreign market, amid shrinking profits and transforming business models, according to the tech news portal of Tencent.
China's Ministry of Industry and Information Technology (MIIT) said that in 2014, the country shipped a total of 452 smartphone units, a 21.9 percent decrease from 2013. Underperforming sales were further burdened by overstocked inventories in 2014.
Several smartphone contract manufacturers are facing competition from their clients' own smartphone manufacturers. Many of the contract manufacturers who have lost business are based in Shenzhen.
There has also been a rise in independent design houses (IDH), which offer a total solution for manufacturers, from design to manufacturing, reducing the profits of contract manufacturers.
IDHs have already produced smartphones for several brands. Wingtech is the IDH behind Xiaomi's Redmi and Meizu's NoBlue. Huaqin created Huawei's Honor and Zowee created some of Gree's smartphone line.
Design houses satisfy more of the clients' demands, including software development and optimization on cloud platforms, as well as the usual manufacturing services.
With human labor quickly being replaced by industrial machines in factories, contract manufacturers that cannot use new technology to improve and adapt to market trends will eventually lose their share of the market, according to the Tencent report.
However, Kevin Wang, research director of U.S.-based market research company IHS, said that the issues with contract manufacturers do not indicate a decline of the entire industry. Wang claims that it is a natural process that can be expected of any market economy.