Samsung Electronics will invest 19.7 billion rupees ($296 million) over the next three years to double its manufacturing capacity in northern India amid fears of a sales slowdown in one of the world's fastest-growing smartphone markets.
A memorandum of understanding has been signed between Samsung India Electronics and the state government of Uttar Pradesh for the expansion of a plant in Noida that makes color televisions, mobile phones, refrigerators, washing machines and split air conditioners.
"As digitization expands across the country, we are witnessing an increase in the adoption of electronic devices, appliances and mobile phones," said HC Hong, president and chief executive of Samsung India. "A bigger and more robust manufacturing facility will help us address the needs and demands of our growing customer base across the country and the region."
Although Samsung did not detail which product lines would be expanded, Hong said Samsung would step up innovation in refrigerators, mobile phones and LED TVs.
According to media reports quoting Uttar Pradesh Chief Secretary Rahul Bhatnagar, Samsung's mobile phone manufacturing capacity will double to 12 million units over time. Press Trust of India reported that Samsung will be allotted an additional 130,000 sq. meters of land for the expansion, with the plant build-out creating around 2,200 additional jobs.
Samsung's decision comes at a time when the company is bracing for an about $3 billion hit to its operating profit over the next two quarters from the withdrawal of the blast-prone Galaxy Note 7 smartphone from the market. The premium model, launched to compete with Apple's iPhones, had to be discontinued within weeks of its launch.
To make up, Samsung now wants to focus on increasing sales of other high-end models, including the Galaxy S7 and S7 Edge.
The South Korean company has delayed the launch of the Note 7 in India, a very strategic market for the smartphone maker. According to a survey by Morgan Stanley, Samsung leads in India with a 46% user share.
Experts reckon the Note 7 issue may affect sales of other Samsung models in India, too.
"It [the Note 7 fiasco] has definitely impacted the brand value of Samsung in India," said Vishal Tripathi, research director at research firm Gartner. "Somewhere sales may be impacted in India, but it will depend more on how quickly they can control the damage done. Local manufacturing will help the manufacturer predominantly show how serious it is about India as a market."
India becomes more important for the world's largest smartphone maker with shipments worldwide expected to slow down.
"Total mobile phone shipments are on pace to decline 1.6% in 2016," Gartner said in a report. "The smartphone segment continues to grow, albeit more slowly than in previous years, and is expected to reach 1.5 billion units in 2016."
Gartner expects the total smartphone market to only increase 4.5% in 2016, with premium smartphones declining 1.1%.
Samsung, which started production in India with the Noida plant in 1996, has two factories, three research and development centers and a design center in the country. It employs over 45,000 in India with around 11,500 involved in R&D.