Samsung Vietnam says no cuts in jobs this year despite Note 7 woes

October 12, 2016 8:45 AM EDT

Signage is seen at the Samsung 837 store in the Meatpacking District of Manhattan, New York, U.S., October 10, 2016. REUTERS/Andrew Kelly


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(Story corrects headline and lead to remove maintenance of exports target)

By Mai Nguyen and My Pham

HANOI (Reuters) - Samsung Vietnam will maintain its current staff numbers, the firm said on Wednesday, despite the parent company scrapping its flagship Galaxy Note 7 phone following a series of battery fires.

Samsung Electronics, which employs around 110,000 people in Vietnam, finally pulled the plug on the new Note 7 phone on Tuesday, less than two months after its launch, dealing a huge blow to the business as a result of unresolved safety concerns.

But Samsung Vietnam said it has no plan to lay off employees in 2016 as a result of the parent company's crisis and predicted the value of its exports would grow further from last year's $32.7 billion.

"The Note 7 incident may not bring about any significant impact on our exports in 2016; in fact this year's exports turnover is expected to increase," Samsung Vietnam said in a statement.

Samsung is a major investor in Vietnam, a low-cost manufacturing center for products that include its signature SMART televisions.

Electronics has become a vital part of Vietnam's economy and a factory base for other brands like Microsoft, Intel, Canon Inc, LG and Sony Corp.

Le Dang Doanh, a renowned economist and former government advisor, said the Note 7 crisis would serve as a warning to the government to diversify its economy and to become less reliant on foreign investment, which accounts for around 70 percent of Vietnam's exports.

"This incident will affect negatively on Vietnam's labor, exports and state budget," he said.

"There is a lesson here that we should not rely too much on a single market and exports should not depend on a single product."

CRUCIAL SECTOR

Phones exports are significant to Vietnam's exports, with the value of 2015 shipments up by 27.8 percent at $30.17 billion, or 19 percent of the country's total exports, customs data show.

Its phone shipments in the first nine months of this year increased by an estimated 8.6 percent on the same period last year to $24.96 billion.

Samsung Electronics slashed its quarterly profit estimate by a third on Wednesday after taking a $2.3 billion hit from ditching the Note 7, which is made in Vietnam, South Korea and China.

But losses could spread to Vietnam where Samsung Electronics has several phone factories in the north with combined investments of about $7.5 billion.

Any fall in phone output would put further pressure on what is one of Asia's most resilient economies, as weakness in the mining and agriculture sectors hindered growth in the third quarter. Many economists and the government have predicted that Vietnam will miss its 6.7 percent growth target this year.

Analysts say a permanent end to Note 7 sales could cost Samsung up to $17 billion and tarnish the brand for other phones in the minds of consumers and carriers, while Samsung Electronics' market value has lost by around $20 billion.

The value of exports from Samsung's factories in Thai Nguyen and Bac Ninh could rise to $34.7 billion this year, or about a fifth of Vietnam's total exports, said Nguyen Mai, president of Vietnam's Association of Foreign Invested Enterprises.

Recalling the Note 7 could reduce Vietnam's exports by an estimated 0.5 percent to 1 percent this year, which will pose more challenges for the Southeast Asian nation to achieve its 10 percent exports growth target, Mai said.

But the recall may not hurt Vietnam's economic growth in the long-term, he added.

"Samsung is a large firm having reputable technology. They can rebuild the trust of customers, so this will not affect much on the future of Samsung," he said.

"Samsung is still making many other products in Vietnam."

(Reporting by Mai Nguyen and My Pham; Editing by Martin Petty, Greg Mahlich)



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