As operation rates of factories of Samsung Electronics and LG Electronics have fallen sharply in this second quarter, it is expected that the operation rates will hit their lowest level ever. As COVID-19 continues to spread globally, there has been an increase in the number of their factories overseas shutting down. Because a decline in operation rate can lead to increased fixed cost and reduced production and sales, they are concerned that there may be added burdens on their operations.
According to the industry, operation rates of factories of Samsung Electronics and LG Electronics in the second quarter are expected to hit all time low. Their factories in South Korea, U.S., Mexico, Brazil, and other countries are currently shut down, and Samsung Electronics and LG Electronics are planning to start re-operating them after the middle of this month.
Samsung Electronics and LG Electronics have repeatedly gone through stoppage and re-operation of their factories and extension of stoppage since February.
Samsung Electronics is planning to stop operating its washing machine factory in South Carolina and home appliances factory in Poland until the 19th and its TV factory in Mexico until the 17th. LG Electronics is planning to stop operating its TV factory in Brazil until the 19th, its TV factory in Mexico and home appliances factory in Poland until the 24th, and home appliances and TV factories in Russia until the 30th. They are both planning to re-operate their factories once these operation stoppages are over.
However, COVID-19 situations in respective countries can be a variable to the companies’ plans as local governments can continue to restrict operations depending on the spread of COVID-19 and factories can be remained shut down if there is a positive case of COVID-19. Actually, both of them extended the stoppage period of their factories in the U.S., India, and Brazil once. Also, they had to shut down few factories after couple days of re-operating them.
As there have been setbacks to most of their factories overseas, operation rates of their factories have ben falling sharply. Stoppage period can be anywhere between a week and more than a month.
There is a high chance that they will not increase production capacities even after re-operating their factories as there have been lack of sales of home appliances and TVs due to reduced consumption and demands globally. If they increase operation rates unreasonably, they will be faced with burdens on their inventories.
Samsung Electronics and LG Electronics are facing great burdens from a decline in operation rates. They had maintained operation rates between 90 and 100% based on their elaborate predictions in order to reduce any financial burden from fixed costs. However there has been an increase in financial burden from fixed costs due to a decline in operation rates in addition to reduced sales in this second half. Because it is difficult for them to predict how long their factories will remain shut down, they are expecting setbacks to their plans for managing their manpower.
“Although they are monitoring the status of their factories daily, it is difficult for them to predict operation rates at the moment.” said a representative for the industry. “It is likely that their operation rates will fall greatly as many of their factories are currently shut down and there is a chance that they will remain shut down even after this month.”
Staff Reporter Kwon, Geonho | email@example.com