JonathanCheng

SEOUL— Samsung Electronics Co. said it is planning to invest up to $3 billion to expand mobile-phone production in Vietnam, in one of its boldest moves yet to combat low-cost Chinese competitors who are eating into its smartphone business.

The expansion could significantly boost the production capacity at Samsung’s newest mobile-phone factory in Vietnam, pushing down the company’s smartphone-manufacturing costs and bolstering margins. It is also the latest sign that South Korean manufacturing is joining the shift to lower-wage locales from China—even as China and South Korea separately signed a free-trade pact aimed at binding businesses in the two countries closer together.

The South Korean technology giant has been watching its No. 1 market share in smartphones erode during the past several months as companies like China’s Xiaomi Inc. and Lenovo Group Ltd. peddle good-quality phones at a fraction of the price. Samsung’s share of global smartphone shipments fell to 25% in the third quarter of the year, down from 31% in the first quarter, according to research firm Strategy Analytics.

The sluggish sales have pummeled profit too: Samsung said net profit in the third quarter nearly halved from a year earlier, with its mobile division’s operating profit margin falling to 7% from 16% in the second quarter.

In response, Samsung is shifting more phone manufacturing to lower-cost sites like its operations near Hanoi, where average monthly wages according to one Japanese government survey are a third of those in Beijing, near another of Samsung’s facilities that makes handsets. The company also operates major production facilities for semiconductors and other hardware in Brazil and the U.S.

The new Vietnam investment would expand an existing $2 billion handset manufacturing line that Samsung opened in March in northern Thai Nguyen province, a company spokeswoman said. It would significantly boost Samsung’s already sizable smartphone-related operations in the country. Samsung has operated a $2.5 billion mobile-phone plant since 2009 in northern Bac Ninh province, and in July won approval to build a $1 billion factory there to make displays used in smartphones and tablets.

Samsung said in a statement Monday that it was completing details of the new investment with Vietnamese authorities, and that it hadn’t yet set a specific timeline or investment size for the deal. A Vietnamese provincial official confirmed that Samsung had applied for an investment license and was awaiting final approval.

Samsung is just one of many South Korean conglomerates that are shifting production away from China to countries like Vietnam. Some economists say South Korea’s recent poor exports to China reflect the shift. As more South Korean firms open assembly plants in Southeast Asia, parts makers based in South Korea are shipping more to those nations and relatively less to China, these analysts say.

Samsung’s announcement of new investment in Vietnam comes the same day that South Korea signed the outline of a free-trade agreement with China. South Korea’s trade minister said that the trade deal was mainly aimed at helping smaller South Korean companies gain access to the Chinese market.

As mobile profits sink, Samsung is also spending big to increase its production capacity in semiconductors, betting that its massive scale will give it a leg up on its smaller rivals. Last month, Samsung said that it would also invest $14.7 billion in a new semiconductor factory in Pyeongtaek, a city about one hour’s drive south of Seoul, with operations to start in 2017.

Nguyen Anh

Thu in Hanoi and Tom Wright in Hong Kong contributed to this article

Write to Jonathan Cheng at jonathan.cheng@wsj.com

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