Handset Manufacturer in India

1. Current Market situation:

According to findings of CMR’s India Monthly Mobile Handsets Market Review, 1Q CY 2015, May 2015 release announced today, the India mobile

handsets market declined 15% in terms of overall shipments over 4Q CY 2014. Of the total 53 million mobile handsets shipped during the quarter,

37% (19.5 mn) were Smartphones. Although Smartphone shipments also declined quarter-on-quarter, the decline registered was only 7%, as

compared to over 18% in the case of the Featurephones segment.

2. Recent News:

Dixon is now setting up a handset factory in Noida with an initial investment of Rs 25 crore. The plant, with a capacity to make 700,000 units a

month, will start humming in August. Dixon is not a one-off case. In the past few months, several phone sellers have announced that they want to

make handsets in India instead of sourcing from China. Some have already started doing so while some, who were producing in limited quantities,

have started scaling up.

For instance, Samsung, the country's largest phone seller, has been manufacturing in India since 2006. This year, it has spent more than Rs 500

crore to add capacity at its plant in Noida where it makes many models, including the Tizen-powered Z1, Galaxy S6 and S6 Edge. Micromax, India's

second-largest phone maker, has started a plant at Rudrapur in Uttarakhand and is planning investments in Telangana, Rajasthan and

Maharashtra. Lava has so far invested Rs 50 crore to build a facility in Noida to assemble one million units a month. The plant employs 400 people

and assembles two models - X8 and Xolo. A second unit, with an investment of Rs 1,200 crore and a capacity of 10 million units a month, is on the

drawing board. Celkon Mobiles has a 30,000 sq ft. plant in Hyderabad with a capacity to build 3,500 phones a day

Similarly, Spice Mobility is investing Rs 500 crore in Noida to build a facility it says will be up and running by the next quarter. Karbonn is investing

Rs 200 crore in two plants, in Noida and Bangalore. "We will start production this month (June 2015). Overall, 10 lines will be up and running, which

means a combined capacity of 40,000 units in one shift a day," said Karbonn Chairman Sudhir Hasija to Business Today.

Chinese phone maker Gionee plans to invest Rs 300 crore over the next three years. "We announced our Make in India initiative in early April and

plan a full-fledged factory over the next three years. We will firm up local assembly plans within six months," said country CEO and MD Arvind

Vohra to Business Today. "The brand will initially go for contract manufacturing and look to set up independent manufacturing over the next 18 to 24

months," he said to Business Today.

Remember that these companies will assemble, not manufacture - the distinction is often lost in the noise over 'Make in India'. True manufacturing

entails making components such as processors, cameras and touch screens as well. One can call it low-end work with little value addition but that

is how most manufacturing ecosystems start.

Still, the larger point is that a second start is being made. The earlier one had come to an end with Nokia's plant at Sriperumbudur in Tamil Nadu. At

its peak, the plant, Nokia's jewel in the crown, was the world's largest, producing more than 15 million units a month. It exported to 72 countries.

Then came two tax disputes, with total claims of Rs 17,658 crore. Slowly, the company shifted production to Vietnam. When Nokia sold its 'Devices

and Services' business to Microsoft in September 2013, the tax authorities froze the plant, preventing a transfer. The plant closed in November

2014.

3. Problems & Barriers:

The closure of the Nokia plant means a lot of capacity is lying idle. India today has a capacity to assemble 270 million phones a year,

according to data from the Indian Cellular Association. The figure for China is 1.1 billion. Because of economies of scale, and the

presence of a fullfledged ecosystem, production cost in China is the lowest in the world.

The question, therefore, is - why should anyone make in India, especially when there are too many gaps in the country's ecosystem? For

one, there is no component base here. This means high freight costs. And the cost of finance, power and water - key to electronic

manufacturing - is lower in many other Asian countries

On China's east coast, starting salaries in the mobile manufacturing industry are equivalent to Rs 25,000 a month. In India, they are Rs

7,000 to Rs 8,000. Availability of manpower is also an issue. There are not enough people in China willing to do manual low-paying jobs

as the country has moved up the value chain. "When an economy grows, there are enough opportunities. Nobody wants to work as a

labourer," says Hari Om Rai, Chairman and Managing Director, Lava International. "I can see that manufacturing will shift out of China.

India has huge human capital.

4. Market Share Movements:

At the level of individual brands, the CMR report states that Micromax, at second spot, registered a decline to 12.1% in terms overall

mobile handset shipments, while in the Smartphones segment its market share was 16.2% as compared to 14% and 17.8% in 4Q CY

2014, respectively. What is worrisome for the brand is its widening gap with Samsung, the market leader. While in 4Q CY 2014,

Micromax was just behind by 1.2% compared to Samsung in the overall mobile handsets market and in the Smartphones segment the

gap was 5.9%, in 1Q CY 2015, these gaps have increased to 6.4% and 11.7%, respectively. The significant gap in market shares in the

Smartphones segment is the most critical issue for Micromax to address in the coming quarters. Possible reasons for this could be very

few new models being launched by Micromax in the past year, and attempts to focus on a number of simultaneous marketing campaigns

such as online sales and the Yureka sub-brand.

The third player in the market, Microsoft, on the other hand has been able to consolidate its position with 9.6% share in 1Q CY 2015,

compared to 10.8% in the previous quarter for the overall mobile handsets market.

5. A few Puzzles:

It is fashionable to talk about a "China+1" de-risking strategy. Can India become an alternative? Sanjay Kapoor, Chairman, Micromax Informatics,

believes so. "I think one of the most important ingredients for making manufacturing viable is domestic demand. India is a large market. If the world

has to choose an alternative and have a de-risking strategy, India will be the most potent destination," he said to Business Today.

But it will be a stiff climb up the hill for India given that Vietnam has done a good job of wooing the industry. Vietnam produced mobiles worth over

Rs 2.5 lakh crore in 2014/15. This is 12 times more than what India produced. China makes phones worth 60 times more than what India clocks.

When we ask Spice Mobility's Modi whether the companies were coerced to make in India, he responds: "Coercion is a very strong word.

There is encouragement."

However, taxation issues remain.

State chief ministers and the central government, meanwhile, are busy in the revival act. Information Technology Minister Ravi Shankar Prasad

recently visited a Samsung fabrication plant in South Korea where he was "blown away" by the investment figure - $14 billion. Maharashtra Chief

Minister Devendra Fadnavis went to see Foxconn's plant in China in May. In the past few months, bureaucrats have toured factories in Taiwan,

Japan and Germany. The Ministry of Communications and IT has formed a "fast-track task force" - a motley group of phone sellers, tax advisors,

skilling experts and bureaucrats - to "re-establish and catalyse significant growth" in mobile manufacturing. One of the group's terms of reference

reads like a CEO's directive to business line heads. "To achieve production of 500 million units of mobile handsets by 2019, i.e., annual

manufacturing output of Rs 150,000 crore to Rs 300,000 crore - 20 to 25 per cent of total global manufacturing." If that is achieved, it can employ

1.5 million people. (Source- Business Today)