Global Electronics Giants Take Aim at India

Over the last 18 months, investments worth $18 billion have been committed by major global players in India.

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The market for electronics products in India continues to soar. The Manufacturer Association of Information Technology (MAIT) projects that personal computer (PC) sales will cross 6.5 million units in fiscal 2006-07, ending March 31, a 30 percent jump over the 5 million units sold in 2005-06. India’s computer sales—desktops and notebooks combined—touched 2.96 million units in the first half of the fiscal year, a growth of 19 percent over the same period the previous year.

A MAIT report attributes the accelerating growth to strong macroeconomic conditions and buoyant buying sentiment in the market, led by demand from a variety of industry verticals. The full-year 6.5 million unit forecast includes 5.6 million units of desktop sales and 0.9 million units of notebook sales. This will take India’s total installed base for computers to 20 million, the MAIT report said.

“Consumption of notebooks by the business segment grew by over 120 percent [during the first half of 2006-07], a phenomenon consistent across all three segments—large, medium and small enterprises. With notebooks becoming increasingly affordable, consumption of notebooks in households grew eightfold, accounting for a third of the total notebooks market,” MAIT Executive Director Vinnie Mehta said.

Manufacturing boom

The ever-growing demand has translated to a hardware manufacturing boom. Over the last 18 months, investments worth $18 billion have been committed by major global players in the electronics, information technology (IT) and telecom sector in the country, according to Dayanidhi Maran, Union minister of communications and information technology.

The Indian government expects a fresh commitment of about $2 billion over one year in telecom manufacturing alone. The kind of growth the government has targeted to achieve by 2010 is expected to attract investments of about $20 billion, churning out more jobs, contribution to gross domestic product (GDP) and increased government revenues.

A report by Indian Semiconductor Association-Frost & Sullivan indicates that electronics consumption in the country was around $28 billion in 2005, accounting for just 2.5 per cent of the global market. However, the country consumption of electronic equipment, the report states, is expected to reach $126.7 billion by 2010 and $363 billion by 2015, growing at a compound annual growth rate (CAGR) of 29.8 per cent.

U.S. chipmaker Advanced Micro Devices (AMD) plans to set up the country’s first chip fabrication factory (or “fab”) at an investment of about $3 billion. AMD’s U.S. competitor, Intel Corp., has announced a multi-year investment plan for business expansion in the country, totaling more than $1 billion, including $800 million over five years. IBM also announced plans to triple its investment in India by pumping in $6 billion over the same span.

Global players

Besides, global majors such as Aspocomp, Cisco, Dell, Flextronics, Foxconn, Motorola, Nokia, LG and Siemens, have already lined up or announced plans for large investments for India in hardware manufacturing.

Taking its total headcount in India to 20,000, Dell will start manufacturing all of its products for the domestic market, including desktops, laptops and computer peripherals, in India by the first half of 2007. In addition the company will invest $150 million this year for its various global initiatives, including India. “We will manufacture all our products in our facility in Chennai in the first half of ‘07 for the domestic market. Initially, we will start manufacturing desktops, which contribute 70 percent of our revenues, and then we will add new products,” Dell Vice President of Customer Experience and Support Dick Hunter said.

Taiwan’s hardware industry is also increasingly interested in shifting production to India. Business delegations from the Taiwanese electronics-manufacturing companies have visited the subcontinent in growing numbers to determine whether to make the jump or not.

“We went there to get acquainted with the Indian regulations and infrastructure,” said Wu Tao-yuan, president of the Taiwan Semiconductor Industry Association (TSIA), who was in India during the summer. “Since Taiwan is an established manufacturing hub in the semiconductor industry, we see a great potential to outsource a host of requirements from India.”

IT pressures

The influx of multiple global giants in India is putting immense pressure on domestic enterprises to stay competitive. One major challenge right away is that the IT infrastructure of the incumbent companies lags behind these foreign entities.

As a result, a major wave of IT investments has started to take place across banks, financial services institutions (FSIs), telecom, manufacturing, government, resource, education, and other industries. This is probably why India is the fastest-growing country for IT spending in 2006 (22.4 percent) and is forecast to remain so in 2007 (21.5 percent).

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