Slowing Down

If we look at the telecom manufacturing industry over the last year, it was
certainly a lean season. Most of the manufacturers concentrated on sustaining
their position rather than expanding. If we look at Sriperumbudur, touted as one
of the EMS manufacturing ecosystem in India-the activity over the last year was
rather subdued. Players like Nokia however leveraged the early mover advantage
and successfully made its manufacturing plant in Sriperumbudur as a strategic
manufacturing hub.

But a look at the overall infrastructure asks for lots of improvement. While
in the last two years the overall infrastructure improved a bit in the
Sriperumbudur area, it is nowhere near international standards. Looking at the
current market scenario due to the overall recessionary economy, most
manufacturing entities are in a silent mode and refused to divulge specific
details on the new manufacturing initiatives and their operations outlook.

The cracks in the telecom manufacturing entities in Sriperumbudur have
started showing. One of the key suppliers to Nokia, Jabil Circuit has
significantly scaled down its operations in the Sriperumbudur unit and moved
some of the processes to China, according to some industry sources. It's a
worrying development as Jabil is one of the key suppliers to Nokia and a key
player in the SEZ. Its facility is spread across over ten acres and supplies
hand phone parts like outside plastic casing etc. As per the investment
estimates available, Jabil has invested close to about $100 mn at the
Sriperumbudur facility with more than 500 employees.

Fizzling Out?

Other major players in the Sriperumbudur telecom corridor like Flextronics
and Foxconn are also keeping a low profile. When we look at these companies
globally they have resorted to major downsizing in terms of manpower. Some of
the leading EMS players have also closed down some plants in Europe. And this
had clearly impacted their manufacturing initiatives.

While some of Nokia's suppliers are facing the heat of the slowdown, Nokia is
doing well. According to Sachin Saxena, director, Chennai Factory, Nokia India,
“We are extremely pleased with the progress made by us at our manufacturing
facility in Sriperumbudur. The facility has been created in line with Nokia's
global philosophy of developing world class manufacturing systems that enables
best-in-class quality, cost efficient, and world class responsiveness and just
in time delivery.”

“We are extremely happy with the way the unit is performing. With the
completion of the Phase III, the Nokia factory has recently expanded its floor
space to 53,335 sq. meter in order to cater to the burgeoning demands emerging
from the Indian market. We have also produced 250 million handsets as of April
2009 and have expanded our product portfolio to include music and camera phones,
adds Saxena.

“We are extremely pleased with the progress made by us at our manufacturing facility in Sriperumbudur” Sachin Saxena, director, Chennai Factory, Nokia India

Flextronics is another major player which has made significant investments.
Recently there were reports that the company might move some of its
manufacturing operations to Bangalore, which the company has denied. When the
company started its manufacturing operations in the Chennai Industrial Park, it
had announced that it will be offering vertically integrated services like
design, plastic injection moulding, PCB assembly, etc. According to sources the
company's manufacturing initiatives in Sriperumbudur is very much on track. In
the last one year Flextronics in the Chennai Industrial Park facility in
Sriperumbudur has launched a power chargers manufacturing unit under the name
Flex Power.

Meanwhile, another major player in the Sriperumbudur area is Motorola. The
Motorola plant which went live with production last year with an initial
investment of Rs 172 crore, makes both CDMA and GSM mobile phones. The factory
also makes other networking products like networking equipments like base
stations and system controllers. The facility is spread over 270,000 sq ft and
has the capacity of manufacturing 12 mn mobile phones and 6,500 base station
terminals

According to Henry Mohan, director, manufacturing, Motorola India, “It's
business as usual and we are continuing to work hard to meet our commitments. We
have adopted lot of green manufacturing practices and over the last year we have
implemented the rain water harvesting capable of collecting about 10,000 kilo
liters of water. We have a green belt surrounding the premises covering
approximately 120,000 square feet.” Motorola refused to share specific details
on the total number of mobile phones shipped from the facility and expansion
plans. Industry sources say that Motorola makes all major models including the
popular Razr mobile phones out of the Sriperumbudur facility.

Going Forward

Companies like Nokia say that the foresight shown by the government with
respect to conducive regulations and policies, a positive and stable political
scenario has helped India emerge as a preferred destination for telecom
manufacturing for global majors. While the current infrastructure has been able
to sustain the growth thus far, there is an urgent need to scale up the level of
infrastructure in the country to support the increasing number of manufacturing
units.

While a lot has been done by the government, going forward, the players in
the EMS space feel the need to have a more holistic and competitive strategy in
place to attract more investment in the area of electronic hardware
manufacturing. The manufacturers and the government need to work in tandem to
formulate investor-friendly policies and help propel the region into becoming a
telecom and electronic manufacturing services hub for the world. The government
has a great opportunity to create favorable policies and attract large scale
investments in these areas considering all the major telecom OEMs like Nokia.

But as we look at the long term scenario, there seems to be a problem with
the demand and supply mismatch homework done by some of the EMS players. While
players like Nokia, due to their domination in the handset market, were able to
see spectacular success, the same is not the case with all the players. As we
look at the evolution of the Sriperumbudur SEZ, it traces its origin way back to
the mid 2000. During this time India was at the cusp of the mobile phone boom
and all players sketched ambitious plans. But since 2008, the recession had
upset their larger operations globally and any cost cutting rationalization also
in its ambit had the manufacturing facilities. While Sriperumbudur SEZ is yet to
see any major player winding up operations, it is obvious that the last three
quarters of 2009 and part of 2008 were indeed very tough times for most players.
But since India is still a high growth market for mobile phones, all the
companies have taken a cautious approach and scaled down their peak capacities
and concentrated on rolling out low end handset models for which there is huge
domestic demand. Industry analysts say that with all the capacities built and
with signs of economic revival, 2010 would definitely be a year of reckoning for
the Sriperumbudur EMS corridor.

Shrikanth G

shrikanthg@cybermedia.co.in