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Whenever the manufacturing industry in China is hit by a crisis, supply of handsets get affected in India, leading to price rises and lower profitability for vendors. The latest example is the shortage in supply of components such as LCD screen glasses, which is giving sleepless nights to various handset companies that depend on supplies from China.
India is currently the second largest smartphones market in the world, behind China, and is growing at 20 per cent a year. Experts say there is a need for a local manufacturing base to hedge such risks in future.
During the past three months, various manufacturing units in China, mostly belonging to smaller component manufacturers, have closed down. Demand for outdated technology products such as LCD glasses have went down considerably as markets in China and the US have moved on to more advanced Amoled display glasses. Rising labour costs, too, are among the reasons.
While feature phones have been phased out in markets such as China and the US a few years ago, most of the smartphones are now sold to second or third-time buyers. “These consumers are upgrading to bigger brands and more advanced models – leading to a rise in demand for Amoled displays,” said Tarun Pathak, senior telecom analyst, Counterpoint Technology Research. The increased demand is putting pressure on major manufacturers. This, according to Pathak, might jack up smartphone prices by up to 10 per cent if demand is not met with more supply.
The consolidation in the industry in China has put vendors in India who trade in feature phones and low-end smartphones on the wrong foot. While such companies maintain stocks for some 45 days, if supplies do not go up in the next two months, these might have to increase the prices of basic smartphones and feature phones.
According to Vikash Agarwal, chairman and managing director of M-Tech Mobile, such devices might become costlier by up to six per cent.
"Price of LCD glasses have nearly doubled in the past three months. If the issue does not get sorted out before the festive season, price rise will be inevitable," he said. During the festive months, starting from mid-September, sale of handsets go up to 50 per cent for many brands, including M-Tech.
In the past, short supply of batteries and display panels had impacted the industry here. "I believe it is temporary. They usually create additional capacity when supply consistently falls short of demand," said Pankaj Rana, head, mobility division, India, south Asia, Middle East & Africa at Panasonic. As Panasonic maintains three months of stock for components, it not likely get affected by the ongoing supply issues, he said.
However, as the importance of smartphones grow in India and annual demand crosses 100 million units, industry observers say the ongoing issue is another wakeup call for the domestic industry. "Apart from bringing down the outflow of huge foreign exchange, local manufacturing will create job and add to the country's GDP. But the government, instead of encouraging local manufacturing of components, reduced the various import duties. This will let companies keep depending on imports from China," said a senior industry executive.
According to him, less than two per cent value addition is currently done in India. "Nowadays, printed circuit boards (PCBs) are shipped in with most of the components attached. The two per cent duty on PCBs is not enough."
