Ever since the novel coronavirus (COVID-19) outbreak happened in China, the world has been off balance. And things can become unfavourable for the mobile phone ecosystem in India if the current situation in China persists, according to industry experts. After all, India imports around 87 percent of components used in mobile phones, of which 75-78 percent are from China, according to the data put out by Counterpoint Research, a global research firm that specialises in mobile and technology products.
“The situation can get very grim,” said Pankaj Mohindroo, Chairman of India Cellular and Electronics Association. “We have the headroom because of the stocking we did for the Chinese New Year. That is seeing us through.”
Nearly 85-90 percent of the mobile phone display component and 70-80 percent of the semi-knocked down (SKD) kits are imported from China. And though, the number of manufacturing units for mobile handsets and allied industries have increased from three in 2014 to 268 in 2018 (according to a 2019 ICEA report), only 12 percent of the components are indigenous.
“India has more of an assembly-line scenario than manufacturing. The main components are imported and then assembled here,” said Shilpi Jain, Research Analyst at Counterpoint Research.
Supply chain disruption, spike in product prices, problems in component sourcing, project planning and development can be expected in Q1 and the starting of Q2 in 2020, if the current situation in China persists, said Jain. (Xiaomi recently increased the price of one variant of its Redmi Note 8.) “New launches also might get delayed,” Jain added.
To tackle this slowdown, companies can look to source components from outside China, a factor many firms have been considering since the US-China trade war, said Jain. India imports 10-13 percent components from countries outside China, including Korea and Vietnam. Of late, Vietnam has also been emerging as a prime manufacturing hub in Asia.
“In January, we didn’t witness much impact, because the outbreak happened after the 15th. In February, the situation has been critical and will likely remain so for the next four to five weeks,” she added. Component shipments from China to India are expected to be down by 10-12 percent in Q1 2020.
“The extended shutdown in China is likely to have an impact on our supply chain and there is a risk of impact on the overall quantum of component supplies,” said a spokesperson from Xiaomi without elaborating further.
Though many factories have started functioning in China again, only 25-30 percent of the workforce has returned, so the situation is still critical. On the positive side, Q1 has always been a slow season for the handset market in India from the demand point of view. So the overall portfolio will not be affected much and companies can focus on exhausting the existing inventory present in warehouses in India.
However, the COVID-19 has not affected telecom operators in India, so far. “As on date, we do not have reason to panic as there are no immediate supply challenges, since we have sufficient buffer stocks,” said Rajan S Mathews, Director General, Cellular Operators Association of India (COAI). “Each operator is maintaining a contingency plan within the resources available,” he added.—The Hindu Business Line