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RIL may spend additional Rs 3,750 crore on JioPhone subsidy

Reliance Industries (RIL) may need to spend about ₹3,750 crore or 25% more on subsidies than that estimated earlier if it plans to price its upcoming budget 4G smartphone, JioPhone Next, at about ₹4,000 apiece, said analysts, pointing to the global shortage and consequently higher prices of semiconductors and other components.

“We reckon if RIL prices the JioPhone Next smartphone at around ₹4,000 and looks to sell 75 million units, the subsidy element per handset could rise to around ₹2,500, or ₹18,750 crore overall,” an analyst at a leading brokerage said. “This is due to a near 20% rise in component prices, particularly memory and LTE (4G) chipset costs, coupled with procurement delays and continuing global semiconductor shortage.”

In June, IIFL Securities had estimated that RIL might need to subsidize consumers to the extent of ₹15,000 crore if it targets selling around 75 million units, at ₹2,000 subsidy apiece.

RIL’s digital business unit, Jio Platforms, recently deferred the launch of JioPhone Next, developed with Google, to around Diwali – from September 10 – due to the worldwide semiconductor shortage. Analysts said a key challenge for the company is how it manages the component supply chain.

Another analyst, who also did not wish to be named, said that “Jio could also explore a ‘buy now, pay later’ scheme to galvanize JioPhone Next sales, where the upfront sum could be kept low to attract value hunters with an option to pay the balance in easy, multiple instalments”.

If the chipset shortage persists for more quarters, RIL could initially do a token JioPhone Next launch in some markets around Diwali and come up with a full-blown launch once component prices stabilize and semiconductor supplies normalize, said the second analyst.

Brokerage UBS had said in June that even if Google and Jio develop a lighter operating system, the cost reduction would be possible only in few areas such as display (around $5) and memory (around $4), which would make a $50 bill of materials (BOM), or cost of the device, tough to achieve.

Jio is known to be targeting a 500 million user base – from about 425 million now – as it expects the JioPhone Next 4G smartphone to make India “2G-mukt (free)” by targeting a chunk of Bharti Airtel and Vodafone Idea‘s 300 million 2G feature phone user base. The company has not disclosed JioPhone Next’s likely pricing. Business Telegraph

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