IT hardware manufacturing business could zoom 60-70% near term: Contract makers

NEW DELHI: Electronics contract manufacturers such as Optiemus Electronics (OEL) and Videotex International said the government move to impose import restrictions on the likes of laptops, tablets, and all-in-one personal computers will propel local IT hardware manufacturing in the near term. But brands, privately, said the move would hurt consumers due to supply issues and even lead to a rise in prices in the short term.

Shares of listed Indian contract manufacturers Dixon Technologies and Optiemus Infracom, the parent of OEL, surged on the BSE Thursday, outperforming the negative broader markets, on the development. Dixon climbed 7.6% higher at Rs 4438.70, while shares of Optiemus closed at Rs226, rocketing 10%.

Leading IT hardware brands sold in India include Samsung, Dell, Apple, Acer, Lenovo, HP and Asus. Dixon already assembles laptops for Acer.


"We believe the government's decision to curb the laptop, tablet, and computer imports is progressive and has the potential to boost indigenous electronics manufacturing in the country...We currently hold the PLI for IT Hardware and are manufacturing laptops for notable brands. With this move, we expect further expansion of our capacity to manufacture these devices," said A Gururaj, MD, Optiemus Electronics Ltd.

Another senior executive at a contract manufacturer, who wished not to be named, added that local manufacturing of IT hardware could account for 60-70% of the $7 billion global manufacturing business in the short term and to even 90% in the next two years, similar to how TV assembly sprang with import substitution, from negligible now.

“The focus now is on the potential benefits such support can bring to research and development (R&D) and the manufacturing of electronics products in the country. This highly encourages building the whole manufacturing ecosystem in the country,” said Arjun Bajaj, Director, Videotex International.

“Apart from this ban, the government should also focus on localization of display fab and semiconductor fab within India. Open cells and PCB play a significant role in the total cost of electronics products, and currently, India heavily depends on imports from China for these components,” he added.

But hardware brands said the move could hurt sales in the all-important festive season.

"The notification does not have too many details, but from what we can gauge, there could be a shortage in supply of PCs, tablets, and laptops during the crucial festive season. We have already imported a bulk for the first half of the festive season, but sales during the Diwali period may get impacted,” an executive from a Taiwanese IT hardware brand said on condition of anonymity.

The executive added that there could also be an increase in prices for the end consumer, as the import license under the restricted category will have to be purchased as opposed to the import license earlier that was given free of cost. “We are also waiting for more clarity from the government."

Emails sent to the brands and Dixon didn’t elicit a response as of press time.

Thursday, the government restricted import of laptops, tablets, all-in-one personal computers and ultra small form factor computers and servers. These electronics can be imported only against a valid license meant for restricted imports. The move is expected to cut imports from countries like China.

“The move isn’t surprising as the government has been trying to push local electronic manufacturing. The move could be aimed at making PLI 2.0 a success, as the PLI 1.0 did not receive a very good response from the industry,” said Tarun Pathak, research director, Counterpoint Research.

He noted that India has achieved almost 100% local manufacturing (assembly) of products in smartphones and TVs. “Even for wearables, this has increased to 50-55%. However, IT hardware has been lagging behind with only 30-35% of products being Made in India.”

He said that some disruption in supply is expected in the short term, especially brands like HP, Lenovo, Apple as this order comes ahead of festive season which is a strong sales period for the industry. “The festive season usually accounts for about 1/5th of the industry’s annual sales.”

The government on Monday extended the application date for the production-linked incentive (PLI) scheme for IT hardware for the second time on Monday,?due to lack of applications within the deadline. Interested companies or applicants can now apply until August 30, 2023.

The centre notified the second phase of the production-linked incentive scheme for IT hardware with a budgetary outlay of Rs 17,000 crore, more than doubling the incentives in the initial version of the plan.

The scheme intends to attract global companies like Dell, HP, Apple, and Samsung to manufacture IT hardware such as laptops, tablets, all-in-one PCs, servers, and ultra small form factors in India. But no one has applied so far for the scheme.

The revised scheme will extend an average incentive of around 5%, more than double the 2% incentive offered in the previous version. It added flexibilities in both tenure and investments for participants. While the tenure of the scheme is for six years, participants can choose 2023, 2024, or 2025 as the base year for investment and calculating incremental sales.