Microsoft may source for its handsets, but not keen on 'Make in India'

NEW DELHI: Microsoft is open to sourcing for its handsets from India, but isn’t considering full-fledged manufacturing in the South Asian nation for now, its top official in the country said, breaking away from the recent trend of domestic and foreign phone vendors voicing plans to start production locally.

Manufacturing phones in India based on a change in duty structure is an unsustainable strategy, Microsoft India chairman Bhaskar Pramanik told ET in an interview, just over a year after the company completed its acquisition of Nokia’s devices business globally.

“There is a value in terms of sourcing locally. You need to do manufacturing in India only if it is strategically important and you can actually make profit or money,” he said. “A function of duty differentiation can change overnight, leaving you with huge capital investment.”

Pramanik didn’t specify what Microsoft would source from India. Industry experts say components and accessories such as batteries and chargers made locally by third-party vendors could be bought by Microsoft. Most of the key components of phones aren’t made in India. Sourcing locally is considered a pre-cursor to contract manufacturing, where a third party’s facility may be used for assembling instead of the company setting up its own plant.

Imported phones have become more expensive than locally produced ones after their duty structure was changed in this year’s budget, prompting South Korea’s Samsung Electronics to talk about expanding its manufacturing capacity in India and Xiaomi, Micromax, HTC and Lenovo to plan for producing handsets locally.

“I don’t think there’s anything under active consideration for the moment,” Pramanik said, referring to local manufacturing.

The India chairman pointed to the necessity of big volumes to propel the business case for manufacturing in India. Microsoft has a very low share of the smartphone market in India, mainly due to intense competition from both international and local companies.

“From an operating system perspective, we are No. 2 — we sell more units than Apple. But from a vendor perspective, our share is small. There are a few companies in the 20s and 30s ( market share) and then everybody else is in the 5% or 6%. We are in the undifferentiated latter category, but it’s an opportunity.”

Microsoft’s strength is in midsegment, where it has a 16% to 17% market share and the company is looking at opportunities to extend its smartphone offerings to both higher and lower price points, alluding to the premium and affordable segments.

“We believe that in India, a lot of the applications and services will be ‘mobile only’. That’s the opportunity. The three data centres in India at the time of launch, which will be some time in the last quarter of this calendar year, will have more server storage networks capacity than the entire central and state governments put together,” Pramanik said.

He expects Microsoft’s growth to leapfrog after the recent global restructuring where devices have been merged with the engine ering group under Terry Myerson. Part of the opportunity also comes from the Windows 10 operating system, free upgrades of which will kick into effect July 29 onwards globally and in India — first for tablets and personal computers, followed by smartphones — except for those whose operating systems are towards end of life or pirated. On issues hurting the IT sector, Pramanik said the government’s stand to make open source mandatory for IT companies was ‘challenging’ and ‘incorrect’.

“It’s not the only solution and to believe that it is the only solution for India is, which the current policy seems to imply, I think is incorrect,” he said. While the industry awaits a formal response from the government, Pramanik said that India should adopt the policy of ‘technology neutrality’.