If you read the article below, I bet you will agree with me to invest into FLEX who i
If you read the article below, I bet you will agree with me to invest into FLEX who is the number one EMS company in the world. FLEX heavily invested 500Million dollars into indian market to reduce cost as well as utilized Indian booming market. FLEX's careful strategy will bring it a favable business and market share in the coming years.
Too much overreaction here on FLEX, especially Cramer is bashing this company ( maybe he is in the short position).Although the earnings number is not good last weeks,it is due to is divestation and modest market demand on eletronic products. But Morgan Stantley analysts and Value line analysts report that the EMS sector is coming back. I am holding FLEX tight.
HERALDING A HARDWARE BOOM
VENKATESHA BABU ADDITIONAL REPORTING BY RAHUL SACHITANAND
1,485 words
6 November 2005
Business Today
98
English
(c) 2005 Living Media India Ltd
The Motorola phone, or Dell notebook, or Palm handheld you buy may not necessarily have been manufactured by the company whose brand name it sports. Welcome to the world of EMS (electronic manufacturing services). Outsourced manufacturing is not a new phenomenon. China and Taiwan have practically built their economies on this platform. India, which has established itself as a software and services powerhouse, is now trying to make its mark in this space. Can it?
The world's largest EMS player, the Singapore based $15.9-billion (Rs 69,960-crore) Flextronics is betting that India's strengths in design and software services will enable it to emerge as a big EMS player. Over the last 12 months, it has invested in excess of $500 million (Rs 2,200 crore) to acquire or invest in Indian companies that fit into its global plans. Says Mike McNamara, coo and CEO-designate, Flextronics: "All our moves are carefully calibrated. In a business where margins are wafer thin (3-4 per cent), we make investments only after studying the market. And unlike original equipment manufacturers (OEMS), we go where our customers want us to be." Therefore, India! Other EMS providers like Solectron, Jabil Circuits, Elcoteq and Celetronix have also established operations here.
The explosion in the Indian telecommunications sector is primarily responsible for this sudden burst of attention. According to Gartner, 21 million mobile phones were sold in India in 2004; this will increase to 34 million in 2005. China and India will together account for nearly 200 million units in 2007. And by 2009, the Indian market is expected to surpass China's, with sales of 139 million cellphones. Little wonder that the country is looking so alluring.
Henry Gilchrist, APAC Director (Business Development), Elcoteq Asia, another leading EMS provider that has invested $100 million (Rs 440 crore) in India, says: "More than 75 per cent of the telecom equipment in India is imported. The country has proven capabilities in software and hardware design; this can easily be leveraged to support the EMS industry. India is where our customers want to be. It has, therefore, become an extremely attractive location for manufacturing."
The Government of India is taking measures to encourage EMS. It has imposed a 4 per cent special additional duty on all imported handsets, thereby providing a boost to domestic manufacturing. The EMS industry is also being allowed to import capital goods, components and consumables sans any import duties. Says Sridhar Mitta, an IT industry veteran and CTO of E4E: "A pure price play is a fleeting and temporary advantage. EMS players must offer innovative designs to reduce costs. This is more sustainable over the long run."
That, precisely, seems to be Flextronics' strategy in India. Its acquisitions of design companies like Deccanet and Emuzed, and software services players like Hughes Software Systems and Future Software will generate huge savings at the back end and cushion its margins. Globally, Flextronics leverages its back-end competence by designing, manufacturing and delivering cellphones for 33-50 per cent of the price that end users typically pay. And this is working for it in a global market where electronics and telecom companies are looking to specialise as pure marketing and strategy outfits, increasingly leaving design and manufacturing to third party outfits like itself.
Cumulatively, Flextronics has invested over $1 billion (Rs 4,400 crore) on a 17,000-square feet manufacturing facility in Bangalore, a 4,000-sq. ft unit in Pondicherry, hardware design centres in Bangalore, Chennai and Gurgaon, and on the acquisitions and investments it has made in India. It manufactures optical networking equipment, telecom handsets and switches for customers like Tejas Networks, Motorola and Nortel at these facilities. On October 6, it announced plans for another $100-million (Rs 440 crore) manufacturing site, this time in Chennai, which will manufacture phones not only for the domestic market, but also for global customers. "We notice that India's domestic market is maturing rapidly; so, having a local manufacturing presence makes sense," says Vijayan Chinnasami, Vice President for Malaysia & India at Flextronics. "Our main objective at this moment is to cater to the Indian market; in future, though, our Indian manufacturing plants will probably become part of our global supply network," he adds. Flextronics has recently signed a deal with Galaxis Sale, a German company, to make seven lakh set-top boxes for cable, satellite and terrestrial television platforms. These will be made at its Bangalore facility, which it acquired from telecom giant Motorola in 2000.
According to Ernst & Young estimates, the EMS market in India could grow to Rs 20,000 crore in the next five years, from Rs 3,800 crore now. "We're not talking millions anymore when we talk about the Indian contract manufacturing market," says Adam Pick, Senior Analyst for EMS and ODM Services at iSuppli, a market research outfit that specialises in the tech space. "It's already in the billion-dollar league. That is very appealing to a business manager from any node of the electronics supply chain."
Sanjay Nayak, CEO of Tejas Network, an optical networking company that provides networking solutions, believes that the arrival of Flextronics and other EMS providers signals the beginning of a hardware boom in India. "The entire ecosystem for hardware will be in place over the next three-to-five years," he says. Going forward, Nayak says companies like Flextronics will definitely use India as a hedge against the risk of placing all their eggs in the China basket.
But infrastructure bottlenecks remain a major concern in India. Another worrying trend for Flextronics is the weak component supplier base. Says McNamara: "If India is to emulate China's EMS exports story, it will have to get two things right-an efficient components supplier base and infrastructure." (See "India's Components Supplier Base Is Weak").
To make the most of its Indian operations, Flextronics will have to expand its portfolio rapidly. The string of acquisitions it has made in this country gives it access to a wide range of skills. The company has been able to keep its customers like Dell, Microsoft, Xerox, Motorola, Siemens, Nokia and Alcatel happy by offering great manufacturing efficiencies, and the Indian acquisitions will only add to its advantage in the global market. Says McNamara: "Eventually, we hope to grow our EMS operations in India to the same size as our operations in China." When that happens, India will have arrived on the world's EMS map. -additional reporting by Rahul Sachitanand
