India-based Dixon Technologies, one of the world’s largest contract electronics manufacturers, said it is in the final stages of operationalizing a deal with Chinese electronics maker Lenovo that will enable it to start export smartphones in coming months.
This will mark the quickest move to exports for any category for Dixon Electronics.
At present, the company focuses almost exclusively on trying to fulfill the demand for electronics items within the domestic market by carrying out contract manufacturing for brands such as Samsung, Xiaomi, Nokia, Croma, Reliance, Vu and Flipkart.
Dixon, in fact, started making smartphones only in late 2019, under a contract from Samsung. Starting exports within about 1.5 years of entering a product category could be considered a big leap for the company, which has ambitions of emerging as a global electronics supplier.
However, for now, smartphones comprise a small portion of the company’s output. In the final three months of 2020, the company manufactured 7.5 million phones for its customers, out of which only 0.3 million were smartphones.
Nevertheless, said CEO Atul Lall, Government of India’s new Production-Linked Incentive scheme has helped it pitch itself as a viable destination for contract manufacturing smartphones for the global market.
At present, said the company, it has passed Chinese smartphone maker Lenovo’s first audit and installed a trial assembly line.
Once it passes the second audit, said Lall, it would be able to start producing smartphones for exports under Lenovo’s Motorola brand in India.
Motorola-branded phones, which used to extremely popular in India several years ago, still have brand recall in foreign countries. Lenovo sells around 35 million smartphones across the world in a year, and even a 10% share within that would increase Dixon’s current smartphone volumes by 3 times or more.
Lenovo currently has production facilities in Brazil and China, and also gets some of its India-volumes manufactured by a contract manufacturer in India.
“It’s a huge deepening of the relationship,” Lall said. “My sense is that by year 3 or year 4, at least 15-20% of the global production of Motorola should be with us… I see some of the China production being shifted to India for servicing global requirements.”
Lall said Lenovo has “an extremely close” monitoring system, involving both the China headquarters as well as the local Indian team.
“It’s an American company with American culture with Chinese ownership. So the whole business processes flow from there. So Dixon has to align and gear up for that,” he added.
Dixon was one of the most enthusiastic sign-ups for Government of India’s production-linked incentive scheme or PLI, under which companies that register in the scheme can get government incentives equal to 4-6% of their incremental sales.
However, Xiaomi — Dixon’s biggest client — has not opted to transfer any of its smartphone manufacturing to Dixon.
Meanwhile, Samsung has applied under the PLI scheme for its own local smartphone manufacturing units.
As a result, besides Lenovo, only Nokia has signed up for making smartphones at Dixon’s factories being set up under the PLI scheme.
However, said Lall, projected volumes from Nokia and Lenovo would be enough to qualify it for the incentive.
“The order book and forecast given by Motorola is itself consuming most of the ceiling that the govt offers,” he said, adding that efforts are on to sign up more smartphone brands.
Dixon gets about half of its revenue from contract manufacturing televisions, and about 15% each from manufacturing mobile phones/set-top-boxes and LED lights.
The remaining comes from home appliances — which mostly washing machines — and security equipment such as CCTV.
Out of these, said Lall, only washing machines and LED lights have scope for exports from India, besides smart phones.
For TV, he pointed out, India does not produce the core ingredient — the LED display itself — and therefore, it becomes very difficult to beat overseas players when the core component has to be imported from other countries like China.
“I don’t think there’s any potential for export [of TVs], because until and unless there is an open cell fab in India, as a country, I don’t think we are ready for export of LED televisions,” he said.
Moreover, Dixon does not design the TVs that it produces.
Instead, it gets the full specifications — including the list of parts to be used — from its customer and puts them together. Even the responsibility for procuring the parts and supplying them to Dixon rests with customers like Xiaomi.
On the other hand, in the washing machine segment, Dixon has its own design team, who design the semi- and fully automatic washing machines from scratch.
The company then procures components from its vendors and manufactures the item. Among its customers is Voltas Beko.
In this segment, said Lall, the company is hoping to start exports of fully automatic washing machines in another 1.5-2 years from its Tirupati plant.
“There’s a definite shift in the global industrial footprints, wherein alternatives are being looked at. Our large customers are already sending some kind of feelers in that direction.
“It’s not going to happen very soon. There will be many deliverable and execution challenges, but let me assure you this is the path we are going to pursue,” he said.
Another area where almost all of the products that Dixon manufactures is also designed in-house is LED lighting.
With production running into tens of millions of units per month, the company is in the top four LED bulb manufacturers in the world.
Lall said Dixon has started exploring the export option in this segment and has been getting “a very positive response”.
“The market and the customers are looking at China+1 sourcing,” he said, pointing out that the global market is worth $8 billion (Rs 60,000 cr).
“We are globally competitive, we have the complete product portfolio with us…Even if we are able to get 7-8% of the global LED bulb market, we are talking about adding approximately 500 mln dollars to the lighting revenue itself over the next four to five years.”
As for smartphones, Lall admitted that the company is nowhere close to being able to take on original design manufacturers (ODMs) based in China.
This is because, unlike Chinese ODMs, Dixon does not design or develop its own smartphones, but relies completely on its customers to do all the engineering and development work.
However, said Lall, it has just entered this segment, and hopes things will change in the future.
“We are working to stand on our own feet over the next 3-4 years, with some level of backward integration, and also some foray into the ODM part of basic 4G phones,” he said, without giving any time line around its in-house 4G phone plans.
Similar efforts are also on in the TV space, Lall said, starting with setting up a team to help customers develop their models under the JDM or joint development manufacturing model.
“We are in talks for some JDM kind of a business. By middle of next year, we should be able to have some breakthroughs with some large customers. If that happens, the ODM share in television is going to go up to 15-20%,” he said.