Bigger impact than the epidemic? India's mobile phone market is in deep trouble with "chip shortage"

Jiwei.com News: "When the nest is overturned, how can the eggs remain intact" is a true portrayal of the current global chip production capacity gap that continues to widen. Even though India is still under the influence of multiple factors such as the epidemic, the conflict between the two countries, and policy changes, the mobile phone market has plummeted, and the increase in 2020 has decreased significantly.

"The biggest difficulty facing the Indian mobile phone industry chain right now is not the epidemic, but the lack of chips," said a senior figure in the Indian mobile phone industry.

Some factories have drastically reduced staff

According to the above-mentioned senior industry insider, after India lifted the lockdown, the market and life order were gradually recovering, so demand began to increase. However, the ensuing chip shortage directly impacted the market growth. According to the original estimate, if there was no chip shortage, the overall growth of the Indian mobile phone market this year should be able to recover to about 10%.

So, how severe is the chip shortage in the Indian market?

Looking back at the early stage of the outbreak in 2020, India experienced several blockades, which caused very serious livelihood problems in the local area, and the mobile phone industry was in a "semi-paralyzed" state. On the one hand, due to the "lockdown", factories had to announce a temporary suspension of production, and on the other hand, the worsening employment problem greatly weakened user purchasing power.

However, compared with the above situation, local industry chain insiders pointed out: "The impact of the epidemic on India is relatively macro. Although it has brought relatively large challenges to mobile phone industry chain manufacturers investing in India, the impact of chip shortages on the industry chain is actually more direct than the epidemic. This is also the biggest impact faced by the Indian mobile phone industry chain since the first round of Indian investment boom in 2015."

According to insiders, the shortage of main chips has put pressure on local mobile phone brands to ship, and some assembly factories are unable to deliver smoothly because they cannot get enough parts. In order to control factory operating costs, the number of workers has also been reduced to 1/3 of the original.

"Several domestic first-line brands have their own factories in India. At the same time, there are also ODM manufacturers building factories locally to provide supply chain support. When the chips are supplied normally, the two can allocate orders for production and shipment. However, when chips are in short supply, resources will inevitably be tilted towards brand factories. In this way, the order volume of ODM manufacturers will be reduced to a certain extent." said the above-mentioned insider.

In addition, Huawei's mobile phone business has been frustrated by the impact of Sino-US trade issues, resulting in a significant decline in its market share, and a gap has appeared in the originally saturated mobile phone market. In order to take this opportunity to expand its share of the high-end market, almost every first-tier brand has made a key layout for the high-end series this year. The current upstream wafer production capacity is tight, and the resource tilt under the brand strategy adjustment may also affect the development of other markets; at the same time, considering the impact of factory yield on profits, brand manufacturers are also willing to allocate more chip resources to Chinese factories with high yield.

Looking back, the chain reactions caused by the epidemic and the border frictions between China and India have not yet been resolved. Changes in foreign investment policies, visa approval, tariffs on electronic products, etc. continue to affect the development of the local industrial chain at other levels.

Strong investment intention is hindered

On April 17, 2020, India made major changes to its foreign direct investment (FDI) rules, requiring all countries that share a land border with India to obtain approval from the Indian government before investing in India. Chinese Embassy in India Spokesperson Ji Rong said that this move has greatly increased the difficulty for companies from countries that share a land border with India, including China, to invest in India.

The fact is just as they said, Chinese companies' efforts to invest in India were severely hindered after this policy change.

The aforementioned insider told Jiwei.com: "From June 2020 to now, there are still quite a number of domestic companies that want to invest in India because the trend of industrial transfer has not changed. For example, Great Wall Motors, Huaqin, and many small and medium-sized enterprises. However, the investment of these companies has been stuck due to changes in FDI policies. So far, no Chinese company has passed this review."

It is worth mentioning that the impact of this policy change is compounded by the inconvenience caused by delays in visa approval.

Local Chinese manufacturers told Jiwei.com that "visa issues have restricted our Chinese employees from traveling to India from last year to this year, so now our factories in India are faced with the problem of having workers but no Chinese managers." This is also the second largest gap in India's industrial chain besides chips.

However, industry insiders believe that: "Under the premise of the transfer of terminal market demand, Chinese companies in the supply chain are still very willing to invest in India. In addition to some favorable factors that everyone knows, the Indian market is also seen by many companies as a springboard for expanding overseas business."

As mentioned above, these macro-environmental factors have obviously failed to stop the trend of industrial chain transfer caused by the demographic dividend of the Indian market.

First of all, the market share of mobile phone manufacturers represented by Xiaomi, Samsung, OPPO and vivo in India is still expanding, and the penetration rate of smart phones in the entire market is also showing a clear upward trend. Secondly, the pressure brought by the increase in tariffs on electronic products has also forced brands and supply chains to increase the proportion of Indian manufacturing. Finally, it is undeniable that the cost of some local resources is more advantageous than that of domestic ones.

This year, we have seen that many companies including Tesla, Xiaomi, BYD, Amazon, Foxconn, and Pegatron are making additional investments. From the perspective of the industries in which the companies are located, the terminal market has even expanded from mobile phones to the automotive field. In summary, the transfer of terminals and supply chains to the Indian market has not stopped, but has entered a situation where the speed is slowing down but still continuing.