Dixon Technologies in talks with major IT hardware companies for Make in India

Dixon Technologies, India’s largest electronics manufacturing services company, is making a decisive push into laptop and tablet manufacturing to capitalize on the massive market opportunity arising from the government’s increased impetus on domestic electronics production and import curbs on foreign brands.

During its recent quarterly earnings call, Dixon Technologies stated that it has filed an application under the government’s Production Linked Incentive (PLI) scheme for IT hardware products to manufacture laptops, tablets and servers in India. The company has committed investments of Rs. 250 crores to set up manufacturing capacity for hybrid laptops under the revised IT hardware PLI scheme. The new scheme, announced in May this year, offers a 5% incentive, against the 2% incentive that was offered under a previous version of the scheme.

Dixon’s move gains significance in light of the government’s recent decision to reduce dependence on foreign-made IT hardware, such as laptops, PCs and servers.

Although a strict regime of control was expected to come into effect from next month, widespread protests led the government to ease most of the controls in favor of collecting information about IT hardware being imported. It is believed that the government is wary of the possibility of hardware-implanted malware and other backdoor vulnerabilities in devices manufactured in China.

As a part of the ‘carrot’ strategy, the government also announced the production-linked incentive scheme for IT hardware under which manufacturers can potentially get hundreds of crores as subsidy if they manufacture laptops, tablets, desktops and servers in India.

Elaborating on Dixon’s plans, Atul Lall, Vice Chairman and Managing Director, Dixon Technologies said during the earnings call, “We have filed the application on the hybrid category and committed investment of Rs. 250 crores with much higher revenue and profit potential. We expect the approval from the government to be coming in shortly.”

Currently, PCs and servers comprise a very small portion of Dixon’s overall contract manufacturing business, with the bulk being contributed by smartphones, set-top-boxes and white good appliances such as refrigerators and washing machines.

However, said Lall, the company is competitive with the best in the world, and stands ready to help out any global PC manufacturer that wants to diversify its manufacturing base away from China.

“In addition to PLI, the order book has been increasing monthly. “We are in now at advanced stages of discussion with some large global brands in the category,” Lall added.

However, unlike in the phone category — where India spurred local manufacturing by imposing import tariffs on foreign-made goods, IT hardware cannot look forward to any such tariff-incentives due to India’s obligations to World Trade Organization.

The senior leadership at Dixon Technologies expressed confidence that the company will be able to match the manufacturing costs of competing countries like China on the back of process optimization and operating leverage from its existing facilities.

Experts worry that the 5-6% incentive that a company like Dixon may get from the government may not be enough to nullify the cost and scale advantage enjoyed by countries such as China.

“We have done lots of ground work on this particular aspect,” said Saurabh Gupta, CFO. “The point is very very important and we are confident of offering the manufacturing choice to our potential customers which are similar to the global jobs and that’s the key.”

He said, even without the PLI and incentive schemes, Dixon will be able to offer the same efficiency as Chinese manufacturers.

“We have been able to reach that level of efficiency and on that basis, we are confident that we should be able to get the contracts awarded to us. Anything coming through the PLI route is going to be additional leverage for getting into this business.

“So I reiterate that the manufacturing charges offered by us are comparable to the global agencies,” he said.

The Dixon management also clarified that laptop and tablet manufacturing under the PLI scheme will initially focus on domestic demand. Exports could be explored once Dixon establishes execution credibility with global brands in the Indian market.

“First, at Dixon, we have to prove a credentials of executing this business to our principal. Only then there can be a possibility of this exports but initially is going to be trying to domestic in market,” Lall said.

The company will manufacturing the printed circuit boards or PCBs, on which various electrical components such as the chips and connectors are mounted, in-house, and tie-up with other suppliers for three other components — power supply, display module and mechanical components.

“Now these are three major inputs that we are going to be looking at but it is still slightly early because once the IT PLI 2 award is still left to come from the government and we are in discussions with another large global player.

“Hopefully, that contract will be awarded to us in the forthcoming quarter because this backward integration plan is finally dependent on the expectations of your end-customer because there are various
technology inputs required in such a partnership,” Lall said.

Dixon Technologies has already established itself as the largest home-grown electronics manufacturer in India on the back of its success in mobile phone manufacturing over the past few years. The company has ramped up manufacturing for leading global brands like Samsung, Xiaomi, Nokia, Motorola along with home-bred mobile brands like Lava.

India’s fledgling electronics manufacturing sector got a major boost from the onset of the pandemic as both global and domestic firms looked to diversify their manufacturing base beyond China. This led the government to launch production linked incentive (PLI) schemes across IT hardware, white goods, telecom equipment and other segments to encourage domestic production.