Electronics Ibef

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E L E C T R O N I C SOctober 2007


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ELECTRONICSOctober 2007

Indian Electronics Industry - Highlights

Industry size US$ 25 billion

- Ranked 26th in the world in sales, 29th in production

Growing at over 25 % CAGR

- expected to reach US$ 158 billion by 2015

Low penetration levels

The industry is one o the astest growing in India,

driven by growth in key sectors such as IT, Consumer

Electronics and Telecom


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Low penetration levels o user industries indicate

potential or continued growth in the sector

Low penetration across segments and user industries

Source: Marketing White book 2005, NCAER

White goods

Reregirator

PC

CTV

Cars

0 50 100 150 200 250 300 350

319

161

0.8

213

50.2

per 1000 households

Steady and Sustained growth

Source: www.mit.gov.in

Year

2006-07

2000-01

0 5 10 15 25 30

25.0

6.0

20

US$ billion

CAGR 26%

The demand or electronics is expected to be

uelled by the growth o

- Telecommunications (250 million subscribers

by 2007)

- PCs and notebooks (5 million every year)

- Broadband connectivity reaching rural areas

(600,000 knowledge centers by 2007)


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Exports have also been posting strong growth across segments

Electronic exports have seen a healthy CAGR

o 15% over the period 2000-06

Electronic components contributed the major

share to exports at nearly 40%

A key actor driving exports has been the

increasing trend o contract manuacturing

Electronic Exports 2000-06

Source: www.elcina.com. Indian Electronics industry overview.

n Electronic Components n Communication and Broadcasting Equipments

n Computers nIndustrial Electronics n Consumer Electronics

2005-06

2004-05

2003-04

0 500 1000 1500 2000 2500 3000 40003500

2001-02

2002-03

2000-01

INR Crores


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Several MNCs have been looking at setting up contract

manuacturing acilities in India

175,000-square-oot acility located

in Ranjangaon, near Pune, in the state

o Maharashtra

Printed circuit board, enclosure integration and

distribution and repair services with in-region designservices support

To serve the consumer, instrumentation, networking,

peripherals and telecommunications industries


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Acquired three design-centric

companies Hughes Sotware Systems,

DeccaNet and FutureSot and consolidated the

sotware companies into a new subsidiary based

in India

Higher-value, higher-margin design services or

cell phone and telecom/networking sotware

Nokia and Alcatel are among the existing

customers

Also maintains an ongoing investment in

Celetronix, one o the largest electronics

equipment manuacturers in India


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Manuactures 4 to 6 million handsets per year, ast

measuring up to its client Nokias plant in China

that manuactures 35 million handsets per year

Indian players such as TVS Electronics and D-Link

are also established in this domain


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The Government has played a supporting role in enabling

the industry to realise the potential

Key policy initiatives include:

Customs duty on ITA-1 items (217 items) has

been abolished rom March 2005

Excise duty on computers has been removed.

Microprocessors, Hard Disc Drives, Floppy DiscDrives and CD ROM Drives exempt rom excise

duty

100 % oreign equity participation is permissible

Robust IP act to acilitate innovation, growth as

well as development in the sector

As a result o market orces and policy support,all segments o the industry have been growing

Source: KPMG Research


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Overall, the sector presents attractive opportunities

or investment and growth

HIGH

MEDIUM

LOW

Threat of New Entrants

Many MNCs are already present

and well established

Requires investment in localisation,distribution reach

High growth potential could attract

new entrants



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Overall, the sector presents attractive opportunities

or investment and growth

Supplier Power

Adequate supplier base

Most suppliers are small in scale and

size as compared to manuacturers

Competitive Rivalry

Well established, strong players

Brand, cost and distribution are

key dierentiators

Ample opportunities or growth



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The sector is competitive and investors need to have the

right approach and ocus to succeed

Customer Power

Wide choice o products

Well inormed, increasingly

demanding customers

Low penetration levels, large

untapped market

Threat of Substitutes

No substitutes currently or products

in the sector




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Consumer Electronics sector is the key segment driving growth

Consumer Electronics, Components and

Computer Hardware appear the most attractive

segments or investment, in terms o size

and growth

Size: 2006-07,

Source: www.elcina.com, Indian Electronics industry overview.

n Consumer Electronics - 7.5 n Electronics Components - 5.2

n Communication & Broadcasting - 2.0 n Strategic Components - 0.7

n Industrial Electronics - 1.4 n Computer Hardware - 2.4

39%

27%

10%

4%

7%13%

US$ billions


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Consumer Electronics sector is the key segment driving growth

CAGR: 2000-07

Source: www.elcina.com. Indian Electronics industry overview.

Computer Hardware

20% 25%

20%

18%

11%

8%

15%10%5%0%

15%

5%

Consumer Electronics

Electronic Components

Communication & Broadcasting

Strategic Components

Industrial Electronics


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Attractive States or Investments

Andhra Pradesh and Punjab appear

attractive locations or the sector, based

on the ollowing actors

Key Parameters Andhra

Pradesh

Punjab Orissa Chattisgarh West

Bengal

Attractiveness o

actor conditions

(labour, materials)

High High Moderate Moderate High

Attractiveness

o support

inrastructure

High High High High Moderate

Speciic Government

Incentives

High High High Moderate Moderate

Overall

Attractiveness

High High Moderate Moderate Moderate



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Brie Case Studies o Successul MNCs LG Electronics

Established in 1997, LG Electronics India (LGEI)

is a wholly-owned subsidiary o LG Electronics,

South Korea. It is one o the leading companies

in consumer electronics, home appliances and

computer peripherals in India

Key Success Factors

Innovative marketing - LG was the rst brand to

enter cricket in a big way, by sponsoring the 1999

World Cup and ollowed it up in 2003 as well.

Local and ecient manuacturing to reduce cost

- To overcome high import duties, LG manuactures

PC monitors and rerigerators in India at its

manuacturing acility at Noida, Delhi. Commissioned contract manuacturing at Mohali,

Kolkata and Bhopal or CTVs


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Brie Case Studies o Successul MNCs LG Electronics

Product localisation - Product localisation is a key

strategy used by LG. It came out with Hindi and

regional language menus on its TV.

Regional distribution model - This has resulted in

quicker rotation o stocks and better penetration

into the B, C and D class markets.

Leveraging Indias IT advantage - LG Electronics has

awarded a contract to develop IT solutions to LG

Sot India (LGSI). The project involves development

and support or ERP, SCM, CRM and IT-enabled

services or LG


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Brie Case Studies o Successul MNCs Phillips

Philips India has grown to over 4,500 employees

in 2003 with a turnover o over US$ 333 million. Philips

India is a leader in lighting, semiconductors, consumer

electronics, medical systems, domestic appliances and

personal care

Key Success Factors

Effective Localisation of Global products -

Recognising dierent cultural and liestyle needs

and customising products and technologies or

the people who buy them. For example, when

the audio equipment worldwide shited to CD

systems, Philips India developed a combined tape

recorder and CD player since both media were

prevalent in the country.


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Brie Case Studies o Successul MNCs Phillips

Global technology support - Brought latest

technologies such as integrated wireless FM Radio

sets, digital widescreen TVs, high-denition rear

projection TVs with DVD, amongst several others

to the Indian consumer.

Tapping rural India - Has specially designed

products specically targeted at the semi-urban andrural consumer in India. For example, as power supply

in rural India is erratic, Philips has customised its

televisions to work on a voltage range o 90 volts

to 270 volts

Enhancing distribution - High penetration levels

in the rural and semi urban areas


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Key take-aways or potential investors

Indias Electronics sector presents several

attractive options or growth

Consumer electronics, Components and

Computer Hardware are attractive segments

oering both size and growth potential

Contract Manuacturing is an emerging option,

especially or exports out o India

In terms o location, Andhra Pradesh and Punjab

could be attractive options

Addressing the Indian market would require:

- The right technology and cost

- Good understanding o local markets and

product customisation to suit local needs

- Distribution and reach


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Appendix Proles o key players

Philips

Philips India Limited (PIL) is a leader in lighting,

consumer electronics, semiconductors, domestic

appliances and personal care with an unmatched

range o products backed by superior design and

technology. PIL also has an excellent distribution

and ater-sales service network. Philips has a planteach in Thane, Pune, Loni-Kalbhor, Mohali, Baroda and

three plants in Kolkata.


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Videocon International Ltd.

In 1985, through a technical tie-up with Toshiba

Corporation o Japan, Videocon International

Limited launched Indias rst world class Color

Television. Today, Videocon International Ltd., the

fagship company o the Videocon Group, is Indias

leading manuacturer o Consumer electronicproducts.

Videocon is now a global player, the rst Indian

company to win the prestigious CE approval or

exporting its Color TV to Europe. Videocon is

now entering world market with its operations

in the Middle East, Europe, Indonesia and

South Arica.


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MIRC Electronics

MIRC makes and markets the Onida brand o

products. Today, apart rom being a leading player

in the CTV market, it also manuactures other

household appliances including air-conditioners,

washing machines, DVDs, plasma television and

home theatre systems. For oce use, Onida hasalso introduced state-o-the-art multi-media

presentation products


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HCL Infosystems Ltd.

HCL Inosystems manuactures and markets

personal computers, PC servers and RISC/UNIX

servers. It oers IT consulting, technology

integration services, turnkey sotware

development and unctional consulting and

implementation services or Enterprise ResourcePlanning. The company made a net prot o US$

70 million with revenues o US$ 2628 million

in 2005.


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Samsung

Samsung India Electronics Ltd., a subsidiary o the

US$56 billion Samsung Electronics Co. Ltd., has

been operating in India since 1995. It is a leading

provider o high tech consumer electronics, home

appliance, IT and telecom products in the country.

Samsung India has set up manuacturing acilitiesor color televisions, microwave ovens, washing

machines, airconditioners, color monitors and

more recently, rerigerators in the country.

It has a plant in Noida. The revenue or 2005 was

US$ 1086 million.


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Solectron

Solectron Centum Electronics Limited is the

leading Indian company oering state o art

solutions or Frequency Control Products (FCP),

Electronic Manuacturing Service (EMS) and

Hybrid Micro Circuits (HMC). Solectron has a

manuacturing unit and design center in Bangaloreand a post manuacturing center in Mumbai.

The EMS operation ocuses primarily on the

domestic market. For the year 2006 the revenue

was US$ 19 million


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