Nokia opens handset unit in Indian market

Shailendra Bhatnagar

SRIPERUMBUDUR: Top handset maker Nokia of Finland formally opened its first Indian handset factory in a bid to increase its stranglehold on the world's fastest growing wireless services market.

Ultra low cost phones -- less than 2,000 rupees -- are fuelling demand in cost-sensitive India, where more than 4 million new users are entering the 85.4 million strong wireless sector each month.

The number of mobile services users surged 47 percent in 2005, and now exceeds the population of Germany. India is expected to be the world's third largest mobile market by the end of this year, behind China and the United States.

"We anticipate that there will be a long-term sustainable demand for mobile telephony in the fast-growing Indian market," Chief Executive Jorma Ollila said at the launch of the plant in Sriperumbudur, on the outskirts of Chennai.

"I am confident that our manufacturing facility in Chennai will enable us to reduce our time to market."

Nokia plans to invest about $150 million in the plant, which will support growing demand for handsets and network infrastructure in the Asia-Pacific region.

"Our market share is strong in India (and) we believe the factory will further strengthen our position," Ollila said.

Nokia, which competes mainly with Samsung Electronics Co. Ltd., LG Electronics Inc. and Motorola Inc., in the cut-throat 107 billion rupees handset market, easily has more than half the handset market.

Analysts at market research group iSuppli expect the handset market to more than double to $5.8 billion by 2010.

Others are also beefing up their presence in India. LG and Samsung, strong players in India's $4.8 billion consumer durables sector, have phone manufacturing units in the country.

A resurgent Motorola, which has made India the hub of its high-growth markets, is considering setting up one.

Nokia's factory will manufacture only GSM handsets initially and will start exporting phones in the second half of 2006, mainly to south east Asian countries.

It will make "a few million handsets a month" and will be profitable in the first year of operations, Raimo Puntala, senior vice president for operations and logistics at Nokia, said.

Nokia is also revamping its distribution network.

AGGRESSIVE PLANS

India's telecommunications ministry, which hopes to attract $22 billion in foreign investment commitments in 2006, double last year's level, has been aggressively wooing global handset and equipment players to set up shops in the country.

"We wish to reach a figure of 500 million telephone lines by 2010," said telecommunications ministry secretary J.S. Sarma.

Nokia said its two suppliers, Aspocomp group and Perlos Corp., will invest $70 million and $12 million respectively to set up a printed circuit board facility and a mechanics factory.

The new plant has already produced more than 1 million handsets since it began production in January. The factory, in a Nokia Telecom Industry Park, has 1,100 workers and is expected to generate employment for a total 10,000 in the park.

More than 53 million handsets are expected to be sold in Asia's third largest economy in 2006, up from 31 million last year. Local mobile calls, at just a few cents a minute, are driving the market where the user base is expected to rise to 278 million by 2010.

"At least 80-90 million handsets will be sold between now and December 2007 -- so there is a tremendous scope for the market to grow," Sarma said.

"Demand for ultra low tier phones will scale up as networks expand into semi-urban and rural locations," said Kobita Desai, principal analyst at research firm Gartner.

"However, handset vendors will need to focus on setting up robust and pervasive distribution channel networks. The role of the operator will increase in importance.