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S Mobility To Shut Handset Manufacturing Units

The days are numbered for feature phones in India, and this is another indication that the market is transitioning towards smartphones: S Mobility* has decided to shutter its two handset manufacturing units, both in Baddi in Himachal Pradesh, India. Both units used to manufacture feature phones. S Mobility, which sold handsets under the brand name Spice, will instead focus entirely on contract manufacturing (possibly, smartphones from China), and distribution of handsets.

It is also transferring its mobile handset business to Spice Retail Ltd, a wholly owned subsidiary of the company, by way of a slump sale.

It appears volumes have been declining, since the company says it was operating with a skeletal presence with the hope of reviving production. That’s not happening now. S Mobility believes that production has become unviable at low volumes and with fast changing technology.

Spice will now shift focus towards bringing a mobile Internet experience to consumers.

Services vs Devices

The mobile devices business accounted for a majority of S Mobility’s revenues, but it has been on the decline. For the quarter ending 31st March 2013:

– Devices Account For Majority Of S Mobility’s Revenues: Mobile devices segment registered a total revenue of Rs 335.4 crore, a significant 21.9% decline from Rs 429.6 crore in the previous quarter and a 32.6% decline from Rs 497.5 crore in the same quarter last year. It accounted for a majority of the company’s total revenues of Rs 394.3 crore, down 18.94% from Rs 486.4 crore in the previous quarter and down 28.7% from Rs 553.3 crore in the same quarter last year.

On the other hand, the services segment saw improved revenues of Rs 58.9 crore for the quarter, up from Rs 56.9 crore in the previous quarter and Rs 55.8 crore in the same quarter last year.

– Services Are Profitable: The devices part of S Mobility’s business reported losses before tax of Rs 5.4 crore, up from Rs 3.2 crore loss in the previous quarter and a marked improvement from Rs 22.9 crore loss in the same quarter last year.

The services side of the business reported profit before tax was Rs 5.2 crore, compared to Rs 15.2 crore loss in the previous quarter and 0.3 Crore profit in the same quarter last year.

Policy On Manufacturing?

The new telecom policy adopted by India last year points towards the government planning to encourage manufacturing of telecom equipment:

“To promote R&D, design, development and manufacturing in the domestic telecom equipment manufacturing, provide appropriate fiscal incentives to telecom equipment manufacturing through a Modified Special Incentive Package Scheme (M-SIPS) and to Indian product manufacturers for domestic deployment and exports. The policy also intends to implement a stable tax regime for telecom equipment manufacturing.”

“To recognise and enhance the opportunities available through/within Telecom PSUs for deployment of indigenously developed Telecom products, with Indian IPR, to provide vital support for domestic manufacturing of Indian Telecom products in the long run.”

Spice choosing to shut down its units and opting for contract manufacturing (possibly from China) points towards the issue that India doesn’t have the infrastructure and ecosystem in place to support local manufacturing and creation of Indian IP.

The New Telecom Policy 2012 was a statement of intent. India would need to first operationalize it, and create incentives for local manufacturing, and then implement that. Given the state of the economy, and the paralysis in decision making that is evident now, it doesn’t look like anything useful will be put into place soon.

Disclosure: Spice Digital, a Spice Group company, is an advertiser with MediaNama

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