Smartphone maker Lava to get $100 mn investment from three chip makers

The move is a change in strategy for Lava, which was earlier looking to raise a similar amount by directly selling stake to PE/VC firms


With handset makers such as Apple and Samsung manufacturing their own chips, chip makers are focusing on companies in emerging markets that have the potential to develop into a big brand in the future. Photo: Hindustan Times
With handset makers such as Apple and Samsung manufacturing their own chips, chip makers are focusing on companies in emerging markets that have the potential to develop into a big brand in the future. Photo: Hindustan Times

Lava International Ltd plans to forge a partnership with at least three chip design and manufacturing companies, which will together invest $100 million in the Noida-based smartphone maker, a top company executive said in an interview.

The move is a change in strategy for the company, which was earlier looking to raise a similar amount by directly selling stake to private equity or venture capital firms.

“Put together, we are looking at $100 million from three different companies. It is strategic and not financial,” Lava International chairman Hari Om Rai said.

“Strategic means companies who are building components, which are the most core components in our industry. So, we already have a large control on the product in terms of design, supply chain and production. We still want to build more capability there. We are in touch with some chip design companies. Those companies will pick up stake in our company,” Rai said.

Handset manufacturing is still at a nascent stage in India largely because of the mammoth size of the industry in Taiwan and South Korea and also due to the lack of chip designing and manufacturing capability in the country.

But a shift in the trend globally, with handset makers such as Apple and Samsung manufacturing their own chips, has forced chip makers to focus on companies in emerging markets that have the potential to develop into a big brand in the future.

Rai’s confidence stems from this. “We will also be helped by a lot of consolidation in the industry. Smaller companies will be wiped out. It is all about the struggle for existence and survival of the fittest,” he said.

“I think there would be around 30 brands in the world. Ten years later, you will see only 10 brands,” Rai said, adding that he sees Lava among those 10. To be sure, as many as 150 brands have closed down in the past seven years in India, according to industry estimates.

For Lava, Rai has set a target of achieving 20% market share by 2018, from around 10% now. “We have been building the company for the last seven years, and in the next three years, it will be in a different phase. We are looking at electronics design and manufacturing in this country. Currently, most of the manufacturing happens in China, but now, we have started to shift it and in a year’s time we will start exporting from here to various countries and that may include China,” he said.

The company has signed an agreement with Egyptian cosmetics and beauty products maker Easy Group for a joint venture to sell its handsets in Egypt. Lava, which expects to report revenue of $1.5 billion in 2016-17, plans to start phone shipments in the next four to five months, and will initially sell phones in the $300 bracket.

Egypt is the second largest mobile phone market in Africa, with sales of about 1.5 million handsets a month.

For India, the company assembles 50-60% of the products in the country and plans to cover the entire portfolio by March. Lava is in the process of investing Rs2,600 crore in two new manufacturing facilities.

Once operational, the units will have a combined capacity of 18 million handsets per month. India is one of the fastest growing smartphone markets globally and device makers are keen on setting up manufacturing units here to cater to burgeoning demand.

Lava’s net sales in the year ended 31 March stood at $1.2 billion. It sold 34 million units in the Indian market, of which only about 12 million were assembled in the country.

However, the company does not expect to register significant growth in FY17 due to increased competition and non-conducive market conditions. This was also the reason why Rai could not approach the market to raise funds earlier this year.

“Markets were not conducive to our sector. There were certain investments coming to our competition and they failed. People were not feeling very well about our sector,” he said. “So, we have dropped our plan. The same objective is being achieved through different means.”

The new strategy to fetch investments should fructify in the next two quarters, Rai said, after which the handset maker will also look to bring on board companies with expertise in display and memory.

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