India: the Vibrant Electronics

Industry

Vinnie Mehta
Executive Director
Manufacturers’ Association for Information Technology

Tel Aviv November 05 ,2007

1
 Presentation agenda

 India – a land of opportunities

 Snapshot of Electronics & IT industry in India

 Conclusion

2
 India on the move…
3500 GDP 3228
 One of the fastest growing nations 3000

2500
 GDP grew at 9.4% during 2007

US$ BB
2000

1500 1229
 Top 10% of nations since 1980 891
1000 635 722

 On the verge of sustained double-digit growth 500

0
FY2005 FY2006 FY2007 FY2010 FY2020
 Strong investment momentum
 Market capitalization up from USD 140 Bn in FY GDP composition – FY 2007
Industry
2001 to > USD 1 Trn recently 27%

 FDI on the rise - USD 7.6 Bn (06) and USD

19.4 Bn (07)
Services
 FII investment - USD 6.5 Bn in 2006-07 54%

 140 + public traded companies with market cap Agriculture

19%
> USD 1 Bn

Source: CMIE

By 2050, India projected GDP is US$ 70 Trillion

3

• Democracy
– Largest democracy in
the world
– Largest digital elections
– 9 Prime ministers from 6
major parties, 50 + state
parties, 3 MM elected
representatives
– ONE POLICY
India – the 5 Ds
• Diversity • Diaspora
– Highly diverse
– Over 2 Mn Indians
– 23 languages, 30
outside India
provinces
– 6 major religions – Indian companies
outbound M&A >
– Cultural,religious,
& Climatic USD 15 Bn in 2006

• Demographics
– 1.12 Bn population, Remain a
‘young’ nation beyond 2050
– < 20 yrs population
– 442 Mn currently
– 479 Mn by 2050
– ~10 Mn finishing school, 600,000
Engineers and 3 Mn graduates
p.a
• Demand
– 5th largest consumer market in
the world by 2025.
– 300 Mn growing middle class
– Rising incomes to lift 291 Mn
out of poverty to make middle
class 583 Mn by 2025

Ingredients for sustained and consistent economic performance

4
 Electronics industry in India: A snapshot

 The Market: 2006-07

 Domestic demand: USD 30 bn
 Production: USD 16 bn
 Exports: USD 2.2 bn
Strategic Components
$ 2.15 Bn Consumer Electronics
 Employment Electronics $ 4.87 Bn
$ 1.09 Bn
 Direct: 0.75 million
 Indirect: 1.5 million Comm. &
Broadcasting Equip.
$ 2.32 Bn

Computers Industrial + Other

$ 3.12 Bn $ 2.55 Bn

• Growth over 2005-06: 20%

5
 Key Electronics Associations in India

 CEAMA: Consumer Electronics & Appliances Manufacturers’

Association

 ELCINA: ELCINA Electronic Industries Association of India

 ISA: Indian Semiconductor Association

 MAIT: Manufacturers’ Association for Information Technology

 TEMA: Telecom Equipment Manufacturers Association

CEHA: Council of Electronics Hardware Associations

6
 Electronics & IT industry in India: A snapshot

 The Market: 2006-07

 IT Industry size: USD 48 bn +
• IT Hardware Domestic: USD 7 bn: USD 1.7 bn
• ITES & Software Exports: USD 31.3 bn ; Domestic: USD 8.4 bn
 6.3 million PCs sold; Installed base: 22 mn
 13 million TVs consumed; Installed base 100 mn +
 5 million + DVDs sold: growing at 40% annually
 Internet users: 50 mn+;Broadband connections: 2.5 mn
 Mobile sales: 75 mn ; Installed base: 172 mn
 Significant R&D and product development
 Sizeable presence of MNCs: Intel, IBM, Cisco, Motorola, Nokia,
Samsung, LG
 India is suddenly attractive for hardware/electronics manufacturing

7
 India Electronics Equipment Consumption Market- A
$300 billion Opportunity
Note: The bubbles in the chart depicts the share of Indian electronic equipment consumption as a percentage
of the global electronics equipment production
Read Coordinates as (X, Y) = (Year, Share in percentage)1

450
400
India Electronic Equipment
Consumption ($ billion)

350
300 2015, 11.5

250
200 2010, 5.5
150
100
2005, 1.8
50 2007, 2.9
2003, 1.2
0
0 500 1000 1500 2000 2500 3000 3500 4000
Global Electronic Equipment Production ($ billion)

India’s electronic equipment consumption was estimated at around $28.2 billion in 2005, expected to
reach $126.7 billion by 2010 and $363 billion by 2015 growing at a CAGR 29.8%
India’s electronic equipment consumption in 2003 was approximately around 1.8 percent in 2005. It is
expected to grow to 2.9 percent in 2007, 5.5 percent in 2010 and 11 percent in 2015

Source: ISA – Frost & Sullivan 8

 The PC market (Desktop + Notebooks) in India

7,500,000
6,341,451
6,000,000
5,046,558

4,500,000
3,809,724
Units

3,124,422
3,000,000 2,344,617
1,715,620
1,500,000

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• CAGR 2001-07: 30%

• Growth over 2005-06: 26%

9
 Desktop sales: 2001-2007

6,000,000
5,490,591

5,000,000 4,614,724

4,000,000 3,632,619
3,035,591
3,000,000
2,293,643
2,000,000 1,670,878
Units

1,000,000

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• CAGR 2001-07: 27%

• Growth over the 2005-06: 19%

10
 Desktop market: Regional spread

4,614,724 Units 5,490,591 Units

40% 40%
31% 32%
27% 31% 24%
30% 24% 30%

20% 14% 20% 18%

10% 10%

0% 0%
West North South East West North South East

2005-06 2006-07

• Desktop consumption in North grew by 59%, followed by East at 53%.

• Consumption in West grew by 5%, while in South it declined by 12%

Figures in bracket represent the growth in

2006-07 over 2005-06

11
 Desktop Market: Share of Indian, MNC & Assembled

Indian Brands MNC brands Assembled Indian Brands MNC brands Assembled

23%
28%
37% 38%

35% 39%

2005-06 2006-07

• Consumption of Indian brands decreased 2% in absolute terms

• Sales of MNC Brands grew by 33% and that of Assembled by 22% in absolute
terms

12
 Desktop sales: City-spread

Rest of India Next 4 Top 4

100%

38 33 32
80% 43
56 53
8
60% 13
11
12
40% 12
14
54 60
45 51
20% 35
30

0%
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Consumption in Top 4 metros grew by 15% while in Next 4 it dropped by 26%

• Sales in Rest of India (Other smaller Towns) grew by 33%

13
 Desktop sales: 2001-2007

Home Business Total DTPs

6,000,000 5,490,591

5,000,000 4,614,724

4,000,000 3,632,619 74%

3,035,591 75%
3,000,000
2,293,643 72%
Units

2,000,000 1670880 77%

81%
1,000,000 78% 26%
28% 25%
23%
0 22% 19%
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Desktop market growth over 2005-06: 19%

• Annual Growth in Homes – 23%; in Businesses – 18%

14
 Notebook sales: 2001-2007
900,000 850,860

750,000

600,000
Units

431,834
450,000

300,000
177,105
150,000 88,831
44,742 50,974
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Annual sales grew by 97%; CAGR: 80%

• Households accounted for 37% of the market growing five-folds, Businesses

accounted for 63% of the market growing 41%

15
 Server sales: 2001-2007
100,000
89,161 90,189

80,000

60,000 56,544
50,880 53,330
49,165

40,000
Units

20,000

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Annual sales increased: 1%;

• Top 4 cities accounted for 35% of sales registering a decline of 5%; Next 4 cities
for 7% with sales declining 53%; smaller towns accounted for 58% of the
consumption with 23% growth.
• Large establishments accounted for 55%; medium for 23% and small for 22% of
total Server sales
16
 Routers and Switches Market: 2006-07

Routers Switches
1%
1% 1%
8%
4% 3% 1%
4%
11%
6%

10%

70%
80%

Cisco D-link Nortel

Cisco Juniper Dax
3Com Dax Enterasys
Huawei D-link Others
Others

• Market 2006-07: USD 320 mn • Market 2006-07: USD 440 mn

• Annual growth: 36% • Annual growth: 25%

17
 Networking products sales: 2004-2007

4,500,000 4,183,103

3,646,145 2004-05
2005-06
3,000,000 2006-07
Units

1,801,854

1,500,000 594,028
772,550 848,232
144,117
113,894 191,848
0
Hubs NICs Modems

• Annual Growth: NICs: 15%; Modems: 43%; Hubs: 33%

18
 Printers Market – DMP, Inkjet & Laser : 2001-2007
Dot Matrix Laser Inkjet
1,800

1,500 1,514 1,493

1,200 1,178 717 608

1,038
900 636
836 897
‘000 Units

591
428 486 325 443
600
142
60 93 100
300 472
346 346 399 441
316
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Overall Printers market declined by 1%; Laser sales grew by 36%; while
consumption of Inkjet and Dot-matrix declined by 15% and 7% respectively

• CAGR: DMP: 9%; Inkjet: 6%; Laser: 47%

19
 UPS sales: 2001-2007

2,172,290
2,200,000

1,650,000

1,208,413
Units

1,100,000 954,260

645,654
550,000 465,501
375,458

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

• Annual growth 80%; CAGR: 47%

• Consumption in households grew by 48%, accounting for 42% of the market; while
consumption in businesses grew by 112%, accounting for the rest 58%
• Top 4 cities accounted for 41% of consumption, next 4 cities for 5% while smaller
towns accounted for the maximum 54%

20
 The Set top box market: 2004-07

3 2.75

2.5 Million Units

2
1.5
1.5

1 0.75

0.5

0
2004-05 2005-06 2006-07
Set-top box

• Annual growth 84%;

• 2007-08: sales expected to cross 2.5 million

21
 Telecom Market in India : 2002-07
171.21
180

160

140

120
Mobile Phones
98.78
100
66.5
80
Million Units

52.2
60 41.9
33.6
40
13 15.4
20

0
2002-03 2003-04 2004-05 2005-06 2006-07
Annual Mobile Sales Mobile Subsciber Base

• Annual subscriber base growth 44%; 2007-08: subscriber expected to cross 250 mn
• 2006-07: Base Stations installed: 100,000; Annual growth: 55%
• 2006-07: Towers installed: 100,000; Annual growth: 60%

22
 The Software & Services market
45,000
39,700
40,000

35,000 USD Million 31,300

30,300
30,000 Domestic
Industry Size

25,000 22,600 23,600 Exports

Total
20,000 17,700
15,900
15,000 12,450 12,500
10,100 9,870
10,000 7,680

5,000

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Year

 Annual growth: 31%; Exports growth at over 32% and domestic at 25%

Source: NASSCOM
 The Software & Services Exports Markets

2003-04 2004-05 2005-06

Americas 69.4% 68.3% 67.18%

Europe 22.6% 23.10% 25.13%

ROW 8.0% 8.60% 7.69%

Source: NASSCOM

~ 80% of Fortune 500 outsource their IT from India

24
 India Semiconductor Market
40
TM CAGR – TM TAM 36.3
35 29.8%, TAM
CAGR- 29.4% TM in 2015 is expected to grow
30
by 13 times the TM in 2005
Revenues $ Billion

25 TAM in 2015 is expected to

grow by 14 times the TAM in
20 2005
15.52
15 12.67

10
5.8
5 2.82
1.14
0
2005 2010 2015

• India’s share in the global semiconductor market is expected to increase from 1.2 % in 2005 and is forecast
to be 5 % by 2015
• Telecommunication, Consumer and IT Hardware are the segments driving the market during the forecast
period
• Wireless handsets, Base Station Transceivers (BTS) are the major sub product categories driving the TAM
for telecommunications segment
• Set Top Box, DVD players and writers are the emerging product categories in consumer segment
• Few other emerging product categories are electronic clusters, Capacitive Discharge Units (CDI) and
Engine Management Systems (EMS)

Source: ISA – Frost & 25

 Venture Capital Industry

 An estimated USD 7.5 bn in VC/PE in 2006 across 299 deals

• Over 250 deals in first half of 2007 with USD 5.6 bn

• Expected to cross USD 10 bn in 2007

 Key Investment Verticals – IT/ITES (23.5%), BFSI (12.1%),

Manufacturing (12%), Real Estate (7.1%); Engg & Construction (7.9%)

 India Specific VCs: ChrysCapital, HSBC Pvt Equity, ICICI Ventures,

IL&FS Venture Corporation, Infinity Technology Ventures, SIDBI,

Walden International etc.

Source: IVCA 26
 India emerging as a manufacturing destination

 Surge in manufacturing confidence led by mobile players

 Branded players: Nokia, Motorola, LG, Samsung, Ericsson…
 EMS companies: Elcoteq, Flextronics, Solectron, Jabil
Circuits, Sanmina, Celestica and Foxconn/Honhai …
 With new Fab policy several Semiconductor firms are keen to
manufacture in India
 Taiwanese Companies just about coming in
 Foxconn/Honhai; Compal (Reliance), Delta Electronics, Liteon

27
 Electronics Production- $150+ bn Opportunity
Note: The bubbles in the chart depict the share of Indian electronic equipment production as a percentage of
the global electronics equipment production.
Read Coordinates as (X, Y) = (Year, Share in percentage)

200
180
India Electronics Equipment

160 2015, 4.90

Production ($billion)

140
120
100
80
60 2010, 2.52
40
2005, 0.68 2007, 1.22
20
2003, 0.62
0
0 500 1000 1500 2000 2500 3000 3500 4000
Global Electronics Equipment Production ($ billion)

Indian electronics equipment production was estimated at $10.99 billion in 2005 and is expected to
reach $58 billion in 2010 and $155 billion in 2015 growing at a CAGR of 26.9%
Indian electronics production output had a share of less than one percent in 2005. The share is expected
to increase to 2.5 percent in 2010 and 5 percent in 2015
Source: ISA – Frost & Sullivan 28
 India advantage
Local Market
 A very rapidly growing domestic
market: CAGR 30%+

 Global recognition for back-end

services:
 A proven case for IP, embedded Profit from Local
Sales
systems and IC design

 Attractive for Manufacturing

Investments Advantage
 Skilled employee base
India
 Fast and upcoming modern
Harness low cost Use India for IP and ITes
infrastructure (SEZs) manufacturing Services
base to service -New Product
local, European development
 Proximity to EU and MEA market and MEA markets -Engineering services
 Freight Cost; 20% cheaper than -BPO
China - Faster delivery and
lesser pipeline inventory Manufacture Back-end Services

India is a great Opportunity

–Triple Advantage

29
 The Future…

2010…

 Mobile installed base: 500 mn

 PC sales: 25 mn; installed base 65 mn

 ITES & Software exports: USD 60 bn

 40 mn new internet connection; at least 50% broadband

 Nationwide TV broadcast to be digital by 2015 beginning 2010:

significant opportunity for STB consumption & manufacturing

 Over USD10 bn investment in e-governance and national id card

2015: Total expected Market USD 320 bn;

Domestic production USD 155 bn

30
 Come..explore..be a part of the great Indian
opportunity!

We look forward to welcoming you to WEF 2008

Thank you!

- vinnie@mait.com

31