Local telecom equipment makers Tejas Networks Ltd and HFCL Ltd are changing strategies to limit the impact of severe component shortages on their order books, amid intense competition from European suppliers Nokia Oyj and Ericsson Inc.
Supply chain constraints, geopolitical disputes, rising input costs and pandemic-related volatilities have led to a sharp decline in revenues and profits for telecom equipment makers, at a time when Global disruptions are opening new business opportunities for Indian manufacturers.
“To counter this, we placed orders for the entire FY23 requirement, more than 12 months ahead,” said Sanjay Nayak, CEO of Tejas Networks. Since the company had a large and dedicated backlog, it will be able to recoup the revenue it lost in FY22 this fiscal year, he added.
On a recent earnings call, Nayak pointed to shortages of low-cost and high-cost components in FY22 that disrupted manufacturing, despite the company winning customers and a solid order book. Tejas’ turnover fell by 37.2% to ₹126.5 crores in the March quarter, leading to a loss of ₹49.6 crores.
HFCL also reported lower revenue and profit for the March quarter, although full-year figures were higher year-over-year (yoy). Its net profit fell 21% year-on-year to ₹68 crore for the March quarter as revenue fell 15% to ₹1,183 crore. The company said it had started seeking orders at higher prices to soften the blow from high input costs and transportation costs.
“We are now asking customers to place orders at higher prices, to which customers are also reacting, because they also know that input prices have increased, so product prices will also increase. So we’re balancing it all out over the next quarter,” HFCL chief executive Mahendra Nahata said on a call with analysts.
Industry executives said major global players place tens of billions of dollars in component orders years in advance, but Indian players lag far behind not just in size but also in size. due to much weaker revenue streams.
“They place orders at most a quarter in advance and if supplies of a component are affected, all of their production is choked and limits the ability to fulfill orders. They not only lose business, but the market to profit other (read foreign) actors,” said a senior executive, who declined to be named.
Industry watchers said companies need to come together when placing supply orders with component suppliers, most of which are in China and Taiwan, so that the scale can become larger and suppliers can respond to demand on a priority basis.
“The industry needs to come together to generate consolidated demand and place orders well in advance as we are aware that supplies are going to be delayed. The same strategy can be applied when orders are replenished. This will give them adequate foresight and enable them to mitigate potential risks,” said NK Goyal, president of the Telecom Equipment Manufacturers Association (TEMA).
The shift in strategy gains significance because India’s own semiconductor supply chains will take a few years to develop, and only after the first chipmakers have set up their fabs. While the first steps have been taken by companies like the International Semiconductor Consortium (ISMC), which recently signed a deal with the Karnataka government for $3 billion, actual supplies may not begin for a few years.