Foxconn & Dixon using PLI route for growth

Foxconn and Dixon, both electronic manufacturing services companies, are also known as contract manufacturers. The Indian manufacturing sector continues its robust growth. The PMI data is positive, inflation seems to be broadly in control, and the domestic economy is chugging along quite nicely.

Taiwan based Foxconn group is the global leader in the manufacturing services business with revenues of $223 billion, at the same time Dixon Technologies, the biggest domestic player with revenues of over Rs 10,500 crore are leveraging the government’s production-linked incentive (PLI) scheme covering a range of industry segments.

Dixon is eligible for PLI benefits in five sectors — mobile device, telecom products, IT products, LED components and wearables — in which the government has collectively offered incentives worth over $8 billion. The PLI incentive, which ranges from 4 to 6% of the f.o.b. (free on board) value of the goods produced, has certainly been the game changer for Dixon.

Foxconn, through two companies — Hon Hai, which exclusively assembles for Apple Inc, and Rising Stars that has been renamed Bharat FIH — is eligible for PLI benefits in three segments including mobiles, telecom products and IT products.

Thanks to Apple Inc’s decision to shift capacity from China to India, analysts say Foxconn subsidiary Hon Hai will soon become the largest supplier for iPhones from India (the other two are Wistron and Pegatron) in FY23 and in IT products, too (where the PLI scheme is being revamped), Dixon plans to assemble tablets and laptops. It is already manufacturing monitors for Dell and tablets for Lenovo and has tied up with Acer to manufacture laptops in their plant.

All it seems, there is a clear strategy behind both Foxconn’s and Dixon’s decision to embrace PLIs. The focus here initially will be on import substitution and building the local supply chain (the company will invest in component manufacturing, which is expected to be included in the revised PLI).

Foxconn’s big bet would of course be the chip plant. The recent development of Foxconn and Indian conglomerate Vedanta signed a Memorandum of Understanding with the Gujarat government to invest $19.5 billion for setting up a semiconductor and display manufacturing unit in the state to achieve a different goal.

Foxconn-Vedanta joint venture is one of three players to have applied under the government’s semiconductor policy, which is offering a huge subsidy of 50% of the capital cost of the plant.

Hence, there are things pushing the market down and pulling it up, but the India story is very much intact. While market sentiment is likely to stay volatile owing to macroeconomic conditions, India retains a bullish outlook for the medium- to long-term.