Xiaomi's India expansion to boost fortunes of Hong Kong-based mobile phone maker FIH

FIH Mobile, the world's largest contract manufacturer of mobile phones, may be looking to reopen its shuttered factory in southern India to back the expansion of Xiaomi and other major Chinese smartphones brands in the country.

Speculation was rife that Hong Kong-listed FIH, which makes half of all smartphones sold by Xiaomi, was in a position to reboot that operation because of the Indian government's efforts to drive domestic production of smartphones, analysts said.

India's recently announced Union Budget for this year showed that the excise duty on mobile phones imported into the country will rise to 12.5 per cent, from 6 per cent the previous year, to support the government's "Make in India" campaign.

The higher cost of importation into India makes it more beneficial for Chinese smartphone brands to have their devices built in the country, the world's third-biggest market for smartphones behind mainland China and the United States.

"If FIH wants to reopen the factory in India, the timing could likely be later this year or next year," Kylie Huang, a Taipei-based analyst at Daiwa Capital Markets, told the South China Morning Post.

In December, FIH ceased all production at its plant in Chennai, the capital of the Indian state of Tamil Nadu, as orders from the facility's primary customer, Nokia, had quickly declined after the Finnish company was acquired by software giant Microsoft in April last year.

Huang said that the factory's operation was already written off as a loss last year by FIH, a part of giant electronics manufacturing conglomerate Hon Hai Precision Industry.

In a research note by Jefferies, equity analysts Ken Hui and Cynthia Meng said: "We expect FIH to finalise a plan in the second quarter of this year to build assembly lines in India."

They pointed out that FIH "has the advantage of being the first mover and having mechanical component capability already present in India", compared with other large electronics contract manufacturing services providers that may also look into building smartphones in the country.

Aside from Xiaomi, FIH also makes smartphones for leading Chinese brands Huawei Technologies, Oppo Electronics and Meizu Technology. These companies are among many aggressive mainland smartphone suppliers competing largely on price in India.

"We expect FIH to gain share within its existing customers and capture new customers, including Indian smartphone vendors," the Jefferies analysts said.

About 85 million mobile phones were sold in India last year. The country's top domestic brands, led by Micromax, Karbonn and Lava, offer smartphone models which are currently manufactured in China.

A former Hong Kong blue chip, FIH capped its two-year turnaround effort last week when it reported more than a 100 per cent earnings growth for last year.

The company said its net profit more than doubled to US$169.44 million last year, up from US$77.71 million in 2013. That increase was mainly attributed by management to strong growth by the firm's Chinese customers.

Total revenue rose 37 per cent to US$6.83 billion, from US$4.99 billion the previous year.

"The Chinese [smartphone] brands have continued to gain market share from global brands due to attractive pricing and localised design," FIH chairman Tong Wen-hsin said in the company's regulatory filing.

Daiwa's Huang said FIH also benefited last year from "stronger-than-expected assembling orders from Motorola, Sony and Amazon for their new smartphone models".