Crouching Micromax, rising Chinese stars — tale of India’s smartphone biz

A year ago, Micromax vaulted past Samsung Electronics Co Ltd to become India’s leading smartphone brand. Today, its market share has nearly halved, several top executives have resigned, and the company is looking for growth outside India.

In Micromax’s slide to second place is a tale of the promise and peril of India’s booming but hyper-competitive smartphone industry.

India is the world’s fastest-growing smartphone market. Shipments of smartphones jumped 29 per cent to 103 million units last year.

Rapid growth has helped nurture a crop of local brands, led by Micromax. Now, as Samsung rolls out more affordable phones, the same Chinese factories are entering the Indian market with their own brands, depressing prices and forcing Indian mobile makers to rethink strategies.

“What the Indian brands did to the global brands two years ago, Chinese phone makers are doing the same to Indian brands now, and over the next year we see tremendous competition for Micromax and other Indian smartphone makers,” said Tarun Pathak, analyst at Counterpoint Research in New Delhi.

Micromax, which was founded in New Delhi by four partners in 2000 but only began selling mobile phones in 2008, built its market share by working with Chinese manufacturers such as Coolpad, Gionee and Oppo to offer affordable phones quickly. In 2015, it launched more than 40 new models.

In 2014, the founders brought in outside managers at a time when Micromax was challenging Samsung to become the largest mobile phone maker in India.

Management tensions

But tensions arose soon after between founders and the newly hired executives, six former executives told Reuters. These conflicts undermined Micromax’s attempts to raise funds for expansion, say former executives. Last May, Alibaba walked away from a mooted $1.2-billion purchase of a 20 per cent stake, citing a lack of clarity on growth plans, according to one executive.

After Alibaba walked away, Micromax struggled to attract other investors who would have been key to Micromax’s plan to invest in software R&D and hardware design.

The company was forced to scale down the in-house R&D project, a top executive involved in the fundraising plan said. At least five senior executives have resigned since November. The latest was CEO Vineet Taneja, who quit last week.

Meanwhile, Chinese handset makers, including Coolpad and Oppo, to which Micromax outsources its manufacturing, were sharpening focus on India. Samsung, too, began to introduce more affordable models.

In 2015, Chinese brands doubled market share to 18 per cent, according to Counterpoint Research, taking away business from Indian budget phone makers such as Micromax. Indian brands' market share fell from 48 to 43 per cent last year.

In the final quarter of 2015, Micromax's shipments fell by 12.1 per cent against growth of 15.4 per cent for the sector, according to industry tracker IDC. Micromax's share of the smartphone market fell to 13 per cent in the fourth quarter from 22 per cent at its peak in 2014, according to IDC.

Still ‘profitable’

Micromax, which is privately held and does not disclose financial information, maintains it is profitable. Founders Jain, Rahul Sharma, Rajesh Agarwal and Sumeet Arora still control about 80 per cent of the company.

As competition intensifies, Micromax plans to increase production in India. Jain said the company plans to double local manufacturing output to 3 million units a month over the next six to 12 months.

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