RIL seeks to lead 5G race with Sanmina JV for electronics manufacturing

Reliance Industries (RIL) said on Thursday that it has signed an agreement to set up a joint venture (JV) with Sanmina Corp through an investment in the US-based company’s Indian unit for building an electronics manufacturing hub in Chennai.

Reliance Strategic Business Ventures Ltd (RSBVL), an RIL subsidiary, will invest Rs 1,670 crore in new shares for a 50.1 per cent stake in the JV, and Sanmina, the world’s sixth largest electronics manufacturing services company (EMS), will own the rest. Thanks to the investment, the JV will be capitalised with $200 million of cash to fund its growth.

Reliance’s investment will initially help its plans to become a global player in selling 5G technology and telecom gear, and take on biggies like Ericsson and Nokia. Sanmina has a plant in Chennai and is among the companies eligible for the Centre’s production-linked incentive (PLI) scheme for telecom products and networks (which give incentives of 4-6 per cent on the production value). 

The JV will be able to source Reliance’s own requirement for telecom electronics and gear as the company readies to roll out an all-India 5G network. Reliance also has a small investment in HFCL, from which it buys optic fibre and other products. HFCL is designing and making 5G radios and is another one of the domestic players eligible for the PLI scheme.

Apart from 5G, the JV will also get into other areas of technology such as cloud infrastructure and hyper-scale data centres.

With this JV, Reliance will become the second telecom operator to ally with an EMS player, as it looks at ways to reduce costs by participating in the government’s 'Make in India' manufacturing campaign. Before this, Bharti Airtel set up a JV with the home-grown Dixon Technologies to manufacture telecom products with the arrangement for an 85 per cent buy-back in five years. This JV, too, is eligible for the PLI scheme.

Airtel has also got into a strategic tie-up with the Tatas for manufacturing both the 5G core and radio. The Tata Group, on the other hand, has bought a majority stake in Tejas Network, which is also eligible under the PLI scheme for telecom hardware production.

Sanmina is not, of course, limited only to communications. It straddles numerous other industries and, hence, is a good fit with Reliance’s new strategic areas of growth. For instance, Sanmina is a key player in the green energy space and offers technology solutions, smart meters and electric car chargers. This sits well with RIL’s huge investments in the renewable energy space. The other areas in which the two JV partners will work together are automotive electronics, oil and gas, defence, aerospace and medical equipment and devices, amongst others.

The two companies, in a press release, said that they will create a “manufacturing technology centre of excellence” which will become an incubation centre for product development and hardware startup ecosystem. Currently, Sanmina SCI has revenues of $165 million (as on March 31, 2021), but expects to significantly grow the business in its 100-acre campus in Chennai.

The JV will also help Sanmina strengthen its position in India, where its global rivals are already present in a big way. The top three EMS players — Hon Hai (Foxconn), Pegatron and Wistron (all of them Taiwanese) —have already tied up big deals with Apple Inc and other global mobile device makers like Xiaomi, Realme and Vivo to manufacture in India. Even US-based Jabil (which has a tie-up with Ericsson for manufacturing telecom gear) and Flex are very active in the country. However, Sanmina does not manufacture mobile devices, a key area of growth for the Make in India campaign.

Reliance has a contract manufacturing tie-up with the Tirupati-based Neolync to manufacture the Jio Phone Next.