HCL Infosys, Nokia carve up territories

HCL Infosystems and Nokia India today announced an extension of their "long-term distribution strategy", under which Nokia would venture into direct distribution and sales of its mobile handsets in India.

HCL Infosystems will continue to remain the sole distributor and marketing partner of the Finnish company in India until 2011, but its operations will be restricted to a geographical half of the country.

Nokia India will directly distribute and sell its handsets in the other 50 per cent of the country. The 50 per cent geographical separation will not extend to service centres and HCL will continue to remain the sole service agent for Nokia handsets throughout the country.

It must also be noted that over 70 per cent of the HCL Infosystems' revenue are currently accounted for through its deal with Nokia. HCL executives maintained that the 50 per cent decline in its market share over the next 24 months would be offset by volumes.

"There is no revenue drop. According to the agreement, both our revenue and margins are protected," Ajay Chowdhury, chairman and chief executive officer, HCL Infosystems, told reporters here.

The news of the agreement resulted in HCL shares plunging by almost 30 per cent during the day, but they recovered in mid-day trading on the Bombay Stock Exchange following an explanation by the company. The share price recovered to Rs 242.30 at close today from a day's low of Rs 154.84 and the previous close of Rs 258.05.

Explaining the need for the 50 per cent geographical split, Chowdhury added, "In the last 10 years, while the HCL-Nokia relationship has witnessed strong growth in the Indian GSM handset market, there is increased need for a distribution network that will meet the projected market growth of 200 million subscribers by 2007, against 75 million at the end of 2005."