|
 Personal
Computers
PC market continues to look for a saviour
In a country that has abysmally low PC penetration
levels and needs more and more Indians to possess PCs (read IT)
in order to become a developed, knowledge-based economy, what the
future holds for the PC segment has repercussions in the greater
social and economic context too. Gaurav Patra & Shipra Arora find
some answers to this vital question and also give you an idea of
the tough hurdles on this path
Sluggish is perhaps the word that best describes
the PC segment’s performance over the last year—the market
did not live up to vendor growth expectations. One reason for this
state of affairs was poor buying sentiment across all verticals.
Successive dampers—beginning with the earthquake in Gujarat,
through other events, including 9/11 and its after-effects, and
the clouds of war that have been hovering over the Middle East for
some time now, have all taken their toll on the PC market.
“With corporate buyers adopting caution
when it comes to buying, the focus has been on cost control and
extracting the best from existing investments in IT,” says
S Rajendran, general manager of the consumer product group at Acer
India. Alok Ohrie, vice president, personal computing division,
IBM India, says that the overall commercial desktop market has remained
flat in unit terms. “The portable market has seen growth in
units and negative growth in revenue terms. If we club both of them
together then 2002 has been slightly better than 2001 in terms of
unit growth. But revenue growth during this period has been flat,”
he explains.
Expectations and more
However, in spite of this not-so-exciting showing in the recent
past, the PC industry is cautiously optimistic about the future.
Ravi Swaminathan, head of the PSG group at HP India, expects things
to move in the right direction. “Things are looking positive
in the coming year. Organisations that have been reluctant in utilising
their hardware budgets have started easing restraints. With the
market looking positive there are indications that businesses are
going in for PCs,” he says. Ohrie of IBM agrees. He explains,
“There are indications that the growth rate this year will
be in the high double digits. There are strong indications that
business in general will get support from the economic parameters.”
However, George Paul, associate vice president
for marketing at HCL Infosystems doesn’t seem to share the
optimism exuding from the MNCs. In Paul’s opinion, the revival
this year will be moderate. “From 2004 onwards we will really
start seeing the kind of growth (above 50-60 percent) that we were
seeing till about two years ago. But on the whole we expect 2003
to be a good year as compared to the last two years.”
IDC forecasts a 23 percent growth in the
PC market in 2003-04. “The PC market in India has been showing
signs of gradual recovery in the last three quarters. The lack of
dependency on large deals to usher in growth in unit terms has been
noteworthy,” says Aman Munglani, assistant manager, computing
products, IDC India. This trend is likely to continue in the near
future though initial indications also show a pick-up in large deals
within the government and the large business segment, which will
further augment growth in the first quarter of FY 2003-04.
Market drivers
The telecom and the finance verticals will continue to mirror trends
seen in 2002 and will be the main verticals to drive growth in 2003-04.
Growth in the call centre and outsourcing markets are expected to
add to volumes and this business will sustain growth in the PC business
through 2003-04. While IDC expects a respite in large deals in Q2,
the home business segment is expected to grow, thanks to the annual
student holidays. Reductions in the average price points of desktops,
coupled with aggressive bundling offers, will hold the key to improved
numbers in this space.
IDC says that the AMD factor and the march
of Linux across India will also be drivers for growth in the PC
market. “In 2003-04, we expect that AMD and Linux initiatives
will be definite drivers for the market,” says Munglani. According
to IDC analysts, the introduction of lower entry-level price points
on desktops will be also be growth drivers in the price-sensitive
Indian market. In fact, experts foresee a significant drop in the
prices of portables. Intel is coming out with mobile processors
at cheaper prices, which will drive down unit costs. Add to that
the drop in prices of TFTs used in notebook screen—all of which
translates into lower prices for customers.
B & C class cities will continue to
grow and generate ever-growing business for vendors. In the last
year the industry saw a flurry of action by vendors moving into
smaller cities to improve sales. While Indian vendors such as Zenith
and HCL have already made significant inroads into B & C cities
in the past, MNC vendors like HP and IBM made great strides in this
direction in 2002, with IBM’s Very Focused Business (VFB) initiative
an excellent case in point. B & C class cities will be key markets
in 2003 and a whole lot of activities by vendors are expected to
enhance channel reach in these segments. For instance, in 2002 HP
came up with some very innovative marketing campaigns through the
year and was very aggressive on the Presario range of desktops.
Campaigns and freebies will continue to generate sales and vendors
will spend more on this in 2003.
Although last year the government sector
had contributed significantly to PC sales, in 2003-04 e-governance
projects of various states are expected to gather steam. Expect
that to push the market higher. Moreover, as computer education
is increasingly adopted at schools—and we’re not talking
about schools in metros but rather secondary schools in small-town
India, PC sales will receive a boost.
And don’t forget the home market.
“Apart from corporates, the home segment and SMEs will play
an important role this year in the PC market,” says R Manikandan,
deputy GM, sales & marketing, IT products, LG Electronics India.
Hindrances to growth
Affordability is the biggest barrier between the current pathetic
PC penetration levels and a situation where PC are at least as common
as television sets in India. There is still somewhere close to an
eight-fold disparity between India and western countries on the
affordability front. According to experts, the cost of PC is around
two to three months salary for the average urban Indian.
Compare that to a market like the US where
the price tag on a PC is around the same amount as a week’s
salary for the average American.
One of the main reasons for the affordability
issue is the high duties and taxes imposed by the government on
PCs and components. A manufacturer who imports components and builds
the PC in India ends up paying 40 percent-plus of the total cost
in the form of duties, sales tax, municipal octroi tax, etc. It
doesn’t take a genius to figure out that lowering of these
rates can also provide a huge kick-start to PC penetration, which
incidentally is exactly what some of India’s neighbours are
doing, with great results.
Besides, the urban/rural divide issue rears
its head in other ways too. The development of rural India is not
happening at the pace that one would ideally like it to happen at.
The development process needs to be speeded up for PC penetration
to explode.
Adoption of e-governance projects will
be the key to this. Another factor, which when it gets going will
give a massive boost to PC penetration is computerisation in primary
schools. Besides of course, there’s the issue of high prices
of software. Although the grey market does away with this issue
by simply ignoring the law, corporates are increasingly wary of
being trapped with pirated software and hence this factor definitely
makes a difference to PC penetration in India.
And while we’ve can justifiably lay
a considerable part of the blame for low PC penetration at the government’s
door, it’s not that India’s private sector comes out smelling
of roses either. It’s only the industry segments that are exposed
to competition that are investing in IT with a vengeance. Is it
any wonder then that telecom and banking—arguably the sectors
with the toughest competition—top the list of verticals using
IT? Greater adoption of IT in the private sector is vital for greater
PC penetration.
Also, the adoption of mobile computing
on a much larger scale is perhaps the responsibility of the private
sector, which definitely is more in step with the march of technology
as compared to the government. This would encourage working from
home, leading to all-round productivity improvements and better
cost-efficiencies.
|
Source: IDC India
|
|
Source: IDC India
|
- AMD’s moves and Linux
growth in India
- Lower price points for entry-level
PCs
- Aggressive bundling offers
- Significant fall in notebook
prices
|
- More and more vendors will
move into smaller cities
- Mobile computing (notebooks)
will witness better growth
- Boom in BPO business will
boost PC sales
- E-governance will spur growth
- Large enterprises will increasingly
sub-contract or fully outsource their IT needs
- Wireless technology will boost
the PC segment
- Intel will launch mobile processors
at lower prices
|
| |
|
(Rs) |
| |
2000-01 |
2001-02 |
2002-03 |
| Commercial Desktop
|
43,693 |
39,498 |
38,384 |
| Consumer Desktop |
39,814 |
36,233 |
34,490 |
2002 over 2001, overall ASV fell
by 7 percent
2001 over 2000, overall ASV fell by 13 percent
Source: IDC India
|
|
-
 While
the slowdown and past events compromised hardware growth
rates, India managed to remain fairly resilient in the face
of such adversity in 2002. Current trends suggest healthy
growth in the PC market in 2003. However, increasing tensions
in the Middle East could be an inhibitor to this scenario.
- The pre-slowdown levels remain
far from achievement but unit shipment is expected to pick
pace in the corporate segment, better than the previous
year. Business confidence is improving across segments and
the large spenders continue to be the finance, banking and
telecom verticals.
- As buyers continue to closely
scrutinise every rupee invested, vendor strategies would
revolve around maximising the business value of such investments
for customers. Customers will also demand better service
levels from vendors.
- On the other hand, the consumer
segment will be flocked with lucrative offers from vendors,
as they try to make a dent in the powerful white box market.
Affordability and personalised service have been the hallmarks
of the white box segment, which has consistently posed strong
competition to the branded players.
Vinod Nair, Research Analyst—Hardware,
Mumbai, India
|
| TRAILBLAZERS |
|
Today, more and more Indian consumers
have started looking at buying brands, because common sense
tells us that brands stand for quality products, reliability
and excellent service. This is good news for companies like
the new HP (after the merger with erstwhile PC market leader
Compaq) and others like IBM, HCL Insys, Zenith, etc.
To capture this market, HP’s
strategy is focused on providing consumers a value solution,
versus white boxes. Building upon Compaq’s leadership
legacy in India, HP’s value solution to consumers includes
an aggressive pricing proposition and value-adds. The company
recently announced a new consumer PC line-up, an enhanced
range to meet the requirements of diverse consumers, from
budget first-time users, mature PC users to tech enthusiasts.
HP’s consumer PC range presently includes a line-up of
eight PCs.
According to IDC, HP is one of
the top three companies in the home segment. And HP’s
leadership in the printer market uniquely positions the company
to offer consumers great bundles. For instance, one of HP’s
attractive bundles on offer today includes the Compaq Presario
DVD Desktop 6220, an HP Deskjet printer and an HP webcam at
Rs 39,990. HP sells its products through 450 retail stores
across 200 cities and towns in India.
To tap India’s huge PC opportunity,
the company is planning to create applications that make PC
usage more necessary, build a much wider retail presence and
sell even more affordable PCs. Over the last year, HP has
also been focused on regrouping and streamlining its processes,
infrastructure and channel focus.
HP has also recently brought
the Compaq Tablet PC to India. While the MNC giant has a very
strong presence in verticals such as large businesses, medium-sized
businesses and the home segment, it hasn’t been as strong
as Indian vendors in the government space. You can expect
HP to go after this lucrative market in 2003-04.
Things are looking positive
in the coming year. Organisations that have been reluctant
in utilising their hardware budgets have started easing restraints.
With the market looking positive there are indications that
businesses are going in for PCs, says Ravi Swaminathan
|
|
Last year, around 20 percent of
total business for this Indian giant came from the home segment,
with the rest coming from the commercial business segment.
HCL Insys’ strategy for the year ahead centres around
Infinity, which is all about bringing out the latest Intel
architecture fastest in the Indian market. HCL Insys expects
to see growth of around 20 percent in the PC business in the
coming year.
Besides strengthening its Infinity
programme, HCL Insys is also rolling out certified configuration
programmes. The company is working with Intel, Microsoft,
Oracle, etc., to bring certified solutions to the market.
Like HP and IBM, HCL is also targeting the B & C class
cities—HCL has a huge lead here thanks to it being an
Indian firm, and the fact that B & C class cities account
for almost 60 percent of HCL’s business proves this like
nothing else does. HCL’s emphasis on B & C class
cities basically addresses the home and SOHO markets. In the
corporate space, HCL’s emphasis will be on solutions
around Intel architecture. There will also be an emphasis
on the Beanstalk range of home PCs. HCL has a very strong
hold in vertical segments like the government, education,
home, corporate segments and banking & finance.
HCL plans to strengthen its channel
network across the country this year. Presently 1,000-strong,
HCL Insys plans to increase this network by around 20 percent
this year in order to expand far deeper into the country.
HCL will also be growing its retail base from the present
200-plus outlets by another 20 percent. It’s not that
HCL is focusing on smaller cities because it feels that the
larger A class cities are saturated. HCL sources explain that
the market in India is certainly not saturated, both in terms
of geographies and earning capacities—rather its simply
that they have identified the vast scope in the non-metros.
From 2004 onwards we will really
start seeing the kind of growth (above 50-60 percent) that
we were seeing till about two years ago. But on the whole
we expect 2003 to be a good year as compared to the last two
years, says George Paul
|
|
Big Blue did great business in
the commercial desktop and notebook segment last year. According
to the company, in the commercial desktop business they grew
by 20 percent. In the consumer desktop space the company is
focused on the SOHO segment. Going forward, in 2003, IBM is
getting aggressive in terms of its overall programmes and
product skew in the SOHO space. The company is gunning for
a much higher growth rate as compared to the industry growth
rate.
Last year, much of sales came
from segments like telecom, government and call centres. This
year, expect IBM to focus on the government sector, BPO and
education. The company currently has a manufacturing unit
in Pondicherry, which manufactures around 1,00,000 units a
year. If tax and duty concessions become a reality then Big
Blue’s Indian arm will be in a position to service the
requirements of neighbouring countries as well.
As far as IBM’s marketing strategy for the year 2003
is concerned, the message will revolve around the ‘Think’
campaign for business users. The company will also try and
increase awareness levels among customers and will also focus
on non-metro markets in a greater way. Almost 20 percent of
IBM India’s business in 2002 came from non-metros. IBM’s
Very Focused Business (VFB) initiative was kicked off in January
2002. VFB is the company’s initiative for going into
the non-metros.
With 20 percent of business coming
from non-metros, IBM now plans to improve things on the customer
satisfaction front. According to sources, reference sales
are becoming stronger, thanks to VFB. In 2002 IBM invested
in resources, people and marketing campaigns. While the marketing
campaigns were limited in the past to campaigns in the metros,
2003-04 will witness a campaigning thrust in the non-metros
as well.
The focus of investments this
year will be on the manufacturing side to bring in greater
operational efficiencies. The other areas of focus for investments
will be in terms of customer interface (providing better support).
Besides, the focus on channels will continue as IBM has a
fairly large dependency on channels—almost 85 percent
of IBM’s PC business is through channels.
While the commercial desktop
market has remained flat in unit terms, the portable market
has seen growth in units and negative growth in revenue terms.
Both together, 2002 has been slightly better than 2001 in
terms of unit growth, says Alok Ohrie
|
|
